How Cost Escalation is measured in a Cost Estimate?

Planning and controlling the project cost is not as easy task, especially if the project is of long nature. This is because when cost is estimated for the project it is based on the prices for the raw materials and other sources in this specific timeframe. This includes capital cost and operation & maintenance costs as well! However due to inflation or any other causes there may be rise in cost.

“Cost escalation is defined as changes in the cost or price of specific goods or services in a given economy over a period”. (According to Wikipedia.org)

Cost estimating is actually a technique based on various factors including, budgeting, planning, monitoring, financing, controlling, managing & funding. To budget efficiently for projects, estimators actually use different techniques and tools to ensure success of their projects. Additionally it ensures healthy cash flow for the projects as well!

Types of Cost Indices for Cost Escalation

Cost escalation indices are actually divided into two main components. Here they are:

Input cost indices

These indices actually show the changing in the cost parameters inside company premises or rise in the cost due to company internal operations. Specifically rise or change in the cost of inputs is part to this!

Output indices

Depending on the market condition or due to inflation rise or change in the cost of outputs come under this category.

Major cost estimating techniques

Create the most accurate and precise cost estimates for your projects using the following techniques:

Analogous Estimating Technique for Cost Estimation

It is actually carried out by all companies for some of the project, however companies where usually same form of projects are dealt with, this technique is common. This is because the analogous cost estimation work on the formula of calculating costs for the projects based on the previous projects. Moreover if there are some forms of projects in your organization, having a cost estimate is quite accurate and according to the mark! If as an estimator, you feel difficulty in practicing it, templates are available for the purpose as well!

Bottom up Estimating Technique for Cost Estimation

Looking for the most accurate cost estimation technique for your projects? This is by far the most accurate and exact technique for giving you the cost estimation figures very close to the original once for your projects! This is because the technique actually works on the work breakdown structure technique! In simple words, the bigger projects deliverable are actually divided into components and the cost for each of it is calculated and therefore the final cost is just very close to the original one! This is favorite of project managers and smart cost estimators!

However when doing bottom up estimating it can be difficult for the very large or complex projects! Another con of this type of cost estimating is that it require time! Use the template to save your time and effort!

For more help contact www.accounting124.com support team.

Leave a Reply

Your email address will not be published. Required fields are marked *