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A project study submitted in the partial fulfillment of the requirements for the subject “ADVANCED SYSTEM MANAGEMENT ”
Submitted By SIDDHARTH SHRIVASTAV (ROLL NO. 52) SUNIL SETHIA (ROLL NO. 61) HARMINDER SINGH (ROLL NO. 19) WASEEM AKRAM (ROLL NO. 70) PRASAD BHASKHAR (ROLL NO. 74)
Under the guidance of PROF. G.N. JAYANTHY
THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT HYDERABAD
This is to certify that this is a project report on “ COST ESTIMATION TECHNIQUES FOR CONSTRUCTION INDUSTRY” submitted by Mr. Sunil Sethia, Mr. Siddharth Shrivastav, Mr. Harminder Singh, Mr. Waseem Akram, and Mr. Prasad Bhaskar (PGP/SS/2007-09) as a part of the curriculum for the third trimester. The work has been undertaken and completed under the guidance of Prof. G.N. Jayanthy and is satisfactory.
I t gives us great pleasure in presenting our project work on “ COST ESTIMATION TECHNIQUES FOR CONSTRUCTION INDUSTRY”. We, the students of PGP/SS/200709, IIPM-HYDERABAD successfully completed our project and would like to thank Prof. G.N. Jayanthy for his timely encouragement, guidance and support.
We, as co-workers are also grateful to each other for the team work without which this study could not have been completed successfully.
The primary objective of this report is to provide the readers the insight into the COST ESTIMATION TECHNIQUES FOR CONSTRUCTION INDUSTRY.
We hope that the report has made the text interesting and lucid. In writing this report, we have benefited immensely by referring to many publications and articles. We express our gratitude to all such authors and publishers.
Any suggestions to improve this report in contents or in style are always welcome and will be appreciated and acknowledged.
We would like to categorically mention that the work here has neither been purchased nor acquired by any other unfair means.DECLARATION We hereby declare that all the information that has been collected. analyzed and documented for the project is authentic possession of us. information already compiled in many sources has been utilized. (Sunil Sethia) (Siddharth Shrivastav) (Waseem Akram) (Harminder Singh) (Prasad Bhaskar) . for the purpose of the project. However.
CONTENTS INTRODUCTION TYPES OF CONSTRUCTION CONTRACTS PROJECT MANAGEMENT IN CONSTRUCTION BUSINESS COST ESTIMATOR & COMMON PRACTISES LEVELS OF ESTIMATES COSTING METHODS BIBLIOGRAPHY .
especially construction business. The building and construction industry does not always run smoothly and has lots of ups and down. In any business. along with measures that help to minimize the risk elements. This enables to identify the likelihood of success in a project to be undertaken. Keeping a track of everything manually is very difficult and many times searching for particular information can take lots of your time to get the required details. to predict the futur e accurately. risk identification and risk analysis are crucial for successful implementation of business strategies. However. The accuracy of estimate will greatly affect the ability to deliver on time and within the constraints of the budget. not very difficult to predict a ‘very near’ outcome based on previous and current scenarios. Not only would it help them operate at maximum potential. It has been observed that most accurate estimate leads to lowest cost development. however. An accurate estimate plays a vital role in preparing solid groundwork for the construction projects. The whole process of risk analysis helps in the overall decision-making process. It is. Knowing the future is something every company dreams of. or anything. but it would also ensure that they did not put a foot wrong. Estimation is an important part of planning and is an important determinant in effort and time required to do the job.INTRODUCTION Managing a business is not an easy job. The objective of risk management is to identify and then measure the degree of the risk associated with different courses of action on a project. Many factors contribute to the unpredictability of this sector and it is therefore very important to operate as safely as possible. it is impossible for anybody. .
Lump sum unit price.TYPES OF CONSTRUCTION CONTRACTS: Stipulated sum. Bridging. Cost plus a fee. . Design-build. Cost plus a fee with a guaranteed maximum price (GMP). Turn Key.
