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ESTIMATING PROJECT COST
I. INTRODUCTION
II. COMMON ESTIMATING TRAITS
III. THE FUNCTION OF THE ESTIMATE
IV. ESTIMATE CONSIDERATIONS
A. PROJECT SIZE
B. PROJECT QUALITY
C. LOCATION
D. TIME
E. OTHER
V. TYPES OF ESTIMATES
A. ESTIAMTING DURING DESIGN
B. ESTIMATING DURING CONSTRUCTION
VI. ORGANIZATION OF THE ESTIMATES
VII. QUANTITY TAKEOFF
VIII. UNIT PRICING
IX. MATERIAL COSTS
X. LABOR COSTS
XI. EQUIPMENT COSTS
XII. SUBCONTRACT WORK
XIII. OVERHEAD
XIV. PROFIT
XV. CONCLUSION
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ESTIMATING PROJECT COST
I. INTRODUCTION
There are many costs associated with construction projects. Some are not directly associated
with the construction itself but are important to quantify because they can be a significant
factor in whether or not the project goes forward.
These include costs incurred through financial agreements, real estate transactions,
consultant services, public relations, marketing, government regulations, maintenance, and
operations. None is a direct cost of construction, but all put financial pressure on the project.
II. COMMON ESTIMATING TRAITS
• As a project develops, there is no continual competition among the issues of
quality, size, performance and cost. Owners want the biggest building with the best
finishes and systems that will perform over time for the least amount of money.
• Estimating combines science and art. It is a product of information supplied by the
designer, the owner; and the suppliers.
• Estimate are not guarantees of costs. They developed during design and even at the
bidding stage are almost never the final and complete costs of the project.
• An estimate can only be accurate as the information upon which it is based. Many
factors that affect the accuracy of the estimate include: document completeness, data
base currency, skills, and judgment of the estimator.
• An estimate’s accuracy increases as the design becomes more precisely defined.
Estimates provided at schematic design will, by their nature, be less accurate than the
ones provided at design development.
• Methodology and procedure are important for accurate estimating. As the design
process proceeds, the level of detail increases. Only through adherence to strict methods
and procedures can mistakes be minimized.
• Each estimate is based on previous estimates. It is the product of lessons learned
from previous estimates.
III. THE FUNCTION OF THE ESTIMATE
• An early estimate helps define the affordability of the project, how big the project can be
for the money available, and what level of quality is possible.
• Estimates offer guidelines to the designer, who selects materials and sizes the project to
fall within the owner’s budget.
• Estimates are prepared by individual trade contractors to figure their bid price.
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• Estimates are used by the project manager to define the scope of work for each
contractor as well as determine fair pricing.
• Estimates can be used as a planning tool.
• Procurement specialists use it to define how much of a given item will need to be
purchased.
• For field superintendents, estimates are used to determine the total quantity of work to
be built in a particular location, total number of hours needed to do the work, and the
materials required.
IV. ESTIMATE CONSIDERATIONS
A. PROJECT SIZE
Size of the project is a factor of the owner’s needs in estimate, the bigger the size they
get more expensive in a less rapid rate.
B. PROJECT QUALITY
Owner may require a high-quality project to create a specific image; and a need of facility
for a specific use.
C. LOCATION
Constructing a facility in different places differs in the labor cost, the availability of
materials and equipment, delivery logistics, local regulations, and climate conditions.
D. TIME
Estimates must take into consideration when the actual project will be built, labor and
material costs usually escalate in time; by examining past and current trends, the
estimator can predict where these costs will be at the time of actual construction.
E. OTHERS
Market conditions shift, with owners, designers, and contractors all looking at a given
project from different perspectives. In a market without much work, contractors may bid a
project at cost or with little profit to cover their overhead and keep their staff employed.
On complicated projects, contractors may bid the work low in hopes of making significant
profit on future changes; or they can bid the work high to cover the increased risks of a
complex project.
V. TYPES OF ESTIMATES
A. ESTIAMTING DURING DESIGN
1. ROUGH ORDER OF MAGNITUDE ESTIMATES (ROM)
Design information may only contain sketches or concepts. Descriptions are
generally in terms of capacity, such as the number of hotel rooms, hospital beds or
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number of parking spaces. ROM estimates typically establish a cost per unit of
capacity.
2. SQUARE METER / CUBIC METER ESTIMATES
Once a design has reached the early estimate stage, it will start to produce floor
plans, elevations and building sections. This information makes possible the
calculation of floor areas and building volumes, which can then be multiplied by
appropriate unit costs to produce a square foot or cubic foot estimate.
