One of the best ways to ruin a project is if you get the cost estimation wrong. And it’s a skill figuring out the price of things, especially as they relate to physical objects, labor, and time spent. If you get an inexact cost estimation at the initiation of the project, then everything will go downhill right from the beginning. If you get an accurate cost estimation before you even begin a project, then you’ll have a much more realistic view of what it will take to finish the job.
Consider several examples of where cost estimation fits in to project management. For industrial projects, costs can be in the tens of millions of dollars. For smaller repair projects, it’s still essential that you keep on budget. Along with cost estimation, there is a relationship between finances concerning risk assessment and return on investment. And, if you want to be safe, there is a “times three” rule that you can follow.
If you have decided to take on an industrial project, having a team of engineers do a cost estimate should be one of your first steps. Especially with more substantial amounts of money, you don’t want to get too far off of a ballpark figure, and specialists and people with lots of experience in industrial construction are going to be ones to turn to. They can give you practical advice about budgets and financing.
Then there is the matter of repair projects. Say for instance you want to repair your roof on your family’s home. The first question you need to ask yourself is, how much is this roof repair going cost? If you have the money on hand, then your project can proceed. However, if the cost estimate is set at an amount of money that you don’t have, it’s time to reconsider. Do you need to take out a loan? Do you need to do this repair at all? Is there a less expensive version of the fix that you can do? Asking those questions early will prevent catastrophe later.
Risk Assessment and Cost-Benefit Equations
When you do a risk assessment of the project, the cost estimation will be a part of that. Yes, there are risks as far as time, energy, and personnel are concerned. But, none of those things are is vital if you don’t have the finances to carry over into the project. Without money, risk takes on a whole new concept.
The “Times Three” Rule
One of the ways that you can make sure that you stay on a budget regarding cost estimation is by utilizing the ‘times three’ rule. In other words, if you think that a project is going to cost $100 and take one day, then you should assume that it may cost $300 and take three days. That way you have a buffer to work with.