" But. An irate subcontractor calls threatening to pull off a job unless they get paid for work completed two months ago. Another client demands you drop everything and fix his problem now." "The paperwork is almost done. their responses include some of the following: "EVERYTHING'S OK. On an important job." "99 percent complete. Your accounting manager tells you some project managers are not doing their required paperwork timely and several change orders have not been approved in advance by the owner.PROJECT MANAGEMENT IN CONSTRUCTION BUSINESS Companies’ always feels that there construction projects are running smoothly." "We're coming in close to budget. you get a call from an angry customer screaming his project is three weeks late." "I'm getting all the signatures tomorrow. As they walk from office to office asking there project managers how things are going." "Only a few issues left to resolve." "No problems I can't get handled. just a few little things left. the concrete . Another is upset he isn't getting the quality and service for which he contracted. are things going as well as you were told? A few days later." "I think we'll finish on time.
Six good project managers will do things six different ways. disorganization. Typical project management problems are encountered when companies don't have standardized systems in place that guarantee everyone does business the same way. it gets even worse. The month-end job cost reports show the estimated final profit on five projects has slipped again without notice. You want consistent performance and results. Your accounts receivable aging report is not good. checking and confronting to make sure everything is performed exactly the way you want it done. late or not at all. This creates chaos. they will do things differently unless you have written systems in place for all to follow. These owners struggle and fail as they let project managers continually tell them what they want to hear instead of the truth. The city will not release your offsite improvement bonds as there are still outstanding items left to complete from over a year ago. NO PROJECT PROBLEMS? These problems are symptomatic of companies run by owners who haven't taken the time to make installing pro-active project management systems a priority. avoiding conflict until it's too late. There are six outstanding change orders a customer refuses to pay. You want everyone to do business in a similar manner. . You find out a building inspector has not approved a major installation your foreman changed in the field. You want your project managers to be accountable and keep you informed of the real situation on every project.cylinder tests for the footings are not coming up to the design mix requirements. stress and lost profits. Your customers. and payments are being received slower on most projects. And then. Even if you have great managers. subcontractors and suppliers can't deal with a company that doesn't have consistent business standards and systems in place. Four customers still owe your company final retention payment on projects completed over three months ago. You don't want to rely on your constant reminding.
They focus on being organized and have a systemized pro-active approach to project management. trained.Could you imagine doing business with a bank that let each loan officer lend based on their own personal standards? It wouldn't work. reviewed. followed and adhered to. budget. let their people slip from following written company procedures. Owning and managing a successful general contracting company for over twenty-nine years has taught me a simple truth: to build an excellent company. 5. Keep customers happy. tracked. Typical re-occurring problems are a result of the company owner not requiring everyone to follow the company project management systems. Successful projects lead to profitable growing companies. Excellent companies consistently hit their overall goals and project management targets in the areas of time. so they can: 1. you must get your project management systems installed. It's hard to keep people accountable to systems that aren't written. Start and finish projects quickly. 3. Meet their commitments. . pro-active and permanent. quality and safety. over time. GET PROJECT DRIVEN! Construction companies are project driven. They are focused on more than getting the jobs done as efficiently as possible. customer satisfaction. The owner then tries to keep project managers herded like cats to follow the company rules. Can you imagine a construction company where each project manager could decide if and when lien releases or signed change orders were required or if the subcontract terms had to be followed? It wouldn't work either. Most companies have general rules to follow. 2. But busy owners. if they even have them. but don't have them written down. 4. Be on time and budget. Consistently measure success.
