IV.
Cost Estimating Methods
• Guidelines for Cost Estimating
The Department of Public Works and Highways (DPWH) in the Philippines provides comprehensive
guidelines for cost estimating to ensure consistency and accuracy in infrastructure project budgeting.
1. DPWH Department Order No. 137 series of 2017 (Cost Estimation Manual for Low Rise Buildings)
2. DPWH Department Order No. 13 series of 2018 (Guidelines for the Preparation of Cost Estimates
for Traffic Management and Safety & Health Requirements for the Construction and Maintenance
of Roads, Bridges and Safety & Health Requirements for School Buildings
3. DPWH Department Order No. 143 series of 2017 (Revised Standard Pay Item List for Infrastructure
Projects)
4. DPWH Department Order No. 028 - s2019 Cost Estimation Manual for High Rise Buildings
• Analogous Estimating (Top-Down)
Analogous estimating, also known as top-down estimating, is a technique used in project management
to estimate the cost, duration, or resources of a project based on historical data from similar projects.
This method relies on the experience and expertise of the project manager or team to make educated
guesses about the project’s requirements.
Example of data are the PSA survey on cost of Residential Buildings:
In this approach, the project manager uses data from past, similar projects to estimate the new
project's parameters, often adjusting for differences in scale, complexity, or other factors.
Key points of Analogous Estimating:
Quick and simple: It's a fast and high-level estimate that doesn’t require detailed project information.
Uses historical data: Relies on data from previous, similar projects, so it’s based on experience rather
than detailed analysis.
Accuracy can vary: Since it's more of an educated guess than a precise calculation, it may not be as
accurate as other estimating techniques like parametric estimating or bottom-up estimating.
Useful for early stages: Often used during the early phases of project planning when there is limited
detailed information available.
Subject to bias: The estimates can be influenced by the personal judgment of the person providing the
estimate.
• Parametric Estimating
Parametric Estimating is a method where an estimate is calculated using a mathematical model that
applies historical data and statistical relationships. This model uses a known parameter from past
projects (e.g., cost per square foot, time per unit of work, etc.) to estimate the resources or time
needed for the current project.
How Does Parametric Estimating Work?
o Identify the parameter(s): First, we need to identify what specific unit or parameter is most
relevant for our project. For example, in construction, it could be the cost per square foot of
building space.
o Find historical data: Gather data from previous, similar projects. The more accurate and
relevant the data, the more reliable your estimate will be.
o Apply the formula: Once the parameter and data are identified, apply the mathematical
relationship. A common example might be:
• Bottom-Up Estimating
Bottom-up estimating is a technique used in project management to predict the time, cost, or effort
required to complete a project by estimating the individual elements or tasks at a granular level, then
aggregating those estimates to form a total project estimate.
Key Steps in Bottom-Up Estimating
1. Break Down the Project into Smaller Tasks
The first step is to decompose the project into smaller, more manageable work units or
components. These are typically at the work package level, which is the smallest unit of work that
can be assigned to an individual or team.
2. Estimate Each Task
Once the tasks are defined, each team member or expert is asked to estimate the resources, time,
and costs needed for their assigned work package. These estimates can be based on historical data,
expert judgment, or prior experience.
3. Aggregate the Estimates
After the individual task estimates are made, they are aggregated to form the overall project
estimate. This includes adding up the costs, durations, and resources from each task to get a
comprehensive view of the entire project.
4. Review and Adjust
It's important to review the estimates to ensure they are realistic and feasible. Sometimes,
estimates need to be adjusted based on new information or risks that may emerge.
• Three-Point Estimating
Three-Point Estimating is a technique used to improve the accuracy of estimates by taking into account
the best-case, worst-case, and most likely scenarios. Instead of relying on a single point estimate,
which may not capture the full range of possibilities, Three-Point Estimating asks for three separate
estimates:
1. Optimistic Estimate (O): This is the best-case scenario, where everything goes smoothly and
without issues.
2. Pessimistic Estimate (P): This is the worst-case scenario, where all potential problems or risks
occur, and the work takes longer or costs more than expected.
3. Most Likely Estimate (M): This is the most realistic estimate, where things proceed according to
plan but without the ideal or worst-case outcomes.
V. Work Breakdown Structure (WBS)
Work Breakdown Structure (WBS) is a hierarchical decomposition of the project scope into smaller,
more manageable components. It breaks the entire project into discrete work packages that can be
planned, scheduled, and monitored more effectively.
Each level of the WBS represents a finer level of detail, with the highest level typically representing the
broad project objectives, and the lower levels representing specific tasks or deliverables.
