Analysis Cost-Estimating Methods

Analysis Cost-Estimating Methods

ABSTRACT

CHAPTER ONE – INTRODUCTION

1.1.  BACKGROUND OF THE STUDY

1.3.  STATEMENT OF THE PROBLEM

 1.4.  RESEARCH QUESTIONS

 1.5.  OBJECTIVES OF THE STUDY

1.6.  SIGNIFICANCE OF THE STUDY

 1.7. SCOPE AND LIMITATIONS OF THE STUDY

 1.8.  DEFINITION OF KEY TERMS

 1.9.  ORGANIZATION OF THE STUDY

CHAPTER TWO – REVIEW OF RELATED LITERATURE

2.1. THEORETICAL LITERATURE

 2.1.1. Introduction

 2.1.2. Project Cost Management

2.1.2.1. Planning the Project Resources

 2.1.2.2. Identifying Resources Requirement

2.1.2.3. Project Cost estimation

2.1.2.4. Project Cost Control

2.1.3.  Estimating Models

2.2. EMPIRICAL LITERATURE

CHAPTER THREE – RESEARCH METHODOLOGY

 

3.1.  RESEARCH DESIGN AND SOURCE OF DATA

 3.2.  DATA COLLECTION METHOD AND SAMPLING TECHNIQUES

 3.3.  DATA ANALYSIS METHOD

 3.4.  ETHICAL CONCIDERATION

CHAPTER FOUR – DATA PRESENTATION, ANALYSIS AND DISCUSSION

4.1. DATA ANALYSIS AND DISCUSIONS

 4.1.1. COMPARISON OF ACTUAL COST OF WORK PERFORMED WITH

PHYSICAL PERFORMANCE OF PROJECTS

4.3. DESCRIPTION OF THE SAMPLE

CHAPTER      FIVE      – SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION

5.1. SUMMARY OF FINDINGS

 5.2. CONCLUSION

 5.3. RECOMMENDATION

REFERENCE

 

Abstract

This research assesses methods of cost estimation and analyzes their effect on project Success in Menschen fur menschen foundation. The implications of errors in cost estimation are discussed.  The financial & physical performance report of large scale projects are also reviewed in order to assess to what level of accuracy the cost estimation is predicted. Then the data collected through questioner are analyzed and interpreted. The findings have indicated most of the estimated cost of the projects is either under-utilized or over utilized which shows there is undeniable inaccuracies in the project’s cost estimation.

 

CHAPTER ONE

INTRODUCTION

1.1.  BACKGROUND OF THE STUDY

Project cost estimating is the art and science of using historical data, personal expertise, institutional memory, and the project scope statement to predict the resource expenditures, total cost, and duration of a project. According to Rad (2002), constituent elements that can build the overall cost must be identified by project managers so that cost estimation can be computed and project costs will be known based on the resources required to complete the project.

 

The success of a project depends on the degree of accuracy of the estimates. Trost & Oberlender, (2003) noted that estimates have to be as accurate as possible and should not be grossly inadequate since it affects competitiveness and it  is  the  basis  for  tender comparison, assessment, evaluation or negotiations. Therefore, as notified in, Oberlender, (1993), the preparation of a cost estimate of the project is one of the most difficult tasks in project management because it must be done before the work is accomplished.

 

Pre-tender cost estimation is simply the final costing of the work carried out by a consultant before tenders are received. It sits somewhere between cost planning and post- contract cost control, provides an indication of the probable cost prior to contract-awarding and involves collecting, analyzing and summarizing all available data related to the project Holm, (2005). Thus, for a contractor to secure a job, its cost estimate must be as accurate and competitive as possible, Marjuki, (2006).

 

As we all know, an estimate can be accurate, low or high. An accurate estimate generally results in the most economical project cost, while either an underestimation or an overestimation often leads to greater actual expenditures.  Inadequate estimating invariably leads to misallocation of scarce resources, Flyvbjerg (2002). Therefore, the preparation of an accurate estimate, which is done prior to the physical realization of the work, needs a detail study about economical and environmental factors that will have impact on the estimation. before the, soil survey, topographic survey and socio economic study of the site on which the construction to be built are conducted project costs are estimated. That is why (Abdal-Hadi, 2010) suggested that such estimation involves being careful on the results of the study to come up with the cost consistent with the time on hand, the accuracy and completeness of the information submitted.

 

In view of the significance of accuracy of pre-tender cost estimate, it is assumed that identifying these factors which have vital effect on the accuracy of pre-tender cost estimate and reflecting on them at the early design stage can improve the accuracy and precision of the preliminary cost advice of the consultant quantity surveyor to his client.  To argue that the need for estimates should be as accurate as possible, Odusami & Onukwube, (2008) say that pre-tender cost estimate is an attempt to forecast a contractor’s tender sum before detailed designs are finalized or upon the receipt of tenders, is undertaken by the consultant quantity surveyor on behalf of his client.