3. ASSEMBLIES ESTIMATES
In the later of stages of design, when more information is available, it is possible to
configure estimate into a series of systems. In an assemblies estimate, the unit is the
foundation, the roofing, the electrical system and so on.
B. ESTIMATING DURING CONSTRUCTION
This estimate is the most detailed of all estimate types and is also the most important. It
carries with legal implications. If its bid is accepted, a construction company is legally
bound to a specific price for a specific scope of work.
VI. ORGANIZATION OF THE ESTIMATES
• Good organization is key to preparing reliable estimates and avoiding mistakes.
• Many people, both inside and outside the company are involved in estimates.
• The most important information for the estimating team comes from the contract
documents, which explain the scope of work, the quality of the work, the conditions the
contractor is expected to meet, the legal requirements of the job, and the schedule of
completion.
VII. QUANTITY TAKEOFF
• Once the estimating tasks are identified, categorized, and organized, the team begins the
quantity takeoff. This is the foundation of the estimate. Its purpose is to accurately
determine the quantity of work that needs to be performed on the project. Every work
item is measured and quantified, separating the work into units of labor, materials, and
equipment.
VIII. UNIT PRICING
• The next task is to determine how much each unit will cost to produce, deliver to the site,
accept, and store at the site, install in the correct position, and maintain until the project is
turned over to the owner.
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IX. MATERIAL COSTS
• Of all the prices that need to be identified, the material prices are usually the most
straightforward to determine.
• The most reliable source is the supplier. However, the estimator must ensure that the
price quoted actually covers all the specification requirements and the estimator’s
assumptions.
• The following points must be verified:
1. The material quoted is the correct model number, color, and finish.
2. The price is valid until the scheduled delivery time.
3. The price includes delivery to the job site.
4. Adequate warranties and guarantees are provided.
5. The lead time fits into scheduled need on site.
6. There is adequate stock available.
7. Payment terms, discounts, and credits are well documented.
X. LABOR COSTS
• The price of labor is the most difficult factor to determine because both the hourly wage
rate and crew productivity must be considered. The wage rate is a factor of the rate paid
to a specific trade. Union rates are available from the union locals and employer
bargaining group.
• Factors of the labor costs needed to consider include the following:
1. Expiration dates of the union agreements.
2. Amount of overtime anticipated
3. Availability of skilled labor in the area.
4. Amount and nature of any hazardous conditions.
• Information needed by the estimator in determining labor cost:
1. Expected efficiency rate and weather conditions
2. Other work occurring at the same time that could interfere with this activity
3. Specific conditions of the work: that is, working on ladders or scaffolding versus
working on the ground.
4. Duration and frequency of overtime
XI. EQUIPMENT COSTS
• Equipment which includes small tools needed to complete specific tasks, are covered
item by item. Equipment costs fall into two general categories: the equipment itself and
the cost of operating it.
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• The first category covers ownership, lease or rental, interest, storage, insurance taxes,
and license. If the company owns the equipment, these costs are determined in-house. If
not, the equipment supplier provides a quote.
• The second category includes gasoline, oil, periodic maintenance, transportation, and
mobilization. The cost of the operator is normally covered under the labor line item.
XII. SUBCONTRACT WORK
• The contractor's bidding on the project breaks down the job into work packages and
request bids from qualified subcontractors for each package.
XIII. OVERHEAD
• In the CSI format, Division 01 is General Requirements. This line item is also called
project overhead. It picks up the costs associated with operating the job site and some
home office expenses.
• Job site costs include the field office people, safety, photography, and cleanup. These
costs are typically itemized, with quantities and unit prices figured exactly.
XIV. PROFIT
• A company grows and maintains its corporate health through its ability to make a profit.
The investment of time and energy and the acceptance of risk inherent in a construction
project makes the inclusion of profit even more critical. Profit is added after the contractor
has priced the labor and equipment involved.
• Overhead has covered the costs associated with managing the job in the field and the
costs of supporting the project in the home office.
• Companies must add a profit margin into each project. The amount of profit added is a
factor of the type of project, its size, the amount of competition anticipated, the desire to
get the job, and the extent of the risks.
XV. CONCLUSION
• Every estimate must consider certain basic factors: project size, project quality, location,
time, and other market issues. A good estimate prepared at the right time gives the
owner the information needed to make informed decisions. A bad estimate can cause a
project to have serious cost overruns and, if it is a bid estimate, can bankrupt a contractor.
