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Pitfalls to Avoid When Generating Cost Estimates

By Alfred Chiu |

The pitfalls in cost estimating that cause project overruns have been well known for decades, yet they continue to plague the CPI When I first started writing this article, I set out to summarize the mechanics of project cost estimation. That was to be followed by a discussion of various management tools, for example Project Definition Rating Index (PDRI) [1], that are used to validate the input to the estimate. But it was apparent that there were other factors at play, given the anecdotal and very public records of numerous project delays and cost overruns, that went beyond simply not following a procedure and going through some management check-list gate. As one of the owners of my company pointed out in a recent meeting, to Manage With Certainty, one must focus on the input and not just the outcome. About four decades ago, in my first job with Union Carbide Corp. (UCC), I was given an assignment to find out why many of the plant projects were plagued with delays and cost overrun. In the late 1970s, the Bound Brook plant was suffering from a very tight capital budget constraint. The era was in the mid stage of factory relocation away from the Northeast and mid-Atlantic regions. The conclusions that I drew, after interviewing many…
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