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Project Costing: Best Practices That Actually Work for Manufacturing Companies

Define Your Project Scope and Requirements

Hey there, fellow manufacturing project managers and estimators. Are you tired of going through the same painful budgeting and costing processes only to end up with estimates that are way off the mark? We’ve all been there. The good news is, that there are tried-and-true best practices you can put in place to get your cost estimates as accurate as possible.  Over years of managing complex manufacturing projects, we’ve developed methods for creating estimates and budgets that provide the precision and reliability our stakeholders expect. In this article, we’re going to share the techniques that have revolutionized how we approach project costing. By implementing these best practices recommended by vantage consulting group, you’ll minimize budget variances, gain credibility, and feel much more in control of your projects. Sound good? Then, let’s dive in.

Choose the Right Cost Estimation Methodology

Defining your project scope and requirements upfront is key to accurate costing and budgeting. Think through what exactly you want to accomplish and how. 

–   outline the key objectives and priorities for your project. Do you want to launch a new product or improve an existing process? Pin down the specifics. 

–   determine major deliverables and milestones. Map out what needs to get done to achieve your goals. Break down the work into manageable chunks to get a better handle on what resources and costs are involved at each stage.

–   specify roles and responsibilities. Figure out what skills and expertise are needed to complete the work. Will you rely on in-house teams or bring in external consultants and contractors? Make sure you understand all costs associated with human resources. 

–   analyze risks and constraints. Consider what could impact the timeline or budget, like regulatory issues, resource limitations or technical challenges. Plan for contingencies by including buffers in your estimates. 

–   gather input from subject matter experts. If you’ve never done a similar project, connect with colleagues who have relevant experience. Ask them to review your plans and provide feedback on anything you may be missing. 

Following these best practices will help ensure you go into your project with eyes wide open, a solid understanding of what’s required, and budget estimates you can count on. Of course, be prepared to make adjustments if new information comes to light, but starting with a well-defined scope sets the right foundation. Now you can get to work and bring this project in on time and under budget!

Continuously Monitor and Control Your Budget

Choosing the right cost estimation methodology is key to creating an accurate project budget. For manufacturing projects, there are a few tried-and-true options:

Analogous Estimating

This quick method uses the actual costs of previous, similar projects to estimate the new project’s costs. It’s best for initial budgeting when detailed information isn’t yet available. The downside is it doesn’t account for differences between projects.

Parametric Estimating

Using historical data, calculate a cost per unit metric, like cost per square foot. Then multiply by the units in your project. This works well when there’s high similarity between projects, but fails if there are significant differences.

Bottom-Up Estimating

For the most precise estimate, do a bottom-up build-up of costs for all work packages, resources, and materials in the project. Meet with experts and vendors to determine current pricing. While time-consuming, this micro-level estimating yields the most accurate results.

No matter which method you choose, be sure to add adequate contingency funds to account for unexpected costs.  Also, re-estimate periodically, especially for long or complex projects where requirements may change. Following these best practices for choosing and implementing the right cost estimation methodology will give your manufacturing project budget a solid foundation, so there are no costly surprises down the road.  With an accurate cost estimate in hand, you can make data-driven decisions and keep your project on track.