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Methods of estimating costs
Estimation of the costs is required in terms of showcasing the project cost for a business organisation. There are several methods in terms of considering the different types of costs. Some common methods can be applied in the context of an overall business operation. These methods are well-defined for determining the required cost structure of an organisation (Steffen, 2020). The important cost estimation methods are as follows to understand its processes and importance towards organisational effectiveness.
Historical data analysis
This particular method involves the approaches of utilising past cost data from different projects as a reference for estimating future and current costs. It works well in terms of evaluating the costs that are considered to be stable. It also involves making routine operational expenses and considering the standard items within a construction project.
Top-down estimating
This approach refers to the process of deriving costs, which are estimated by using higher-level aggregates. This method can be considered one of the useful ways through which it can be utilised at the early stages of a project. For explaining the specific cost elements, it may lack in maintaining accuracy (Molchanov et al., 2019). The method of cost estimating can also be considered in relation to the contextual frameworks of an organisation.
Parametric estimating
This method refers to the presentation of utilising statistical relationships between subject project parameters and historical data. These interrelationships are required for estimating costs and can be implemented for performing repetitive tasks. These approaches can be established for making clear correlations between the characteristics of certain projects.
References
Molchanov, P., Mallya, A., Tyree, S., Frosio, I. and Kautz, J., (2019). Importance estimation for neural network pruning. In Proceedings of the IEEE/CVF conference on computer vision and pattern recognition (pp. 11264-11272).
Steffen, B., (2020). Estimating the cost of capital for renewable energy projects. Energy Economics, 88, p.104783
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When explores the computation or estimation of any form of expenditures, a variable number of implementations may be applied contingent on the type of cost being computed or estimated. Choosing the process in which one should acquire an estimation of costs is a necessary step to get an accurate projection of the company ‘ s financial outlook and for an entity to make well – informed determine. The method one chooses to estimate cost is important so that returns can be accurate and the correct business decision can be made. Letterheads, approvals labels, envelopes, and paper are some of the physical touchable marketing materials that come to mind. Another method to evaluate a company ‘ s learning and growth perspective is to take into account its technological sophistication, innovation, sustainability, and client goodwill. When considering costs centred on direct materials, the best method of costing is to use the specific identification method. This methodology traces the actual cost of each product. Which means it will first tracing the actual cost of each item present in your inventory. By doing so, each product and its respective costs are conveniently located together and easily predetermined and apportioned without the added hassle of combining, searching, and splitting overhead costs among potentially tens or hundreds of different products or services in an attempt to allocate expenses similarly. Consequently, costing products correctly in isolation is an ideal method to practice. Essentially, indirect manufacturing costs are just part of the costs of operating a sustainable and functioning organization. Their nature means that they really cannot be traced directly to cost objects (Shen et al., 2020).
Reference:
Shen, W., Chen, X., Qiu, J., Hayward, J. A., Sayeef, S., Osman, P., … & Dong, Z. Y. (2020). A comprehensive review of variable renewable energy levelized cost of electricity. Renewable and Sustainable Energy Reviews, 133, 110301.
