Independent cost estimates are used to obtain an objective view of the cost of a proposed project and for transparency. An individual may also obtain an independent cost estimate as a prudential measure in carrying out a project. Companies with many shareholders may need to do an independent cost estimate to make the whole process more open and accountable to shareholders.
An independent cost estimate refers to the process of retaining the services of professionals who are in no way affiliated with an organization or project to perform a detailed estimate of the cost of a proposed project. The main idea behind the use of independent estimators to evaluate the cost of a project is to obtain an objective view of the cost of the proposed project. Another function or use of an independent cost estimate is for the purpose of transparency. Assuming a company is preparing a report on the cost of a project for its shareholders, it may decide to use independent professionals instead of internal estimators to infuse more transparency into the entire process.
An individual may also obtain an independent cost estimate as a prudential measure in carrying out a project. Assuming a construction company has received a contract to build a house, the construction company will give the client an estimate of how much the project will cost. Such customer may retain an independent party to perform an independent cost estimate, which will serve as the basis for comparison and analysis. The result of such an estimate could be approximately the same as the estimate provided by the construction company, in which case, the client could decide to continue with the project. If the disparity between the estimate provided by the construction company and that of the independent cost estimate is too great, the client may decide to renegotiate with the construction company for a downward reversal of the cost of the project, or seek another construction company. with a more reasonable estimated cost.
When a company with many shareholders is trying to embark on a sizable new project, you may need to do an independent cost estimate to make the whole process more open and accountable to shareholders. For example, if a public company with many shareholders decides to build a new factory in Japan as part of its globalization process, it will need to obtain an independent cost estimate to reassure shareholders that it’s all overboard. These independent estimators will evaluate the project based on a series of predetermined criteria that include factors such as logistics, labor, site costs, design, and others. Such an independent cost estimate will ultimately have more value than any made by internal estimators.
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