The ability to forecast costs, align budgets and maintain control throughout the lifecycle of a project can mean the difference between delivering value and facing costly overruns
In asset-intensive industries, such as energy, chemicals, power and infrastructure, the balance between a project’s success and failure could come down to one factor — the accuracy of its cost estimates. A precise, well-supported estimate is not just a benchmark for the project, it is the foundation for making informed decisions, managing risks and ensuring that projects are delivered within the planned budget and schedule while meeting their profitability goals.
The price of inaccurate cost estimation
Large-scale projects are complex undertakings involving multiple stakeholders, fluctuating market conditions and strict regulatory requirements. In such environments, mishandling estimates can have far-reaching consequences.
Cost estimation underpins every stage of a capital project, from early conceptual design through front-end engineering and detailed design (FEED). Accuracy in this estimation ensures stakeholders have confidence in the project’s economic feasibility.
A robust estimate can provide a realistic, data-driven view of capital requirements. It also provides the baseline for establishing a realistic budget, links costs to timelines to identify a feasible project schedule and helps stakeholders justify the required capital expenditure to improve investment decisions. This empowers project leaders to allocate resources effectively, foresee and mitigate risks and make decisions throughout the project lifecycle, improving the odds of delivering the project on time and within budget.
In contrast, when elements are not properly included in the estimate scope, or the estimation team is not properly aligned with other disciplines, budget overruns become almost inevitable. Every unaccounted-for item pushes the project further from its profitability goals, and often leads to schedule delays, as procurement and construction teams scramble to secure materials or labor that were not initially planned for.
Overestimation can lead to unnecessary capital allocations that reduce competitiveness, while underestimation can cause funding shortfalls, scope reductions and project cancellations. In industries with thin margins and intense competition, cost estimation accuracy directly impacts the project’s success and trust from all stakeholders.
Limitations of traditional estimation
Despite the high stakes, many organizations still rely on outdated estimation practices. Historically, the use of spreadsheets, isolated databases, manual data handover and experience-based guesswork have always been common, even in multi-million-dollar projects (Figure 1). While these methods may seem familiar and low-cost, and expertise remains valuable, these approaches introduce significant inefficiencies and risks.
FIGURE 1. Historically, cost estimation activities on large projects depended extensively on disparate spreadsheets and manual data handover. New tools can accelerate the process
In traditional approaches, data inconsistencies often arise between engineering, procurement and construction teams. When each discipline works from its own version of the data, alignment breaks down and discrepancies go unnoticed until they cause real problems. Additionally, manual data transfer between teams makes it slow and cumbersome to update estimates when changes occur, which can seriously impact fast-moving projects, and the risk of manual errors during early-stage estimation can ripple through the entire lifecycle, ultimately causing budget overruns.
Traditional methods also limit a team’s ability to evaluate multiple design options quickly. Without integrated tools, comparing the cost and feasibility of different process designs or construction strategies can take weeks, slowing down decision-making and reducing the opportunity to identify the most cost-effective solution.
In volatile markets, where the price of materials, labor and logistics can shift within weeks, these inefficiencies increase the risk of budget overruns and schedule slips.
Transform cost estimation
Digital cost-estimation platforms are designed to overcome these limitations by integrating data, workflows and intelligence into a single environment. The result is a faster, more accurate and more collaborative estimation process.
One of the biggest advantages of digital tools is their ability to automate data flows between engineering and cost estimation groups. This ensures that estimates are always based on the latest design information, eliminating delays and errors that come from manual data transfers.
These platforms also make it easy to evaluate multiple design scenarios in parallel. Project teams can instantly compare the cost, schedule and constructability of different approaches, enabling them to choose the option that delivers the best balance between capital efficiency and project objectives. Data from the chosen design scenario can also be handed over further for other design disciplines, such as process deliverables and 3D modeling.
Incorporating historical data and industry benchmarks is another strength of digital estimation tools. By drawing from proven cost data and applying it to current designs, estimators can deliver more realistic forecasts that account for both past trends and current market conditions.
FIGURE 2. Digital estimation tools leverage process flowsheets and operating conditions from simulations, delivering more reliable early cost estimates based on actual design data
Additionally, advanced platforms enable decision analyses, allowing teams to model how several variables, such as the construction location, engineering location, plant capacity or construction strategies, could impact the final budget. This level of foresight equips decision-makers with the information they need to proactively mitigate risks and protect project profitability.
In summary, by enabling faster, more reliable cost estimates, digital tools give project teams the agility to adapt to changes without compromising budget or schedule.
Streamline the entire lifecycle
One of the greatest advantages of digital estimation tools is their ability to hand over data to different design disciplines, which helps accelerate timelines and expedite complete front-end engineering packages much faster.
A powerful application of digital estimation data is its integration with 3D-modeling tools. Estimates are not static numbers; they become dynamic inputs that shape how projects are designed and executed. Linking cost data with 3D models allows teams to visualize the material, labor and installation requirements behind every project component, be it a single piece of equipment or an entire control building.
By tying estimates to layouts, companies can evaluate spatial constraints and installation challenges during the early project stages, not only ensuring that the project is cost-effective, but also feasible to build, and reducing the likelihood of expensive rework during construction stages.
This integration allows engineers to evaluate the constructability and capital expenditure (CAPEX) of design changes seamlessly, empowering teams to compare options holistically and choose the one that offers the best performance.
For example, if a team is choosing between two possible design configurations with the same equipment list but with different arrangements, they can use 3D modeling to identify the quantities of interconnecting piping required and simultaneously analyze the cost of each option to clearly decide which is the most cost-effective arrangement.
