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An overview of the Cost Breakdown Structure and Methods of Estimation

As in any field in life, we need careful planning to reach our goals; similarly, during the construction or building of a project, we need a careful planning procedure to ensure that no overpayment will be made before the construction begins. It is very important to sort out a few important aspects before we begin construction, such as calculating the scope of the work and estimating how long it will take us to complete it.

In spite of the fact that initial estimates cannot be absolutely accurate, the process of Cost Breakdown Structure (CBS) ensures that the estimates can be as accurate as possible.

There are various steps in the construction process that are usually planned based on the accuracy of this level.

The Merits of Cost Breakdown

• The Project Cost Breakdown is a tool that is used to determine the costs of a project as well as the profit margins.
• The benefits of this kind of agreement include the possibility of reaching a mutual agreement about the final price of the structure.
• Having a project cost breakdown written in an accurate and logical manner is very important to ensuring the success of the project.

The process of calculating this breakdown is tedious, but it helps in achieving transparency when communicating with the client in the future. Furthermore, it gives a better idea of how construction costs should be managed.

Breakdown of Structuring

In order to construct a clear Project Cost, it is necessary to identify its essential components.

• Cost Drivers: The items, tools, or services needed to complete a specific task.
• Amounts: Material components, tools, time spent calculating the amount of work.
• Hidden Charges: There is a need to consider indirect or hidden costs as well. As soon as the purpose of the project is determined, it becomes possible to separate the project cost breakdown into two main parameters.
• By the type of cost: There is a common thought that cost breakdowns should be structured based on the type of data involved. By doing this, we can calculate the effectiveness of the key cost drivers and determine how much the final cost will be. In most cases, it is beneficial to reduce and manage the final construction cost as a result of it.
• Breakdown Related to Time: It is shown in the breakdown of the cost structure how much is estimated to be spent on a monthly, weekly, quarterly basis, etc. The accuracy of these automated processes can be increased by combining them with workflow steps.

Methods for estimating the cost of a project based on its breakdown

Firstly, let's take a look at some of the techniques that can be applied to cost breaking in order to estimate the cost.

1. Consultation with an expert

In order to increase the accuracy of Cost Breakdown, professional guidance or opinions can be very helpful. Due to the advance and professional cost guidance provided by this third party, there may be a variation between the final cost figure and the estimated cost figure.

2. The Bottom Up Analysis

This cost data is normally prepared with respect to small jobs, services, and materials, which are considered when preparing the cost data. The cost drivers, routine work costs, and indirect costs can all be considered in the context of achieving high accuracy in the cost prediction.

3. Comparison of the estimates

It has been found that comparing previous and current projects will help improve the accuracy of cost estimation and breakdown if similar characteristics are used.

4. Parametric Estimation

When the cost drivers are predictable, this calculating method can be used with cost data structures that have predictable cost drivers. The output of the analysis can be much more accurate if the parameters and frameworks can be designed differently compared to the existing data structure.

To get more clear ideas, go through the following exclusive construction video tutorial.

Lecturer: Adeaca - Project Business Automation

5. The Top-down analysis

When the cost drivers are predictable, this calculating method can be used with cost data structures that have predictable cost drivers. With regards to the existing data structure, different parameters and frameworks can be designed in order to produce much more accurate outputs as opposed to the existing structure.

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Download Construction Cost Breakdown (Excel Spreadsheet)