Project owners know the value of an accurate estimate. The total cost of a project can make or break a capital spending decision.
Construction and material costs are by far the biggest components of any industrial project. Which makes knowing how to estimate construction costs with precision a critical project management practice.
And when your projects have a The total installed cost refers to the final cost of designing, fabricating and building a capital project or industrial asset. Various phas… (TIC) in the millions of dollars, it would be risky not to scrutinize the initial estimate.
A proper cost estimate validation process:
- Provides a more realistic understanding of the costs
- Keeps your budget on target
- Avoids expensive rework
Cost Overruns Are Commonplace in the Construction Industry
Many owners have all but given up on reliably estimating project costs. It’s a widely accepted trend that capital projects will cost more than initially expected.
In its report, “Reinventing Construction: A Route To Higher Productivity”, McKinsey & Company estimated there is $1.6 trillion wasted annually on capital project inefficiencies.
Construction costs and labour productivity account for the bulk of McKinsey’s analysis. Among other things, the report identifies three areas of capital project execution that need to improve:
And while there is a major opportunity to improve traditional EPC project execution, inefficiency isn’t the only driver of cost overruns.
Inaccurate or inadequately validated cost estimates can also lead to a project going over budget. But there are ways to mitigate this risk.
Cost Investigation Example
A client recently approached Vista Projects for help investigating the cost to expand an existing facility. The brownfield project planned to install an additional production train in parallel with the existing equipment.
The facility was initially commissioned about 5 years ago and the client was able to provide model data from an old Autoplant model.
Vista was to determine the TIC of the project.
Here’s how we went about conducting the cost evaluation, which included support from specialists on our System Integration team.
- Extracted database files from the old Autoplant model
- Converted files to current model standards
- Modified the model to reflect the new site conditions and plot plan requirements
- Extracted new material take-offs (MTOs)
- Created Class 3 level cost estimate
Our client received a reliable Class 3 cost estimate that was based on trustworthy data inputs.
The Class 3 estimate (-15% / +20%) was produced with the same level of effort typically required for a Class 5 estimate (-30% / +50%).
The client was equally impressed with the fast and cost-effective process. We were able to quickly manipulate data from a 5-year-old model and provide reliable MTOs based on modern standards.
What Does Your Cost Estimate Validation Process Look Like?
In the case above, we were able to leverage our expertise with digital project execution plans to quickly provide a Class 3 level estimate.
Outside of generating brownfield project estimates, a similar digital validation process could be used to validate or vet existing estimates on all types of projects.
Our rapid cost estimating technique is part of our integrated engineering consulting. The service is an effective way to quickly check your current project estimates and help keep your project on budget.
In this video, Chad Radke, Director of Projects, walks through the project execution ecosystem we use at Vista Projects.
Validate Your Construction Cost Estimating
As a system integrator with years of experience refining our digital workflows, we know how to make the most of a Digital project execution (DPE) is a project management methodology that uses a data-centric approach to reduce project total-install-cost a… strategy. Whether it’s validating cost estimates or automating quality actions, Vista constantly collaborates with clients to implement new ways to shorten project schedules and reduce costs.
If you would like to learn more about how a digitally-enabled cost estimate validation process can help your project, contact Vista Projects today to schedule a consultation.