1. Problem Definition
In the operating plants, capital expenditure projects are raised annually with initial cost estimation. That cost estimation will differ by far from the actual cost in later stages in many cases. What is the best way to estimate CAPEX projects budget?
2. Feasible options Identification
By using the figure 1 below, accurate estimation can made on the project cost and hence budget allocation.
3. Development of the outcome for the alternative
By following the above process, the project cost is being estimated initially. Then, it is assessed again be difining the scope of the programm and hence getting clear picture of the project. Next, the project cost is challenged to get to the most accurate estimate. As the project progresses, the actual cost is upated.
4. Selection of acceptable criteria
The cost estimation obtained from the above process can be presented to the management with confidence.
5. Analysis and Comparison of the Alternatives
The table below shows five completed projects with their actual cost versus the allocated budget. There is big difference between the estimation and real cost except for project D and that reflects a real problem in the estimation process.
|S. No.||Project / Item Description||Budget||Budget||Percentage of Actual Cost/ Budget|
6. Selection of the preferred option
Using the cost estimated process, provided by GAO’s “Best Practices in Capital Budgeting” is recommended to get best estimation of required budget for each project.
7. Performance Monitoring and the Post Evaluation of Result.
As the project progresses, the actual cost will be updated and monitored. The actual cost should not differ much from the estimated one. Otherwise, the process above has some deficiencies which we should find them out and get them fixed in the next estimation. However, that should not be the case.
- GAO (March 2009). GAO Cost Estimating and Assessment Guide, A Reliable Process for Developing Credible Cost Estimates pages 8-11. Retrieved on 12th July 2014 from http://www.gao.gov/new.items/d093sp.pdf
- MS. Thomas (2011). The Practical Project Manager, Retrieved on 12th July 2014 from http://practicalprojectmanager.blogspot.com/2011/03/how-to-manage-project-budget-free.html
- Mountaintop (2014). Software Cost Estimation, Estimating Techniques, Retrieved on 12th July 2014 from http://22.214.171.124/~mountaintop/sam101/scopage_dir/l11_estovrvw/l11_t3estech.html