Cost estimation is the process of developing a well-defined relationship between a cost object and its cost driver for the purpose of predicting the cost. The cost predictions are used in each of the management functions:

Benefits of Costing and Budget Management

Strategic Management:
Cost estimation is used to predict costs of alternative activities, predict financial impacts of alternative strategic choices, and to predict the costs of alternative implementation strategies.

Planning and Decision Making:
Cost estimation is used to predict costs so that management can determine the desirability of alternative options and to budget expenditures, profits, and cash flows.

Management and Operational Control:
Cost estimation is used to develop cost standards, as a basis for evaluating performance.

Product and Service Costing:
Cost estimation is used to allocate costs to products and services or to charge users for jointly incurred costs.

Quantity Estimation Process

• Drawings Collection
• Specification Finalization
• Quantification
• Collecting Material & Labour Rates

Steps in Preparation of Costing and Budget

Final QS Report and Budget preparation
After finalization of quantities, material and labour rate the estimation sheet will be prepared in specified format is to fulfil company’s business needs. Based on quantities, material rate and labour rate the final budget will be prepared.

Approval of Budget
After finalization of Quantities, Material and labour rate, the Estimation budget will be send to project team for verification and comments if any. Once the budget is verified by Project team then it will presented to Management for final approval.

• Budget tracking involves the tracking cost variation between Budget amount and actual amount.
• Budget variation beyond the contingency should be approved by competent authority.
• Approval by concerned Project Manager.
• Budget variation analysis need to be sent for approval.
• Budget variation analysis consists the reason for variation.