assigning tasks. Build teamwork. Most projects are started without a plan and with hope that something good will happen. 7. Just trying to do your best or trying to bring it in on budget and schedule will not guarantee the bottom-line results you want at the completion of every job. 8. while minimizing risk.6. 10.Grow. people. 12. 9. 11. organizing work. energy. Project management is composed of several different types of activities such as planning.Maximize and allocate resources. directing activities. Create a great place to work. money. Successful projects start with clear objectives and measurable results to achieve. equipment and materials within a specific deadline. Train and improve people. WHAT ARE PRO-ACTIVE SYSTEMS? Pro-active project management systems are repeatable and standardized written organizational methods. procedures and guidelines that achieve project goals and optimize resources of time. per the contracted scope of work. FOUR STAGES OF "PRO-ACTIVE" PROJECT MANAGEMENT SYSTEMS 1. Without clear . estimating resources. PROJECT GOALS AND OBJECTIVES Consistent performance and success is more than getting organized and training project managers to do business the same way. Pro-active project management systems control all project activities and deliver the desired and targeted results on time and on budget. tracking. reporting progress and finally analyzing results. monitoring. assessing risk. Identify problems early.Make above-average profits.
ii. Profit. Time and Schedule i. Customer satisfaction. Start Milestones Completion Punch-list . ii. i. you can't make project managers accountable or responsible for their results. Service. C. E. Overall Project Objectives. Quality. Training. iii. F. Productivity. Job cost. Safety. Before every project. D. G.targets. iii. B. including: A. iv. sit down with the project team and lay out the goals and objectives. H. Budget and Financial.
include the following: A. procurement procedures. Accountability K. Project management is no different. PROJECT PLANNING Successful projects have written plans to insure they stay on track and hit their goals. Cash-flow H. Project requirements C. Project managers must breakdown the project into small incremental steps that will insure accomplishing the end results. Labor G. These steps must be identified and perfected as part of your project management system. Resources E. Schedule J. In order to draft a successful project plan. change order systems and shop drawing standards. Systems will make this happen. By creating and following a project plan. These systems can include pre-project start-up meetings. The objective should be more than keeping the job moving. You wouldn't start a construction project without a detailed set of working drawings or building plans. Responsibility . There are certain steps every project must follow that guarantee on-time and on-budget completion and success.2. The intent is to hit the goals and project milestones. Equipment F. the manager can assign tasks and hold people accountable. Materials D. Project specifications B. Tasks I.
team members can get started on track and monitored on an ongoing basis as to their progress. Productivity systems H. Ongoing organizational systems will keep your project headed and tracking toward the desired end result. Installation systems D. Procurement systems C. When systems are used. Training systems I. Quality control systems G. hard to overlook or hide and can be addressed before it's too late. Customer systems 4. Tracking systems E. PROJECT MONITORING AND EVALUATION As you build each project. By establishing clear measurements and procedures for project implementation. . Cost control systems F.3. PROJECT PRODUCTION AND IMPLEMENTATION The next step is to build the project. constant monitoring becomes easy for the owner or upper management when systems are in place and being followed. Consider which project management systems will guarantee that every project will meet its goals: A. Safety systems J. problems become quick to identify. Project control systems B. Each project team member must know what is expected and what systems must be followed before starting work. When project management systems are installed and used effectively. monthly evaluation meetings become a simple check of what has been done properly and what needs attention.
To create pro-active project management systems. . will guarantee successful projects 90 percent of the time. if implemented and followed. Request for information systems. On-going safety program. Insurance requirements. General contract checklist. Submittal and shop drawing steps. Purchase order checklist. Project scheduling and monitoring. Then you must be "pro-active" and stay focused on these systems as "musts" for your managers to implement. Subcontract checklists. no exceptions. start by selecting the top ten systems and procedures you feel. Change order management. Scope of work standards.PROJECT MANAGEMENT SYSTEMS ARE "PRO-ACTIVE" A key success factor to owning and managing an organized and systemized company is to select the systems that will insure the success of your operation. Procurement procedures. maintain. they always insist on getting your expiration date. Specification review. It will be your job to monitor these priority systems and force your project management team to adhere to these without exception. track and perform. For example. On-going training program. when ordering something with a credit card. Required approval list.
