SPECIALIZATION 3

PROJECT
BUDGETING &
COST
ESTIMATION FRANCISCO, RAVEN DAVE
DOCUMENTO, FLEURETTE ASHLEY
ESCORIAL, WELLA LAINE
INTRODUCTION TO PROJECT BUDGETING AND
COST ESTIMATION
Project budgeting and cost estimation are fundamental aspects of project management,
ensuring financial control and resource allocation. These processes enable project managers to
forecast expenditures, allocate funds efficiently, and mitigate financial risks. By accurately
estimating costs, project managers can avoid budget overruns and ensure the project's
economic feasibility.
Niladri Mallick Choudhuri (Project Management Fundamentals), effective cost estimation
enhances decision-making and aligns financial strategies with project goals. Similarly, Portny et
al. (2008) emphasize the significance of structured budgeting in controlling project expenditures.
 COST ESTIMATION AND BUDGET IN PROJECT
MANAGEMENT
Cost estimation involves predicting the financial resources required for project completion. This
process includes assessing direct and indirect costs, labor, materials, and contingency reserves.
As stated by Ramroth (2006), accurate cost estimation supports financial planning and
resource allocation.
Budgeting, on the other hand, is the process of distributing estimated costs across project
phases. It ensures that available financial resources are appropriately assigned to different
tasks. Getz and Stasiowski (1984) highlight the importance of financial planning in design
professions, emphasizing that well-defined budgets lead to cost efficiency and sustainable
project execution.
 PROJECT COST ESTIMATION TYPICALLY FOLLOWS
THREE METHODOLOGIES:
• Analogous Estimating: Uses historical data from similar projects.
• Parametric Estimating: Applies statistical models based on project
variables.
• Bottom-up Estimating: Aggregates costs at the task level to
determine the total budget.

Burstein and Stasiowski (1982) suggest that cost estimation must be revisited throughout the
project lifecycle to accommodate scope changes and unforeseen expenses.
 TYPES OF PROJECT COSTS
Project costs are categorized based on their nature and impact on the budget.
Understanding these classifications helps in accurate financial planning.

• Direct Costs: Expenses directly linked to project execution, such as labor, materials, and equipment.
• Indirect Costs: Overhead expenses, including administrative fees and utilities, which support project
activities but are not directly assignable to a specific task.
• Fixed Costs: Costs that remain constant regardless of project size or scope, such as facility rentals.
• Variable Costs: Expenses that fluctuate based on project requirements, such as raw materials.
• Contingency Costs: Reserves allocated for unforeseen circumstances, ensuring risk mitigation.
• Sunk Costs: Non-recoverable expenses already incurred before project initiation.

Portny et al. (2008), effective cost classification ensures financial transparency and facilitates better
budget control.
 FACTORS INFLUENCING THE
QUALITY OF ESTIMATES
• Scope Quality: completeness of scope, stability of scope

• Information Quality: quality of historical information, quality of current

information

• Uncertainty level: environmental uncertainty, project uncertainty

• Estimator Performance: experience, applied effort, personal background

and characteristics

• Estimating Procedure: technology, time available

DOCUMENTO
 Design/estimating team experience
Completeness of scope
Consistency of scope with project needs
SCOPE QUALITY
Owner’s Commitment with scope
Stability of scope Project technology
Project complexity

Quality of historical Applicability of historical information

INFORMATION QUALITY information Reliability of historical information

Quality of current Availability of current information

information Reliability of current information

Changes in market conditions

Environmental uncertainty
ESTIMATE’S ACCURACY Major changes in escalation rates
UNCERTAINTY LEVEL
Labor productivity changes

Project uncertainty Project technology

Project complexity

Experience Field
ESTIMATOR
Estimating
PERFORMANCE
Applied effort Prescription of estimating performance

Personal background and Common sense

characteristics Self-confidence
ESTIMATING
PROCEDURE Technology

Time available

DOCUMENTO
METHODS OF ESTIMATING COST

ANALOGOUS ESTIMATING
Using historical data from similar projects to
estimate costs.

PARAMETRIC ESTIMATING
Cost estimation using mathematical models
based on project parameters.

BOTTOM-UP ESTIMATING
Estimating costs for each individual
component and summing them up.

DOCUMENTO
METHODS OF ESTIMATING COST
ANALOGOUS ESTIMATING
Using historical data from similar projects to
estimate costs.

