have an account?【sign in】Parametric cost estimating example: Understanding Parametric Cost Estimating in Project Management
barraauthorParametric Cost Estimating Example: A Comprehensive Guide to Parametric Cost Estimating in Project Management
Parametric cost estimating is a crucial aspect of project management, as it helps project teams predict and budget for the costs associated with a project. In this article, we will provide a comprehensive guide to parametric cost estimating, including its importance, basic principles, and step-by-step procedure. We will also provide an example to demonstrate the process in action.
Importance of Parametric Cost Estimating
Parametric cost estimating is essential for project management, as it enables project teams to make informed decisions about the project's budget, schedule, and resources. By using parametric cost estimating, project managers can:
1. Predict and manage project costs more accurately, reducing the risk of budget overruns and delays.
2. Allocate resources more effectively, ensuring that they are used to their full potential.
3. Communicate project budgets and costs more clearly, leading to better collaboration between team members and stakeholders.
4. Monitor project performance, identifying potential cost and schedule risks early on and taking appropriate action to address them.
Principles of Parametric Cost Estimating
Parametric cost estimating is based on the principle that project costs are influenced by a set of variables, such as project size, complexity, and risk. By identifying these variables and their potential impact on project costs, project managers can create more accurate cost estimates.
The main principles of parametric cost estimating include:
1. Identifying the key variables that influence project costs, such as labor rates, material prices, and project scope.
2. Developing a cost model that accounts for these variables and their potential impact on project costs.
3. Using historical data and industry standards to inform the cost model and predict project costs.
4. Regular updates and revisions of the cost model to account for changes in project scope, resources, and market conditions.
Step-by-Step Procedure for Parametric Cost Estimating
1. Define the project scope and requirements, including the project's objectives, expected deliverables, and key performance indicators (KPIs).
2. Identify the key variables that influence project costs, such as labor rates, material prices, and project scope.
3. Collect historical data and industry standards for these variables, as well as other relevant information, such as project duration and risk levels.
4. Develop a cost model using the collected data, incorporating the key variables and their potential impact on project costs.
5. Use the cost model to predict project costs, based on the project scope and variables identified.
6. Conduct preliminary budgeting and cost-benefit analysis, using the cost estimates to inform project decisions.
7. Continuously update and revise the cost model as project scope, resources, and market conditions change.
8. Monitor project performance, using the cost estimates to identify potential cost and schedule risks and take appropriate action.
Parametric Cost Estimating Example
Assuming a project to construct a residential building with a total project scope of 20,000 square feet, the following example will demonstrate the step-by-step procedure for parametric cost estimating:
1. Define the project scope and requirements: The project scope includes construction of a 20,000-square-foot residential building, including site preparation, building structure, roofing, windows, doors, and interior finishes.
2. Identify key variables: Labor rates, material prices, and project scope are the key variables identified.
3. Collect historical data and industry standards: Using historical data and industry standards, labor rates are estimated at $20 per hour for skilled labor and $15 per hour for unskilled labor. Material prices are estimated based on similar projects and market conditions.
4. Develop a cost model: Using the identified variables and historical data, a cost model is developed, showing the potential impact of each variable on project costs.
5. Predict project costs: Using the cost model, project costs are predicted, showing a total cost of $360,000 for the 20,000-square-foot residential building.
6. Conduct preliminary budgeting and cost-benefit analysis: Using the cost estimates, the project's budget is set, and cost-benefit analysis is conducted to ensure the project's financial feasibility.
7. Continuously update and revise the cost model: As project scope, resources, and market conditions change, the cost model is updated to ensure the accuracy of the cost estimates.
8. Monitor project performance: Using the cost estimates, potential cost and schedule risks are identified and appropriate action is taken to address them.
Parametric cost estimating is a crucial aspect of project management, as it helps project teams predict and budget for the costs associated with a project. By following the steps outlined in this article and using a comprehensive cost model, project managers can create more accurate cost estimates, allocate resources more effectively, and monitor project performance more effectively. This, in turn, can lead to better project outcomes and reduced risks.