PURPOSE OF COST ESTIMATE

PURPOSE OF COST ESTIMATE

The purpose of cost estimate is determined by its intended use, and its intended use determines its scope and detail. The estimate becomes one of the most important pieces of information for decision making at the early stage of construction (Serpell, 2005).

Cost estimators develop cost information for owner or managers to use in determining resource and material quantities, making bids for contracts, determining if a new product will be profitable, or determining which product are making a profit for a firm (Dysert, 2006, and Schottlander, 2006).

As for the client, a cost estimate will act as an indicator against the probable cost at the early stage of construction. With the indicator, client can be well aware regarding the project cost and monitoring the project budget. Besides, the cost estimate will ensure that the cost is estimated within the client’s budget. Other than serve as cost guidance, cost estimate actually will help client in tender evaluation process. The cost estimate that was built up earlier from the quantity surveyor will then guide the client to evaluate the most competitive bid (Trost and Oberlender, 2003).

Cost estimates have two general purposes:
1. To help Quantity Surveyors evaluate affordability and performance against plans, as well as the selection of alternative systems and solutions, and

2. To support the budget process by providing estimates of the funding required to efficiently executing a project (Odusami and Olusanya, 2000).

The primary function of preparing cost estimate is to produce an accurate and reliable cost forecast of a construction project. However, what cost should be forecasted depends on the requirements of a client and also upon the information and data available (Elhag et al, 2005).

The purpose of an estimate is to postulate the costs required to complete a project in accordance with the contract plans and specification (Greedy, 2006).

Furthermore, it is important that management has as much information as possible when deciding on funding projects. Skitmore (2007) explains the purposed as to provide the client and design team with as precise an estimate of final cost as possible so that the project can be accomplished within the client’s budget.

Likewise, Marjuki (2006), outlines the purpose of a cost estimate through the following:
1. Provides an assessment of capital cost for a specified piece of work.

2. Forms the basis for planning and control by defining the scope of work and its associated estimated cost.

3. Provide much of the basic information (hours, resources, tasks, and durations) which is needed for preparing a schedule. It also states general resource requirements such as labor, material, and construction equipment.

4. Provides the financial input required to prepare a cash flow curve.

5. Is a catalyst for discussion, idea generation, teams participation, clarity and buy-in, it ties together much of the relevant project information within

a simple document.
Cost estimates is one of the most important factors influencing the client’s decision to build. One of the estimating objectives is to hit target as shown below, hitting the target is not a common occurrence and is an inbuilt problem of estimating. It can also be seen from below that the estimates are all scattered around the target of actual cost without hitting the actual cost.

Hemphill (1968) illustrate subjective estimates (it is based on personal opinion) attempting to hit the target, which is the actual cost. The subjective value chosen by each estimator was considered to represent the resources required by each firm to complete an example office-building project. We can see that the estimates are all scattered around the target of actual cost. Hitting the target is not a common occurrence and is an inbuilt problem of estimating.