• Benefits: Saves time and builds on real-world experience;

great for early-stage estimating.
• Challenges: Relies on having comparable projects and
solid data. When the differences are significant, the
estimate isn’t very accurate or useful.
• When to Use: Early in a project, when details are limited
but you need a ballpark figure to guide planning or
discussions.
Pro Tip: “For analogous estimation, stick to similar projects in the same area,”

DOCUMENTO
 METHODS OF ESTIMATING COST
ANALOGOUS ESTIMATING
Example:
An IT vendor is asked by a prospective customer to estimate the implementation cost of off-the-shelf
software. The vendor has done similar types of jobs a couple of times before and stored the key indicators
of past projects in a dedicated database. The database shows the following data for a long list of
comparable projects:
In order to determine an
analogous estimate, the
estimators compare the
characteristics of the upcoming
project with those of the 6
previous projects for which they
obtained the historical cost and
duration values.

DOCUMENTO
METHODS OF ESTIMATING COST
PARAMETRIC ESTIMATING
Cost estimation using mathematical models
based on project parameters.

• Benefits: Brings structure and accuracy to estimating; is scalable

to different project sizes or scopes.
• Challenges: Requires solid, up-to-date data; you must also have
a strong handle on what drives costs for your specific job.
• When to Use: When you know the key metrics for your project
and need a more refined estimate than a general comparison.
• Useful Tool: Download this parametric cost estimating template
in Excel , Microsoft Word , or Smartsheet formats.

DOCUMENTO
 METHODS OF ESTIMATING COST

Pro Tip: Don’t rely solely on

formulas. “Parametric
estimating, like using
cost-per-square-foot, is great
for quick ballpark figures, but
real-life variables can mess
with it,”

DOCUMENTO
METHODS OF ESTIMATING COST
BOTTOM-UP ESTIMATING
Estimating costs for each individual
component and summing them up.

• Benefits: Provides crystal-clear insight into where your money is

going, per task or component.
• Challenges: It’s a time commitment, and you’ll need to know the
specifics of every task and resource.
• When to Use: When your project plan is solid and you’re ready for
a detailed budget.

Pro Tip: Bottom-up estimating has great benefits if you have the time and details.

DOCUMENTO
 METHODS OF ESTIMATING COST
BOTTOM-UP ESTIMATING

DOCUMENTO
 METHODS OF ESTIMATING COST
BOTTOM-UP ESTIMATING
Example:

DOCUMENTO
PROJECT COST ESTIMATING ISSUES
• Quantifying cost impacts
Design changes may reduce a component in a project, but
estimating the overall cost impact is challenging due to
subjectivity, especially with new and intangible products.
One of the best ways to combat this problem is using cost
estimation software.

• Resource constraints
Cost estimates should be timely, but time constrains several
aspects of estimation, such as data collection, validation, and
consistency. High-quality data takes time to develop, which can
slow down the estimation process.
DOCUMENTO
PROJECT COST ESTIMATING ISSUES
• Many organizations involved
Cost estimation involves many organizations that estimators need
to communicate to and coordinate resources with. This process is
time-bound, and where there are time constraints, the quality of
estimation suffers. In addition, after data collection, different
organizations need to verify the data. This inherently creates a
challenge in consistency as other organizations have different
methods of data verification.

DOCUMENTO
 REFERENCES
Serpell, Alfredo. (2005). Improving conceptual cost estimating performance. AACE International Transactions.
pp 4-6

Ellis, G. (2023). Construction Cost Estimating Methods. Autodesk Construction Cloud Date retrieved: Mar
10, 2025 from [Link]

Ramos, D. (2020). Guide to Construction Estimating Methods: Pros, Cons, When to Use. smartsheet Date
retrieved: Mar 10, 2025 from
[Link]
rzOPOI3pvgVuUTPgyhOlGoC7V5ideJGT
Sebastian (2024). Analogous Estimating | Definition, Examples, Pros & Cons.. [Link] Date
retrieved: Mar 10, 2025 from [Link]

Sebastian (2024). Bottom-Up Estimating – Definition, Example, Pros & Cons. [Link] Date
retrieved: Mar 10, 2025 from
[Link]

DOCUMENTO
 CREATING A PROJECT
BUDGET
When your firm receives a design fee 1. PREPARE A TASK OUTLINE OF
for a project, that amount is usually CONTRACT REQUIREMENTS
divided into five components: 2. Overhead
3. Other direct costs
4. Contingency
5. Profit

ESCORIAL, WELLA LAINE R.

