Suggestions for detailed cost estimating

Table 9 presents the suggested activities and sub-activities for the conceptual estimating process. The suggestions presented are made based on the analysis of the current state of processes, addressed experienced issues, and objectives for cost estimation.

Table 9. Activities and sub-activities in the suggested detailed estimating process.

Activity Sub-activities

Project meeting with cus-tomer

• Clarifying remaining conflicts with unclear items and delivery bounda-ries

Checking delivery content • Extra work invoicing

Organizing cost estimating • Selection of cost estimation methods based on the information availa-ble

Cost estimating

• Quantity take-off for items not considered during the tendering phase

• Cost estimation for special work items not included in QTO or subcon-tractor inquiries

• Risk management for risks not considered during the tendering phase Estimate approval • Management approval for detailed cost estimates

Updating delivery budget • Updating budget according to new information from detailed cost es-timate, communicating changes to business controller

Earned value management

• Project cost and performance monitoring

• Possible update of delivery budget and communication to business controller

Similar to current practices, detailed cost estimation begins with a project meeting with the customer. During this meeting, remaining conflicts with unclear RFQ items and de-livery boundaries between the customer and the case organization should be clarified.

In case the conceptual cost estimation process is enhanced with the additional presence of the stakeholder responsible for the actual delivery, the project department, this activity will most likely be enhanced. Handover performance towards the project department should also be enhanced, with the downside of the project department gaining more responsibilities.

In case the delivery content has changed based on the project meeting with the cus-tomer, this should be again communicated to the sales representative, which invoices possible extra work. Changed delivery content should also be considered in detailed cost estimates.

As is evident from chapters 4.2.3 and 5.2.1 that described the current performance of the detailed cost estimation process, there is very little rigor in detailed cost estimation activities. The biggest issue, according to the management interviewees, was that the project managers do not generate detailed cost estimates for each project, even if the value for this activity is recognized in the case organization. It is suggested that the pro-ject department should aim to organize itself better regarding detailed cost estimating.

The management of the organization should clearly define the requirement for detailed cost estimating and communicate its objectives and benefits and ensure that the depart-ment has sufficient resources. Together with the head of the project departdepart-ment, the project manager should analyze the information available and plan and decide the best

suitable cost estimation methods for this project. As described in chapter 2.8, this deci-sion may depend on design information or actual cost information available from compa-rable past projects.

Based on the inadequate adoption of estimation activities, and several experienced is-sues in estimation activities and surrounding processes, basic cost estimation methods may be suggested. Before cost estimating and basic estimation methods are part of de-fined business processes, more sophisticated methods should not be implemented.

These basic methods include Quantity take-off, single rate approximate methods, and elemental cost plan utilizing cost information from comparable past projects utilizing maintained cost database. In case basic qualitative methods such as expert judgment are utilized, the case organization should put emphasis on documenting the parameters and reasoning utilized to monitor estimating performance and to learn from mistakes.

In current practices, project manager interviewees presented the lack of detail in cost estimates as an issue. According to the interviewees, current estimates are done on a too aggregated level, which decreases the value of comparing actual costs from invoices with cost estimates. The case organization should seek to bring detailed cost estimating to a more detailed level to account for items and assembly activities on the work or work package level instead of the aggregation to the financial accounting level, which is the most detailed level currently supported by the information systems. To capture value out of more detailed estimates, the level of detail in cost accounting may need to be en-hanced as well.

QTO for items not considered during the tendering phase should be generated. This suggestion is based on low technical requirements (Cost engineering 2019), wide adop-tion of this method in the construcadop-tion industry (Hendrickson 2000), and the value recog-nized in the case organization. Other estimation methods for detailed cost estimates should be decided case-specific, depending on the information and time available for generating cost estimates. Cost estimating responsible at this phase should be the pro-ject manager. In case the scope of the propro-ject changes because of a propro-ject meeting with the customer or a change in the design information, there may be additional risks presented. The project manager should account for these risks in detailed cost estimates accordingly.

The head of the project department or the business controller should check and approve the estimates utilized. This would arguably make detailed estimating more systematical.

This suggestion is also made to increase the level of requirements in detailed cost esti-mates and increase the presence and responsibility of management in cost estimating.

Based on approved estimates, the delivery budget should be updated and communi-cated to the business controller. This would improve the performance forecasts on the project level and ultimately enhance forecasts on project portfolio and company results.

In current practices, detailed cost estimates are not utilized during assembly activities. It would be suggested that detailed estimates and an updated delivery budget would be used in Earned Value Management during the assembly phase. In case of risk realization or budget overruns, the detailed cost estimates and versioned delivery budget should be communicated to the business controller. According to the management interviewees, there is very little benefit in EVM in case the information systems do not support real-time cost monitoring. Implementation of a business intelligence solution to capture the benefits from detailed cost estimates is therefore suggested. The outline for the sug-gested detailed cost estimation process is presented in figure 10.

Figure 10. Outlined suggestion for the detailed cost estimating process.