Importance Of Cost Estimation

According to the literature review a lot is said about project cost estimates, budgeting and value management applied by different organizations, but not everything stated can be reviewed in this paper. Thus in the following section we will identify and review the following.

• Approaches to cost estimation

• Importance of cost estimation

• And problems of cost estimation

3.1 Approaches to cost estimation

Venkataraman et al (2008), states the organizations use a number of approaches to estimate project costs, which normally ranges from a highly technical and quantitative to more qualitative approaches. And according to Tolman et al (1987) virtually all project cost estimations are performed according to one or some combination of the following

At the same time a comprehensive project plan is in place and all the tasks and their sequence needed for the project completion have been identified. (Venkataraman et al, 2008)

3.2 Importance of cost estimates

Even though project cost estimates are not always accurate they are still considered an import aspect for organizational costing and budgeting. According to Venkataraman et al, 2008 there are a number of reasons why cost estimates are of utmost important to an organization and are summaries below.

• Project cost estimates provides standards against which actual costs incurred during the execution of a project can be compared, and serve as guideline or reference for controlling costs.

• Cost estimates are the main reason for assessing project feasibility through comparing it with revenue estimates.

• Cost estimates together with project returns facilitates decisions related to project funding and they give project teams a framework for allocating project

Bottom-up approach breaks down the activities and resources through decomposing the activity. Namport also uses the other approaches like feasibility, definitive, expert and parametric to do project cost estimates. The only differenc3e between what the literature and research provide and what Namport uses is the estimates description or wording of the different cost estimates techniques.

The problems and benefits experience by the organisation are more or less similar to what is experience by other organisations in different industries. Thus it is only fair that Namport works on their problems and improve where they fall short through implementations of newer and updated policies.

5. RECOMMENDATION

• Namport should invest and train its project team members, management committees and financial employees that deal with cost estimates and budgeting.

• Namports cost estimates and budgeting policies should be altered to include latest updates on estimate and budgeting processes being applied in different industries.

• The state should implement a general policy for all state owned enterprises to increase transparency of budgeting process.

• A proper contingency plan should be put in place to save Namport a lot of costs once cost have been under