CREATING A PROJECT
BUDGET
FOUR WAYS:

ZERO-BASED BUDGETING UNIT COST BUDGETING

DOWNWARD BUDGETING STAFFING LEVEL BUDGETS

 CREATING A PROJECT
BUDGET
1. ZERO-BASED 1. PREPARE A TASK OUTLINE OF CONTRACT REQUIREMENTS
BUDGETING 2. Estimate man-hours by labor category for each task.
3. Estimate direct labor rates for each labor category.
YOU START WITH A LIST OF TASKS AND
4. Calculate direct labor cost for each task by multiplying results of steps 2
ESTIMATE THE MAN-HOURS AND
and 3.
CORRESPONDING COSTS TO PERFORM THE
5. Add overhead costs as a percentage of the direct labor cost determined in
WORK.
step 4.
6. Estimate other direct costs (such as air fare, printing, and subconsultants)
for each task.
7. Add the appropriate contingency.
8. Add the desired profit.
 CREATING A PROJECT
BUDGET

1. ZERO-BASED
BUDGETING
CREATING A PROJECT
BUDGET

1. ZERO-BASED
BUDGETING
CREATING A PROJECT
BUDGET

2. DOWNWARD
BUDGETING
INVOLVES STARTING WITH THE AMOUNT OF
COMPENSATION THAT CAN BE OBTAINED
AND BREAKING OUT THE VARIOUS COST
COMPONENTS TO ESTABLISH THE NUMBER
OF MAN-HOURS THAT CAN BE ALLOCATED.
 CREATING A PROJECT
BUDGET

2. DOWNWARD
BUDGETING
INVOLVES STARTING WITH THE AMOUNT OF
COMPENSATION THAT CAN BE OBTAINED
AND BREAKING OUT THE VARIOUS COST
COMPONENTS TO ESTABLISH THE NUMBER
OF MAN-HOURS THAT CAN BE ALLOCATED.
CREATING A PROJECT
BUDGET

3. UNIT COST BUDGETING EXAMPLES OF UNIT COST BUDGETING TOOLS USED IN DESIGN

"UNIT COST" BUDGET, OR THE USE OF FIRMS INCLUDE

"HISTORICAL" COST DATA (OTHER THAN

MAN-HOURS) FROM PREVIOUS SIMILAR 1. COST PER SQUARE FOOT OF DESIGN DRAWINGS

PROJECTS, SUCH AS COST PER SHEET OF 2. COST PER PAGE FOR CERTAIN TYPES OF REPORTS

DRAWINGS. 3. COST PER ANALYSIS FOR LABORATORY WORK

4. COST PER BORING FOR SOIL INVESTIGATIONS.
CREATING A PROJECT
BUDGET

TO ESTIMATE THE TOTAL SIZE OF THE PROJECT TEAM FOR

4. STAFFING LEVEL
BUDGETS EACH PHASE OF THE PROJECT. THE BUDGET IS DETERMINED
BY MULTIPLYING THE NUMBER OF PEOPLE BY THE LENGTH
OF TIME EACH WILL WORK ON THE PROJECT TO OBTAIN THE
TOTAL ESTIMATED MAN-HOURS. THE MAN-HOURS ARE THEN
MULTIPLIED BY AVERAGE HOURLY RATES TO OBTAIN DIRECT
LABOR COSTS.
CREATING A PROJECT
BUDGET

PROEST, PLANSWIFT, BUILDERTREND, SAGE ESTIMATING,

HOUZZ PRO, SIMPRO, PROCORE, AND BUILDXACT

SOFTWARE COMMONLY
USED FOR ESTIMATING,
COSTING, AND THESE ARE PARTICULARLY POPULAR IN THE CONSTRUCTION
BUDGETING INCLUDES: INDUSTRY, OFFERING FEATURES LIKE DIGITAL TAKEOFFS,
COST ANALYSIS, AND INTEGRATION WITH PROJECT
MANAGEMENT TOOLS TO CREATE COMPREHENSIVE
PROJECT ESTIMATES AND BUDGETS.
 WAYS TO IMPROVE THE
PROCESS OF COST
ESTIMATION AND
1. BUDGETING
Study the Project Details
2. Perform a Material Takeoff
3. Solicit Pricing Information
4. Calculate Labor Costs
5. Determine Indirect Expenses
6. Prepare for Contingencies
7. Take Target Profit into Account
8. Technologize Budget Management
 CONCLUSION
• Zero-based Budgeting: Start by listing all tasks and
estimating how many hours and costs are needed to
complete them.
• Downward Budgeting: Begin with a set budget and
break it down into different costs to figure out how
many hours of work you can afford.
• Unit Cost Budgeting: Use cost data from past
similar projects (like the cost per sheet of drawings)
to estimate expenses.
• Staffing Level Budgeting: Focus on the number of
people needed for the job and how long they will
work to determine the budget.
 CONCLUSION
WAYS TO IMPROVE COST ESTIMATION AND BUDGETING
• Study the Project Details
• Perform a Material Takeoff
• Solicit Pricing Information
• Calculate Labor Costs
• Determine Indirect Expenses
• Prepare for Contingencies
• Take Target Profit into Account
• Technologize Budget Management
THANK
YOU
REFERENCE
S
[Link]
[Link]

[Link]
budgeting/

Burstein, David, ; Stasiowski, Frank, Project

Management for Design Professionals, A Handbook
for Architects, Engineers, and Interior Designers,
Whitney Library of Design, New York, 1982