Importance of WBS in Cost Estimating
o Organizing Costs by Work Packages: A well-structured WBS helps break down the project into smaller,
manageable components or tasks. Each of these work packages can be estimated individually for costs,
time, and resources. This structured approach ensures that no part of the project is overlooked in the
estimation process.
o Accurate and Detailed Estimation: WBS allows project managers to focus on specific components of the
project, making it easier to estimate costs accurately. By estimating costs at the work package level,
the likelihood of underestimating or overlooking expenses decreases significantly.
o Improved Cost Control: With a clear WBS, project managers can better track project expenditures,
compare planned vs. actual costs, and adjust in a timely manner. This allows for more effective cost
control throughout the project lifecycle.
o Facilitates Risk Management: The WBS allows teams to identify potential risks at each level of the
project, from high-level milestones to specific tasks. With this information, risk-based cost adjustments
can be made to create more realistic estimates.
o Ensures All Costs are Accounted For: The decomposition of tasks ensures that all potential costs (e.g.,
labor, materials, equipment, and overhead) are considered during the estimating process. Missing out
on key cost components is less likely when using a WBS.
Levels of Detailing in WBS
One of the key features of the WBS is that it is hierarchical and broken down into multiple levels.
o Level 1: Project Objective or Final Deliverable: At the highest level, the WBS typically starts with the
overall project objective or final deliverable. For example, in a construction project, this could be
“Complete Building Construction.”
o Level 2: Major Phases or Sub-Projects: The second level breaks the project down into major phases or
sub-projects. For instance, in the building construction example, Level 2 might include phases like
Design, Construction, Testing & Inspection, and Handover.
o Level 3: Work Packages or Specific Deliverables: This level is where the WBS starts to get more
granular. The work is broken down into specific work packages or deliverables. These could be tasks
like Site Preparation, Foundation Construction, or Electrical Installation.
o Level 4: Smaller Tasks or Components: At this level, tasks are broken down even further into smaller,
more manageable units. These could be specific actions, such as Excavation for Foundation, Plumbing
Installation, or Electrical Wiring.
o Level 5 and Beyond (If Necessary): For complex projects, there may be additional levels of detailing. For
example, Level 5 could break tasks down further into even smaller units, such as Concrete Pouring for
Foundation or Wiring Installation for Lighting.
Linking WBS to Cost Estimates
Once the WBS is structured, it can be linked to cost estimates.
o Assigning Cost Estimates to Work Packages: At each level of the WBS, particularly at the work package
level, specific cost estimates are assigned. This includes estimating costs for labor, materials,
equipment, and overhead costs for each task. These detailed estimates help project managers create a
comprehensive project budget.
For example, if one of the work packages in a construction project is Electrical Wiring Installation, the
cost estimate for this work package would include:
Labor costs (e.g., electricians’ time)
Material costs (e.g., wiring, outlets)
Equipment costs (e.g., tools, scaffolding)
o Resource Allocation and Budgeting: Linking cost estimates to the WBS allows for better resource
allocation. The detailed WBS provides a roadmap for assigning resources (people, equipment,
materials) to specific tasks, which in turn informs the cost estimates. A well-defined WBS ensures that
resources are allocated efficiently, avoiding unnecessary overspending.
o Tracking and Monitoring Costs: As the project progresses, costs can be monitored and tracked against
the WBS. By breaking down the costs at each level of the WBS, project managers can easily compare
the planned budget to the actual costs. This helps identify cost overruns early and enables corrective
action if necessary.
o Creating a Cost Baseline: By linking the WBS to the cost estimates, you create a cost baseline for the
project. This baseline acts as a reference point for tracking project performance. The WBS allows you to
track costs at various levels, from high-level phases down to specific tasks.
o Variance Analysis: The WBS helps in performing variance analysis by comparing planned versus actual
costs at different levels of detail. If costs deviate significantly from the baseline, the WBS provides the
structure to pinpoint where and why the variations occurred, which is critical for effective project
control.
Example of Work Breakdown Structure (WBS) for Building Construction
Level 1: Construction of Two-Storey Residential Building Project
│
├── Level 2: Pre-Construction Phase
│ ├── Site Survey & Feasibility Study
│ ├── Architectural & Engineering Design
│ ├── Permits & Approvals
│ ├── Site Preparation
│
├── Level 3: Foundation Works
│ ├── Excavation
│ ├── Footings
│ ├── Foundation Walls
│ ├── Waterproofing
│ ├── Backfilling
│
├── Level 3: Structural Works
│ ├── Columns & Beams
│ ├── Slabs & Floors
│ ├── Staircases
│ ├── Roof Framing
│
├── Level 3: Exterior Works
│ ├── Walls & Cladding
│ ├── Windows & Doors
│ ├── Roofing
│
├── Level 3: Interior Works
│ ├── Partition Walls
│ ├── Flooring
│ ├── Ceiling Works
│ ├── Painting & Finishing
│
├── Level 3: Mechanical, Electrical & Plumbing (MEP) Works
│ ├── Plumbing System
│ ├── Electrical System
│ ├── HVAC System
│ ├── Fire Protection System
│
├── Level 3: Site Development & Landscaping
│ ├── Drainage System
│ ├── Pavement & Walkways
│ ├── Fencing & Gates
│ ├── Green Spaces & Trees
│
├── Level 3: Contingency & Miscellaneous Costs
│ ├── Safety & Security Provisions
│ ├── Temporary Facilities
│ ├── Project Management & Supervision