 

1.2 STATEMENT OF THE PROBLEM

Project cost estimate can be viewed as simply a prediction of the final values of project cost and duration once the project is fully implemented. Thus, Rad (2002) tells that the expression of accuracy of the estimate is related to the expression of the probability that project’s actual cost will match this prediction. Cost estimation is important because it can be used to establish an initial budget and assure a project success or profit. Therefore, attention must be given to  the  factors  that  affect  the  estimation  of  project  costs  since  the  accuracy  of  cost estimation process can make or break project success.

 

In Menschen fur menschen foundation, on the annual budget utilization report of projects, the researcher observed that early plans and budgets for most of the projects are usually far from definitive and rarely predict the actual cost of the total project (2011 up to 2016 M F M F Financial report). This may be due to some major influential factors that affect the cost estimation not clearly known by the management of the foundation. Therefore identifying, evaluating and ranking essential methods of cost estimation categorized as Factors related to consultants, design parameters and information, External Factors and Market condition, Factors related to client’s characteristics, Factors related to project characteristics and analyzing their effect is the interest of the researcher.

 

1.3 RESEARCH QUESTIONS

The research attempted to explore methods of cost estimation and their effect on managing projects of Menschen fur menschen foundation by trying to address the following research questions:

• What influential factors are the causes for prediction errors in the Menschen fur menschen foundation?
• What are the effects of these project cost estimation errors on the effectiveness of project success?

 

 1.4 OBJECTIVES OF THE STUDY

General Objective

The prime objective of this research is assessing methods of cost estimation method in Menschen fur menschen foundation

Specific Objective

The Specific objectives of the research are

• Identifying major factors that influence the accuracy of project cost estimation which can be unique to the nature of Menschen fur menschen foundation works, design and supervision.
• Showing the implication of errors in project cost estimation on the effectiveness / success of projects running by the Menschen fur menschen foundation.

 

1.6   SIGNIFICANCE OF THE STUDY

According to Hoult et. al. 1996 cited in Xiao et. al (2011), it is pointed out that companies which fail to estimate the cost of a product or service accurately at the conceptual design stage have a higher probability of schedule delay or increase cost at a later development stage, than those that complete cost estimation successfully. Hence, it is important for service-based companies to minimize the probability of being unsuccessful in estimation. To achieve this, it is necessary to identify possible factors that affect the accuracy of project cost estimation. Therefore, this research will be useful to the management of Menschen fur menschen foundation in that it provide insight   into the factors that significantly affect the cost estimation process and provide possible recommendations to minimize and solve problems.

 

1.7 SCOPE AND LIMITATIONS OF THE STUDY

The foundation mainly involved in large scale projects. Therefore, this research focus on only such large scale projects which the researcher believed that most of the factors are reflected. Medium and small scale projects are not under study in this research. Limitation of the study includes other factors which forced the researcher to use convenience sampling and may give results which will be biased to the small number of samples. Non response, carelessness and luck of collaboration from potential respondents might be the problem in data collection.

 

1.8   DEFINITION OF KEY TERMS

Project is temporary endeavor undertaken to create a unique product or service. The temporary nature of projects indicates a definite beginning and end. (PMBOK GUIDE,

2008)

 

Project Management is the application of knowledge, skill, tools, and techniques to project activities to meet the project requirements. (PMBOK GUIDE, 2008)

 

Project manager is the person who manages a specific project, who is expected to meet the   approved   objectives   of   the   project,   including   project   scope,   budget,   and schedule.( L. Richman,2002)

 

Project Cost estimating can be described as the technical process or function undertaken to assess and predict the total cost of executing an item(s) of work in a given time using all available project information and resource (Kwakye, 1994 cited in Akintoye,2000)

 

Accuracy of the estimate is the probability project’s actual cost will match a prediction of the final values of project cost and duration once the project is fully implemented. (P.  Rad 2002)

 

1.9   ORGANIZATION OF THE STUDY

The first chapter of this paper explains about the factors that affect the project cost estimation identified in different literatures and a brief description of the Menschen fur menschen foundation works, design and supervision. Problem statement, research objective, significance and limitation of the study are also covered in this chapter. In the second chapter, appropriate theoretical and empirical literatures related to influential factors associated with cost estimation are discussed. The third chapter presents the research methodology which describes research design, source of data, data collection method, sampling techniques and data  analysis  method  appropriate  for  the  research.  In  chapter  four,  the  data  collected through the already identified methodology are presented and analyzed. Finally, summary and conclusion drawn from the data collected and recommendations are presented in the fifth chapter of the paper.

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