Beyond this use case, digital estimates can provide a baseline for probabilistic models to calculate the project’s contingency and mitigate the CAPEX impact of material price volatility, labor shortages, logistics delays or regulatory changes on cost and schedule. Instead of relying on arbitrary percentage contingencies, digital tools allow companies to determine accurate reserves based on data-driven probabilities. This ensures that contingencies are sufficient but not excessive, balancing risk protection with capital efficiency.
Another important benefit from digital cost estimation goes into schedule risk reduction. A robust estimate should be transparent and detailed in terms of the installation person-hours for the project components. All of these data can also be handed over to develop detailed project schedules. Planners can then streamline the creation of these schedules and allocate their effort to prioritize risk mitigation strategies for high-impact activities.
Risk assessment can also be applied to the process design itself. In order to secure the plant production goals after the startup phase, it is important to consider equipment redundancy for equipment elements that are prone to failure or that require scheduled maintenance cycles. However, it is not feasible to assign spares to every piece of equipment in the plant, nor considering three or more spares for all pieces, as this can shatter the project’s economic feasibility. Digital cost estimation tools allow for a risk analysis using Monte-Carlo methodology, allowing for a parallel identification of the key equipment to protect, while providing economic insights into the cost impact of adding these spares.
For example, if a compressor is identified as a bottleneck for the process, the engineering team can perform a risk analysis to determine if two or three spares would be adequate. Let’s suppose the team determines that using three spares would greatly extend the operational life of this compressor. The estimation team can immediately determine how much CAPEX these spares would add to the project’s cost, and both teams can determine if this budget increase outweighs the impact on operational expenses and production losses.
Digital cost estimates can also be connected to process deliverables required to drive the project forward. Leveraging estimates across the engineering lifecycle ensures consistency, efficiency and alignment between the process and estimation teams. Besides the consistency aspect, accurate estimates ensure FEED deliverables are grounded in financial reality, and the documented designs align with the project’s budget expectations, reducing the risk of redesign and rework later in the lifecycle.
By aligning estimates with engineering disciplines, organizations ensure that projects are not only designed to budget but also executed to deliver value throughout the lifecycle.
Real-world impacts
The benefits of digital cost estimation tools are being realized across industries worldwide. Organizations that have transitioned from disconnected spreadsheets to model-based estimation platforms have eliminated reliance on arbitrary factors and successfully standardized their estimation workflows. These changes have been shown to reduce conceptual and feasibility estimate delivery timelines by up to 50%.
These savings are achieved in different ways — some by unifying cost-estimation team members under a single cost estimation platform, others by leveraging digital integration between design and estimation tools to evaluate more design alternatives in less time. In many cases, time savings also come from reducing dependence on vendor quotations, which often creates significant bottlenecks in estimate delivery.
Use of such estimation platforms also can simplify the development of historical cost databases, streamline benchmarking and enable efficient reuse of data from previous project estimates, further accelerating decision-making and increasing confidence in early-stage evaluations.
When it comes to comparing construction strategies, users have also leveraged digital estimation tools to evaluate modular versus stick-built approaches. While modular construction offers reduced onsite labor requirements and shorter schedules, it increases the fabrication and transportation costs. On the other hand, stick-built construction can be more flexible for site-specific conditions but it is more vulnerable to delays and productivity losses in the field. Digital tools have allowed companies to objectively weigh these trade-offs early in the project, ensuring the selected strategy aligns with capital goals.
A streamlined, digitalized approach to cost estimates can also effectively improve collaboration across teams, forge stronger alignment between disciplines and foster more transparent communication between owners and engineering partners, as well as facilitate the adoption of standardized methodologies. It also enables greater granularity within estimates, which enhances clarity and confidence in project decisions.
The benefits of digital cost estimation also extend to sustainability-driven projects, where new, evolving technologies are often involved, and decision-making is much more complex. At the same time with such projects, delivery timelines and deadlines are strict, often because of the involvement of government mandates. In these cases, digital estimation tools can help organizations to meet aggressive schedules, explore a broader range of technology options and optimize costs and sustainability impacts without sacrificing estimate quality.
Smarter estimation for projects
In today’s environment of volatile markets, sustainability pressures and competitive project timelines, accurate cost estimation is no longer optional, but a clear path to the project’s success. Digital tools elevate the cost estimation from a mere task into a central driver of project success, linking CAPEX to design selection, risks, constructability and deliverables.
Accurate cost estimation is not a one-time checkbox that’s required at the start of a project, it’s a continuous process that influences every phase of the project’s execution. From feasibility studies and front-end engineering to procurement and construction, having reliable estimates ensures that all decisions align with both financial and operational goals.
When estimates are trustworthy, project stakeholders can commit to budgets and timelines with greater confidence. Most importantly, it sets the stage for delivering higher-quality projects on schedule, on budget, and with measurable returns on investment.
Organizations that embrace advanced digital estimation tools not only reduce the risk of costly overruns but also position themselves to deliver higher-quality projects, faster and with greater return on investment. In today’s high-pressure environment, where cost discipline and speed to market can make or break a project, mastering cost estimation is more than just a best practice, it is a strategic advantage. ■
Author
Enrique Guevara Estrada is a product marketing expert for AspenTech Concurrent Engineering Solutions at Emerson’s Aspen Technology business (Email: enrique.guevara@aspentech.com). With expertise in safety, economics and digital transformation, Estrada has helped organizations optimize capital projects from early stages. Formerly an engineering consultant, he led multiple successful implementations across Latin America, driving measurable efficiency and profitability gains. Today, he focuses on guiding customers in adopting Concurrent Engineering solutions to achieve similar results. Estrada was trained as a chemical engineer at the National Autonomous University of Mexico.