PROJECT COST MANAGEMENT

PROJECT COST MANAGEMENT IS A PROCESS

TO ENSURE THAT THE PROJECT IS
COMPLETED WITHIN APPROVED BUDGET
1. RESOURCE PLANNING: Determine resources
(People, Equipment, Materials) and their
quantities required to perform project
activities
2. COST ESTIMATING: Develop Estimates of
the costs of resources needed to complete
the project activities
3. COST BUDGETING: Allocating the overall
cost estimates to individual work items
4. COST CONTROL: Controlling changes and
deviations in project budget
PROJECT COST ESTIMATION 1
PROJECT COST ESTIMATION
CAPITAL COST OF PROJECT COMPRISES OF:

ACQUISITION COST:

This includes cost of fixed assets

•Basic price of supply

•Duties & taxes

•Packing, transportation to site

•Installation & commissioning charges etc.

PROJECT COST ESTIMATION 2

PROJECT COST ESTIMATION
ASSOCIATED COSTS:
•Engineering design

•Project management

•Construction management

•Preliminary & pre-operative costs

•Consultant’s fees

•Temporary installations

•Energy consumption (electricity, water, air,

gas etc.)
PROJECT COST ESTIMATION 3
PROJECT COST ESTIMATION

ASSOCIATED COSTS:

Further cover the costs of

•Interest on finance

•Legal fees

•Insurance etc.

To the extent applicable and allocable to the

project.

PROJECT COST ESTIMATION 4

PROJECT COST ESTIMATION

THE COST ESTIMATES FOR INDIVIDUAL

ITEMS COMPRISE OF THE FOLLOWING:

• Basic cost estimates

for the original scope of project work

• Contingency allowances

•Cost estimates for

approved project variation orders

To be added to original estimates as and

when they occur

PROJECT COST ESTIMATION 5

PROJECT COST ESTIMATION
ESTIMATES TO BE CORRECTED FURTHER FOR:
•Provision for cost escalation with time

•Allowances for exchange rate fluctuations of

foreign currencies if imports are involved

Due to complexity and long duration of the

projects, the exercise of estimation is
repeated at various stages of project life and
refinement occurs at every stage, as project
definition becomes more precise. However,
as the final project approval stage is reached,
the estimates are expected to be accurate
within a limit of +/- 10 %
PROJECT COST ESTIMATION 6
 PROJECT COST ESTIMATION
TOOLS & TECHNIQUES FOR COST ESTIMATION

1. ANALOGOUS ESTIMATING: Also known as

top-down estimating.
• Uses actual cost of previous, similar
project as a basis for estimating total cost
of current project.
• Used in early phases when detail
information on project is not available.
• Generally, a quick & less accurate
technique, but also less costly
• It is most reliable when
a. Previous project is similar in fact &
b. Individuals / group preparing budgets
have the needed expertise
PROJECT COST ESTIMATION 7
PROJECT COST ESTIMATION
TOOLS & TECHNIQUES FOR COST ESTIMATION

2. PARAMETRIC MODELING:

• Uses project characteristics (Parameters)

in a mathematical model to predict
project costs.
• Cost and reliability of the model highly
depends upon
a. Accuracy of historical information used
to develop the model
b. Easy quantifiability of parameters used
c. Scalability of the model for large and
small projects

PROJECT COST ESTIMATION 8

PROJECT COST ESTIMATION
TOOLS & TECHNIQUES FOR COST ESTIMATION

3. BOTTOM-UP ESTIMATING:

• Uses estimates of costs for individual

work items to be summarized or rolled-
up to get total project estimate.
• Cost and accuracy depends on
a. Size of individual work item: smaller
work items increase both the cost and
accuracy.
b. Project management team has to
weigh additional accuracy against
additional cost
PROJECT COST ESTIMATION 9
PROJECT COST ESTIMATION
TOOLS & TECHNIQUES FOR COST ESTIMATION

4. COMPUTERISED ESTIMATION TOOLS:

• Computerised tools such as Project

Management software and spreadsheets
are widely used to assist cost estimation

• Such products simplify the use of tools

mentioned earlier and thereby facilitate
rapid consideration of many costing
alternatives.

PROJECT COST ESTIMATION 10

PROJECT COST ESTIMATION
ELEMENTS OF PROJECT COST FOR TERM LOAN
APPLICATIONS TO FINANTIAL INSTITUTIONS
1. LAND & SITE DEVELOPMENT
• Cost + Conveyance charges for free hold land
• Premium + Conveyance charges Lease hold land
• Leveling & Land Development
• Approach roads & Internal roads
• Fencing, Compound walls & Gates
• Bore wells
2. BUILDINGS
• Factory buildings for main plant & equipment
• Factory buildings for auxiliary services
• Administrative buildings
• Godowns, warehouses, open yard facilities
• Non-factory Buildings: Canteen, Guest house,
Essential Quarters, Garages, Other structures
• Architect’s fees
PROJECT COST ESTIMATION 11
PROJECT COST ESTIMATION
3. PLANT & MACHINERY

• IMPORTED:
• F.O.B. + Freight & Insurance + Import duty
+ Clearing, Loading, Transport to site

• INDIGENOUS:
• F.O.R. + Sales Tax + Octroi + Freight &
Transport to site

• MACHINERY STORES & SPARES

• FOUNDATION & INSTALLATION EXPENSES

4. TECHNICAL KNOW-HOW FEES & DRAWING

FEES TO TECHNICAL COLLABORATORS
PROJECT COST ESTIMATION 12
PROJECT COST ESTIMATION
5. EXPENSES ON FOREIGN TECHNICIANS &
TRAINING OF INDIAN TECHNICIANS
ABROAD

6. MISCELLANEOUS FIXED ASSETS

• Furniture, Office machinery & Equipment
• Miscl. Tools & Equipment
• Vehicles: Cars, Trucks, Buses etc.
• Railway siding
• Equipment cabling for power & light distribution
• Water supply & treatment Equipment & Piping
• Laboratory Equipment
• Workshop Equipment
• Fire fighting equipment
• Effluent collection, treatment & Disposal plant

PROJECT COST ESTIMATION 13

PROJECT COST ESTIMATION
7. PRELIMINARY & CAPITAL ISSUE EXPENSES
• Brokerage & Commission on capital
• Legal, Advertising, Printing & Stationery
• Company formation, Listing fees etc.

8. PRE-OPERATIVE EXPENSES
• Establishment
• Rent, Rates & Taxes
• Traveling & Conveyance
• Interest & Commitment charges on borrowings
• Insurance during construction & erection
• Mortgage & other legal expenses
• Interest on deferred payments
• Trial run & Start-up expenses
9. CONTINGENCY & ESCALATION PROVISION

10.MARGIN MONEY FOR WORKING CAPITAL

PROJECT COST ESTIMATION 14