Accounts receivables. Contract documentation. Project communication. Executed change order log. Progress payment procedures. Subcontract tracking log.Customer service standards. Jobsite photos. Proposed change order log. PROJECT SUCCESS SYSTEM Project goals targets. Updated schedule. Contract administration. Accounts payables. Shop drawing and submittal log. Project paperwork standards. Budget variance report. Job cost update. Job cost reporting and review. Contract management. . Project management meetings. Customer satisfaction review.
Review bid/estimate/proposal. Review complete specifications.COMPANY SUCCESS SYSTEM Current project milestone tracking. Visit jobsite. SYSTEMS THAT WORK The following are a few of the top priority project management systems. Read complete contract. 2. 3. recommend to keep projects on track: Project Start-Up System 1. Pre-construction. Estimates and bids. 4. Project start-up. 5. . Sales and proposals. Completion. Construction. Review complete plans. Procurement. Payment. Overall strategy.
xi. xii. Project goals and objectives. Complete project checklist: i. v. Insurance requirements Bonding requirements Billing and payment requirements Cash-flow needs Discounts available Shop drawings and submittals Schedule and deadlines Long lead items Special tools and equipment Meetings Signature of authority designated City and permit requirements Site accessibility Loading and unloading needs Project close-out requirements 9. Execute contract PROCUREMENT SYSTEM 1.6. vi. xv. 8. xiv. iv. viii. x. ii. Always award to the lowest responsible bidder . 7. ix. iii. vii. Set-up project master budget. xiii.
Supervision 7.Safety program REVIEW CONTRACT TERMS: 1. Schedule 3. REVIEW: 1.BEFORE AWARDING CONTRACTS. Final scope of work 2. Financial capacity 4. Payment procedures EXECUTE ALL SUBCONTRACTS PRIOR TO STARTING JOB . Clean-up and punch-list 6. Notice requirements 9. Mandatory meetings 5. Professional 9. References 3. Adequate manpower 6. Bid scope of work 2. Ability to meet schedule 5. Quality workmanship 8. Similar project experience 7. Change order procedures 8. Training program 10. Delay clauses 4.
professional design team members. the organization's financial capability. and construction contractors need to make budgetary and feasibility determinations. Make other members of the project team aware of any problems with the project documents. level of design discipline coordination. The construction contractor's cost estimate will determine the construction bid or whether the company will bid on the construction contract. Awareness: The estimator should firstly consider the project scope and the level of effort and resources needed to complete the task ahead. . From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. Review all sections of the drawings and division specifications to ascertain an accurate perspective of the total project scope. and project constructability. Communicate and coordinate information to other project team members in a timely manner. and plant capacity (if working as an estimator for a construction company) to complete the project.COST ESTIMATOR & COMMON PRACTICE TRAITS Cost estimators develop the cost information that business owners or managers. staff. Consider the time allotted for the construction of the project in coordination with the owner's schedule needs. Examine the general and special conditions of the contract and determine the effect these requirements have on indirect costs. Consider alternate methods of construction for the projects. adequacy of details. PRACTICES: 1.
These methods should also meet the specific need of the company or client. Estimators and other personnel may need to review the original estimate when the specific details are vague. Consistency: Use methods for quantity surveys that are in logical order and consistent with industry standard classification systems. consistent. Apply amounts for overhead and profit. The documentation must be clear and logical or it will be of little value to the reader. and review of past estimates as preparation for new estimates on similar projects. and that is understood and accessible by all team members. settlements of claims.2. Uniformity: The estimator should develop a good system of estimating forms and procedures that exactly meet the requirements of the project. and contingency in the final summary. Use of consistent methods allows several estimators to complete various parts of the quantity survey. and equipment unit costs are then applied to the quantities as developed in the quantity survey. Documentation: Document all portions of the estimate in a logical. and legible manner. Combine these surveys into the final account summaries. which can provide independent method of proof of the accuracy of any portion of the survey. . labor hour and equipment hour quantities required for the project. This system should provide the ability to define material. Material. Consistency also aids the identification of cost increases and decreases in certain areas as the project progresses through the design stages. Such instances may occur in change order preparation. or be continued later by another estimator. Verification: The method and logic employed in the quantity survey must be in a form. 5. escalation. 3. labor. 4.
