How do you balance accuracy and timeliness in your cost forecasting models and tools?
Cost forecasting is a vital skill for cost engineers, as it helps them plan, control, and optimize the resources and risks of a project. However, cost forecasting is also a challenging task, as it involves dealing with uncertainty, complexity, and dynamic changes. How do you balance accuracy and timeliness in your cost forecasting models and tools? Here are some tips and best practices to help you improve your cost forecasting performance.
Before you start building your cost forecast model, you need to define the purpose and scope of your forecast. What is the level of detail and accuracy required? Who are the intended users and stakeholders of your forecast? How often and how long will you update your forecast? These questions will help you determine the appropriate data sources, methods, assumptions, and tools for your forecast. For example, if you need a quick and rough estimate for a feasibility study, you may use a parametric or analogous method based on historical data and industry benchmarks. However, if you need a more detailed and accurate forecast for a complex and long-term project, you may use a bottom-up or earned value method based on actual costs and progress data.
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The first step is to understand the voice of stakeholders who are going to use the forecasting models. For instance, if a stakeholder is going to use them for purely comparing making costs, a percentage delta is more significant that facts and figures such as precise labor and material rates considered for the model. The second step is to build a database and update it at a pre-determined frequency using reliable data sources that are globally recognized and accepted. The third step is to identify and use tools which offer capabilities to incorporate correct methodology and calculation logic.
Once you have defined the purpose and scope of your forecast, you need to choose the right model and tool for your forecast. There are various types of cost forecast models and tools available, such as spreadsheet-based, software-based, or artificial intelligence-based. Each model and tool has its own advantages and disadvantages in terms of accuracy, timeliness, flexibility, and usability. You need to evaluate the pros and cons of each option and select the one that best suits your needs and preferences. For example, spreadsheet-based models and tools are easy to use and customize, but they may be prone to errors and inefficiencies. Software-based models and tools are more reliable and efficient, but they may be costly and complex to implement and maintain. Artificial intelligence-based models and tools are more advanced and innovative, but they may be limited by data availability and quality.
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I would categorise types of forecast as follows: A £/m2 estimate that uses data from previous projects or benchmarks to calculate an average "cost per area" to forecast the cost for this project. Functional unit. For example a multi storey carpark could be estimated at a £ per carpark space. The benefit here is you may not know the size of the carpark, but you probably know how many cars you need it to accomodate. A Cost Model, here you build up a cost model for the works where you make assumption upon the scope of works that will be required and price based on your previous experience. This is often used for more complex refurbishments where £/m2 may not reflect scheme specifics.
After you have built your cost forecast model and tool, you need to validate and verify your forecast. Validation means checking whether your forecast is reasonable and realistic, while verification means checking whether your forecast is accurate and consistent. You can use various techniques and methods to validate and verify your forecast, such as sensitivity analysis, risk analysis, benchmarking, peer review, or auditing. These techniques and methods will help you identify and correct any errors, biases, or uncertainties in your forecast. They will also help you improve your confidence and credibility in your forecast.
Finally, you need to update and communicate your forecast regularly and effectively. Updating your forecast means incorporating new information, changes, or feedback into your forecast. Communicating your forecast means sharing your forecast with your team, management, or clients. You need to update and communicate your forecast in a timely and transparent manner, as this will help you monitor and control your project performance, as well as manage expectations and relationships. You need to use clear and concise language, charts, and tables to present your forecast, as well as highlight any assumptions, limitations, or risks in your forecast.
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Its really important to provide regular and frequent updates. The information needs to be really easy to understand to help the wider project team work towards the project budget. If you provide your cost update after the design work is completed and the decisions are already made, it becomes very difficult to influence the outcome.
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Balancing accuracy and timeliness in cost forecasting for energy projects demands meticulous planning and adaptability. Employing agile methodologies, like iterative model updates, ensures timely adjustments while maintaining precision. Regular stakeholder collaboration enhances accuracy by integrating real-time data. Engineers must prioritize robust risk assessments to mitigate uncertainties, fostering a balanced approach to engineering project management.
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