Should-Cost Estimating: Closing the Gap Between Price and Value

Why Should-Cost Estimating Matters in Capital Projects

Are your capital projects leaving money on the table by not leveraging the power of should-cost estimating through an unbiased should-cost estimate?

Owners and procurement teams often struggle to understand the gap between a project’s should-cost (the theoretically lowest viable CapEx) and the will-cost (the contractor’s quoted price). This lack of visibility can weaken the owner’s bargaining position and lead to unnecessary overspending.

Should-cost estimating provides a way to bridge that gap. By developing a transparent and defensible view of what a project ought to cost, owners can negotiate from a position of strength and avoid surprises downstream. For context, it helps to revisit the fundamentals of capital project estimating and why early estimate quality matters.

Should-Cost Estimate Definition

A should-cost estimate is a bottom-up cost model of the project built as if it were executed under best-in-class conditions and in a perfectly competitive market. It represents the lowest reasonable cost of delivery without inefficiencies, hidden markups, or inflated assumptions.

Contractors may bring commercial pressures, risk tolerance, and overhead into their estimates. A should-cost estimate strips these away, giving owners a baseline for negotiations and validation. As with any estimate, the strength of the model depends on documenting assumptions and methodologies clearly in a Basis of Estimate (BoE).

How to Develop a Should-Cost Estimate

Step 1: Build a Bill of Materials (BOM)

A complete and representative BOM is critical. Contractor BOMs can be unreliable, and performing a manual takeoff is often time-consuming and costly. Tools like Aspen Capital Cost Estimator (ACCE) solve this challenge by generating BOMs through volumetric modeling, improving accuracy and efficiency.

Step 2: Estimate Material Costs with Market Validation

Although ACCE maintains an extensive, annually updated cost database, these values should not be used blindly. For critical equipment and bulk commodities, costs should be validated through vendor outreach and industry indices. This ensures the estimate reflects real market conditions and current supply chain dynamics, rather than relying solely on built-in software data.

Step 3: Adjust Labor and Market Inputs

While ACCE provides baseline labor hours and rates, adjustments for local market conditions are essential. Productivity, wage rates, and union/non-union labor dynamics vary widely by region and must be reflected in the estimate.

Step 4: Incorporate Indirect Costs, Contingency, and Contractor Factors

No software can replace experience when it comes to indirects, contingency, overheads, and profit expectations. This is where subject-matter expertise and independent estimate reviews become critical to building a credible estimate.

Building a Should-Cost Estimate: A step-by-step process that combines BOM development, validated material costs, labor and indirect factors, and the removal of inefficiencies to deliver a defensible, transparent project baseline.

Benefits of Should-Cost Estimating for Owners

Should-cost estimates are not about second-guessing contractors. They are about empowering owners with evidence-based data that strengthens negotiations, reduces risk, and improves capital efficiency.

When used effectively, should-cost models help owners:

• Negotiate lower EPC contract values

• Validate bids against defensible benchmarks

• Avoid “black box” assumptions in contractor proposals

• Align project teams around realistic expectations

Without this type of model, project teams risk repeating some of the most common estimating mistakes in capital projects—errors that could have been caught early with better cost visibility.

Conclusion: Why You Need Should-Cost Estimating in Capital Projects

A should-cost estimate is one of the most powerful tools owners can use to manage capital project costs. It does not eliminate uncertainty, but it provides a defensible foundation for negotiations and decision-making.

At ROMAN Consulting Group, we help client apply should-cost estimating and other estimating best practices to strengthen decision-making and Improve project outcomes.

Contact ROMAN Consulting Group to explore how a should-cost model can strengthen your next project.