Final Summaries: Provide methods for listing and calculating indirect costs. and/or owner occupancy of existing space that may have a bearing on projected overhead costs. 9. Evaluation: When the estimate involves the use of bids from subcontractors. unemployment insurance and social security taxes are significant factors in the project costs. The most accurate method for including these costs is to define labor hours and wage rates. Determine amounts for performance bonding. Determine these costs in a manner consistent with quantity survey applications. Project scope governs the costs of overhead items such as insurance. etc. 7. Using the same level of detail in both the value engineering studies and the base estimate is extremely important. The combined costs for worker's compensation. Consider other work in progress. check the bids for scope and responsiveness to the project. Labor Hours: The detailed application of labor hours to a quantity is primary in governing the accuracy and sufficiency of an estimate. replacement materials.6. profits. home office plant. These alternative methods can include different construction methodology. 8. Value Engineering: Structure the estimate to aid in researching and developing alternative methods that will result in cost optimization. and contingencies. and administrative personnel. This provides a more precise comparison of costs for proposed alternate methods. Investigate the past performance records of subcontractors submitting bids. Determine the level of competence and quality of performance. escalation. then apply percentages to the labor costs. . The accuracy of the project's schedule and work force requirements are dependent on the evaluation and definition of the hours.
Field cost reporting. and help train field personnel in labor hour and cost reporting that provide the level of accuracy required. Determine if the low bidder may have made omissions in the estimate. These procedures include methods of reporting field costs for problem areas. Make reports daily or weekly rather than at some point in time after the project is complete. 11. Properly document this information for future use and guidance. . Analysis: Develop methods for analyzing completed estimates to ascertain if they are reasonable. Develop methods of analysis of post-bid estimates to find the reasons for the lack of success in the bidding process. enables estimators to apply the knowledge gained from these historical costs to future estimates. Determine if bids were submitted by a representative number of contractors for the level of construction quality expected. Conversion: Show estimating procedures that allow conversion of the estimate to field cost systems so management can monitor and control field activities. research the detail causes for possible errors. Calculate the variation of the estimate from the low bid and low average bids. When the estimate is beyond the normal range of costs for similar projects. Determine from an outside source if there were subcontract or material bids provided only to certain bidders. when consistent with estimating procedures.10.
Define amount for overhead. State quantities and costs for all material. equipment. profit. use the estimate detail as the definition of scope of the change order. Specific itemization of change order proposals is essential in allowing the client to determine acceptability. . taxes. and subcontract items of work. labor. Upon approval. Change Orders: Apply the highest level of detail from information provided or available to the estimator.12. and bond.
service requirements. not all portions of the design would be at the same level of completeness. This is common through the design process. For example. and raw materials access. utility requirements. materials and storage required. the estimate preparation and information will change based on the needs of the Owner/Client/Designer. The following descriptions constitute the different levels of an estimate. the architectural design may be at 80% complete while the mechanical design is only 50% complete.LEVELS OF ESTIMATE As a project is proposed and then developed. In addition to construction costs. flow diagrams. Contingencies for the aforementioned will be reduced as more design documentation is produced. These levels are as follows: . and the pricing of the quantities become more detailed. Estimates within each of these levels may be prepared multiple times during the design process as more information becomes available or changes are made to the scope. process layout. fewer assumptions are made. These changes will require estimates to be prepared at different levels during the design process with increasing degrees of information provided. estimates for process or manufacturing areas require information related to the involved processes such as product line capacity. As the level of the estimate increases it will become more detailed as more information is provided. handling requirements. It should also be noted that within each level of estimate preparation. but should always be noted in the estimate narrative. The levels of the construction cost estimate correspond to the typical phases of the building design and development process and are considered standards within the industry. "unknowns" are eliminated.
