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| Project Cost Management |
Cost Estimating, is the estimation of the cost of a program, projects or operations. It is also one of the most important phase in project management. In the hospitality industry, typically, an annual 4 to 5 % of the total revenue is set aside for capital expenditure (CapEx) projects (Baumann, 2010). This amount to $1 million to $50 million expenditure, depending on the size of the properties, where typical project amount ranging from $10,000 to more than a million dollars (Atkinson & Lebruto, 1997).
Inaccurate cost estimation is a prevailing problem in project management, be it, the construction industry, the IT industry or the hotel industries. In hotel industries it is common that projects cost are being over estimated, as most Chief Engineers would prefer to run a project that is under budget as compared to over budget, as it would be cost savings for hotel owners, however this may result in operational problems, such as aging equipment and dated products. This is often the case for construction projects as mentioned by Lim, et al. (2016), Mahamid (2011) the cost estimates are usually done within a short period of time, limited data base of work cost as well as appropriate cost estimation tools.
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Therefore, why don’t we consider using a three point estimation approach instead of the conventional single point estimation? Mok, et al.(1997) mentioned that single-point estimation is one of the most common and traditional method used by building service engineer. This is no difference for the hotel industries in Singapore where budgeting often provide a single figure to building services projects. Mok, et al. (1997) denied the single-point estimation and deemed it as cost ineffective and illogical approach to cost estimation.
Mok, et al (1997) research also shows that in Hong Kong, building services project managers more often using the deterministic estimation as compared to probabilistic estimation. The used of risk management process, such as the three point estimate, in building services projects as it provide a more logical and consistent framework in assessing the project cost.
Work Cited
- Atkinson, S. M. & Lebruto, S. M., 1997. A survey of capital-budgeting methods used by the hotel/gaming industry. The journal of Hospitality Financial Management, 5(1), pp. 23-31.
- Baumann, G., 2010. The considerations of capital expenditures in hotel valuations, Switzerland: Universität Zürich.
- Lim, B., Nepal, M. P., Skitmore, M. & B. X., 2016. Drivers of the accuracy of developers' early stage cost estimates in residential construction. Journal of Financial Management of Property and Construction, 21(1), pp. 4-20.
- Mahamid, I., 2011. Early cost estimate for road construction projects using multiple regression techniques. Australasian Journal of Construction Economics and Building, 11(4), pp. 87-101.
- Mok, C. K., Tummala, V. R. & Leong, H. M., 1997. Practice Barriers and Benefits of Risk Management Process in Building Services Cost Estimates. Construction Management and Economics, Issue 15, pp. 161-175.
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The Author: Jayden Tham Jun Hua
About:
Assistant Director of Engineering
Experienced Assistant Director Of Engineering with a demonstrated history of working in the hospitality industry. Skilled in Project, Facilities and People Management. Strong engineering professional with a Master's degree focused in Project Management from The University of Manchester and Nanyang Technological University
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