ConstructIQ

Cost estimating is one of the fundamental construction project management skills. Even if you are not employed as a quantity surveyor or cost estimator, mastering the skill of estimating will help make you become a better project manager. In this article, we are going to explore four ways that becoming a master estimator will make you a better project manager.  

1. Cost estimating is a critical part of effective contract administration

Contracts are legally binding agreements where one party agrees to pay another party for services they have provided. The amount paid; the contract sum, is based on fulfilling the agreed upon contract requirements. Throughout the administration of this contract, the goods or services that will be  provided will change because of changing circumstances or poorly scoped requirements. We refer to these changing circumstances as variations or change orders.

A change in requirements will lead to a change in price. If the contract scope, schedule or quality requirements changes, then the contract sum will also need to change. To effectively administer any construction contract, we need to be able to value these variations. This applies to both our head-contract; the contract with our client and any sub-contracts; the contracts with our supply chain.

When we change requirements or circumstances change, our sub-contractors contract sum will also change. Sub-contractors will always try to claim for additional money to maximise their revenue. We need to be able to accurately estimate the true costs to be able to come up with a fair and accurate valuation.

Similarly, when our head-contract scope and conditions change, we need to be able to accurately estimate the true costs of the change. In that way, we can ensure we are recovering all of our costs and not losing money on variations.

2. Cost estimating supports better decision making

Project managers need to regularly make choices between alternatives. They need to decide whether one course of action is better than another. For example, should we self-perform or sub-contract out a package of works? Should we accelerate the piling works? Which design solution is better?

A project manager needs to make these decisions to maximise project outcomes. They want to make the decision that leads to the best project outcome. One of the key project outcomes is cost, and understanding the cost implications of these different decisions by being able to quickly and effectively estimate them will lead to better project outcomes.

3. Improves understanding of the budget and true drivers of project costs

An estimator’s core skill is the ability to turn a set of drawings and specifications into a budget. A good estimator, therefore, understands what a budget is made up of and the true drivers of project costs. 

If somebody has never put together a budget, they will likely have a myopic focus; simply focusing on direct costs, or costs they can see. Estimators know the importance of looking at project costs holistically. They know the importance of considering all project costs including indirect costs, the impact of the delivery methodology and productivities. By repeatedly going through the process of creating a budget, estimators know what truly drives project costs. 

4. Trains you to focus on cost

Finally, having experience estimating raises a project manager’s general awareness of project costs. Typically, after years spent working in delivery roles, people focus on getting things done. Project engineers and construction managers tend to focus on meeting schedule milestones and making sure the work is done correctly.

Having some experience estimating helps to re-train a project manager’s focus. Rather than seeing an activity in the schedule as another task that must be planned for and delivered, they see it as a bucket of money that we need to carefully spend. Estimating helps to shift the focus.

In summary, all project manager’s should be good cost estimators. It helps in many facets of project management and ultimately will improve a project manager’s ability to control costs.