conceptual plans. An estimate at this level may be used to price various design schemes in order to see which scheme best fits the budget. etc. geographic location. renderings. seats. The Level 2 estimate is based on the previous level of information available at Level 1. Estimates are based on costs per square foot. size expressed as building area. cars. number of cars/rooms/seats. and intended use. . The goal at the end of schematic design is to have a design scheme. construction type/size determinations. utility requirements. Project information required for estimates at this level usually might include a general functional description. numbers of people.ORDER OF MAGNITUDE The purpose of the Level 1 estimate is to facilitate budgetary and feasibility determinations.. Information is typically supplemented with descriptions of soil and geotechnical conditions. schematic drawings. in addition to more developed schematic design criteria such as a detailed building program. or it may be used to price various design alternatives. sketches. and estimate that can be contained within budget. etc. It is prepared to develop a project budget and is based on historical information with adjustments made for specific project conditions. and any other information that may have an impact on the estimated construction cost. or construction materials and methods for comparison. sections and preliminary specifications.CONCEPTUAL/SCHEMATIC DESIGN The purpose of the Level 2 estimate level is to provide a more comprehensive cost estimate to compare to the budgetary and feasibility determinations made at Level 1 and will be typically based on a better definition of the scope of work. elevations. diagrams.LEVEL 1 . foundation requirements. program. LEVEL 2 . schematic layout.
doors.LEVEL 3 . This final construction document cost estimate will be used to evaluate the subcontract pricing during the bid phase. to again verify the construction cost as design is being completed.). LEVEL 4 . Estimates at this phase may be used for value engineering applications before the completion of specifications and design drawings.DESIGN DEVELOPMENT Estimates prepared at Level 3 are used to verify budget conformance as the scope and design are finalized and final materials are selected. typical details. and to identify any possible "design creep" items. Information required for this level typically includes not less than 25% complete drawings showing floor plans. made possible by better defined and detailed design documentation. LEVEL 5 . and their costs. and hardware etc. The Level 3 estimate provides a greater amount of accuracy. for assessment of potential value engineering opportunities before publication of the final project design documentation for bids. preliminary schedules (finishes.BID PHASE The purpose of this level estimate is to develop probable costs in the preparation and submittal of bids for contract with an Owner. caused by modifications during the completion of the construction documents. Level 4 estimates are typically based on construction documents not less than 90% complete. system single line diagrams. In the traditional "design-bidbuild" delivery system. sections. elevations. engineering design criteria. partitions. and outline specifications. this would be with 100% completed and coordinated . equipment layouts.CONSTRUCTION DOCUMENTS Level 4 estimates are used to confirm funding allocations.
The estimator must make allowance for the varying production capability that will occur based upon the complexity of a project.200 per cubic yard for walls) is only applicable when the cost history supports the data being used. allowances. documents used for the estimate. and contingency amounts included. becoming more widely used. ELEMENTS OF A COST ESTIMATE Quantity Takeoff: The foundation for a successful estimate relies upon reliable identification (takeoff) of the quantities of the various materials involved in the project. Labor Rates: The labor rate is the cost per hour for the craftsmen on the project. such as design-build or guaranteed maximum price. The Level 5 estimate will be used to evaluate sub-contractor bids and change orders during the construction process. the bid could actually be prepared at an earlier level. 150 per cubic yard for grade beams or Rs.documents. Labor Hours: Labor hour amounts can be developed by crew analysis or applied on a unit man-hour basis. . In other delivery systems. often Level 3 or Level 4. it is very important to include a complete and thorough "Scope of Estimate" statement that would state clearly such items assumptions. whether union or open shop. In such an instance estimates are prepared as previously described along with progressive estimates as the design is completed. The use of a labor pay per unit of work (ex: Rs. the estimator starts with the basic wages and fringe benefits. To determine any craft rate. It should be stressed that when preparing a bid at a prior estimate level.
