Theory

Estimating a project cost is a deep science and need to be mastered differently. It needs experience working in different projects and the impact of the activity is vital on any project. Here are few steps to carry out for estimation.

Step 1: Project Definition and Scope

• Define the project scope, objectives, and deliverables
• Identify the process units, equipment, and systems involved
• Determine the project boundaries and interfaces with other systems
• Develop a project schedule and milestones

Step 2: Data Collection and Gathering

• Collect relevant data and information from various sources, including:
• Historical data from similar projects
• Industry benchmarks and standards
• Vendor quotes and technical specifications
• Site visits and surveys
• Interviews with subject matter experts
• Organize and categorize the collected data into relevant categories, such as:
• Equipment costs
• Labor costs
• Material costs
• Overhead costs
• Contingency costs

Step 3: Estimation Methodology Selection

Select an appropriate estimation methodology based on the project scope, complexity, and available data, such as:

• Bottom-up estimating: detailed estimation of individual components and activities
• Top-down estimating: high-level estimation based on overall project scope and complexity
• Analogous estimating: estimation based on similar projects or historical data
• Parametric estimating: estimation based on mathematical models and algorithms

Develop a detailed estimation plan, including:

• Estimation approach and methodology
• Data requirements and sources
• Estimation schedule and milestones
• Resource allocation and budget

Step 4: Estimation of Equipment Costs

Estimate the costs of equipment, including:

• Purchase costs
• Installation costs
• Commissioning costs
• Maintenance and repair costs

Consider factors such as:

• Equipment type and size
• Material and manufacturing costs
• Transportation and logistics costs
• Installation and commissioning requirements

Step 5: Estimation of Labor Costs

Estimate the costs of labor, including:

• Direct labor costs
• Indirect labor costs
• Overhead labor costs
• Consider factors such as:
• Labor rates and productivity
• Workforce size and composition
• Labor utilization and efficiency
• Training and development costs

Step 6: Estimation of Material Costs

Estimate the costs of materials, including:

• Raw materials and commodities
• Consumables and spare parts
• Fabrication and manufacturing costs
• Consider factors such as:
• Material prices and availability
• Material usage and waste
• Transportation and logistics costs
• Inventory management and storage costs

Step 7: Estimation of Overhead Costs

Estimate the costs of overheads, including:

• Indirect costs
• Administrative costs
• Utility costs
• Insurance and risk management costs

Consider factors such as:

• Overhead rates and allocation
• Indirect labor costs
• Facility and infrastructure costs
• Regulatory and compliance costs

Step 8: Estimation of Contingency Costs

Estimate the costs of contingencies, including:

• Risk and uncertainty costs
• Unforeseen costs
• Change orders and scope changes
• Consider factors such as:
• Risk assessment and mitigation
• Uncertainty and probability analysis
• Contingency planning and management
• Change management and scope control

Step 9: Estimation of Total Project Costs

Estimate the total project costs, including:

• Equipment costs
• Labor costs
• Material costs
• Overhead costs
• Contingency costs

Consider factors such as:

• Cost escalation and inflation
• Currency exchange rates and fluctuations
• Taxes and duties
• Financing and funding costs

Step 10: Estimation Review and Validation

Review and validate the estimation results, including:

• Checking for errors and inconsistencies
• Verifying data and assumptions
• Evaluating estimation methodology and approach
• Comparing with industry benchmarks and standards
• Refine and iterate the estimation process as necessary

Step 11: Estimation Documentation and Reporting

Document the estimation results, including:

• Detailed cost estimates
• Assumptions and methodologies
• Data and sources
• Risks and uncertainties
• Prepare reports and presentations for stakeholders, including:
• Executive summary
• Cost breakdown and categorization
• Estimation methodology and approach
• Risks and recommendations

By following these steps, you can develop a comprehensive and accurate estimation of a process-related project. Remember to iterate and refine the estimation process as necessary, and to involve stakeholders and subject matter experts throughout the process.