road size. such as distance. Equipment Costs: Equipment rates depend on the project conditions to determine the correct size or capacity of equipment required to perform the work. and previous payment history between the subcontractor and general contractor. Material prices may be affected by: Purchase at a peak or slack time of the year for the manufacturer. equipment. Costs will also differ if the equipment is owned by the contractor as opposed to rent. Payment terms and history on previous purchases Sole-source items. cycle times and equipment capacity control the costs on the project. indirect costs. Delivery timeframe requirement. labor hours. contains labor. especially in today's current market. etc.Material Prices: Material prices. Physical requirements for delivery. or site access. like the general estimate. Material availability.. It is dependent upon having the quantities. fluctuate up and down. Subcontractor Quotes: A subcontractor quote. prepared in a reliable manner just like any other part of an estimate. . The amount of the subcontractor quote is also dependent upon the payment terms of the contract. The estimator must both understand and anticipate the frequency and extent of the price variations and the timing of the buying cycle. When interfacing with other equipment. hourly rate. Bonding costs should also be considered. material. Exchange rates (if the material will be imported into the country). and profit. Size of the order.
Indirect Costs: Indirect costs consist of labor. etc. For the owner: design fees. staffing. permits. on-site job office. and equipment items required to support the overall project. small tools and consumables. land acquisition costs. equipment. legal fees. administration costs. For the contractor and subcontractor : mobilization. This exercise is not another level of estimate. material. but is a cost control mechanism and important data for estimating future projects. temporary heat/cooling. the actual bid. Profit Amount: Apply appropriate or contracted profit rate uniformly to all contractors and to original bid and change orders. etc. and temporary utilities. It should be noted that it is always good cost control practice to review and evaluate the final cost estimate vs. temporary construction. The transfer of the estimate information to the field cost control system provides management the opportunity to closely monitor and control construction costs as they occur. .
COSTING METHODS JOB COSTING (SMALL. IDENTICAL UNITS) CONTRACT COSTING (LARGE. LONG-TERM) COSTING METHODS OUTPUT COSTING (ONLY ONE PRODUCT) CONTINUOUS SERVICE COSTING (PRODUCT IS A SERVICE) OPERATIONS PROCESS COSTING (PRODUCED IN STAGES) . SHORT-TERM JOBS) BATCH COSTING SPECIFIC ORDERS (SMALL.
The purpose of producing a pre-tender estimate can be classified into the following three categories: Budgeting – this decides whether the project should proceed as envisaged. the plans and specifications defining the materials to be used. The preparation of an accurate preliminary estimate is one of the most complicated subjects for designers and estimators. Estimating costs is of prime importance both in the preliminary and the realization phase of a project. To guide him. etc. the construction manager must know the estimate of costs. Cost studies are then followed by a process of cost analysis. Comparing – this uses the estimate as a basis for the evaluation of different design solutions. . The construction project consists of the physical components: the structure. The task of cost estimates is essential and important in project management since through cost estimates budget forecasting and cost control. can be carried out. cost planning and cost control. the mechanical and electrical systems. and to increase the rate of growth of construction work in the most efficient manner. which must be monitored and managed in such a way that deviations from the plan are detected and corrected in time so that objectives can be met and met on time and within budget. Controlling – this uses the estimate as a control mechanism throughout the design process. and the architectural finishes.Cost studies of building seek to ensure the efficient use of available resources to the industry. and the proper assembly of the materials.
5. 6. 4. Literature survey has elicited the following estimating methods: FUNCTIONAL UNIT CUBE METHOD SUPERFICIAL AREA SUPERFICIAL-PERIMETER STOREY-ENCLOSURE STOREY-ENCLOSURE ELEMENTAL ANALYSIS INTERPOLATION RESOURCE ANALYSIS COST ENGINEERING . 3.ESTIMATING METHODS Pre-tender price estimating methods may also be classified as single price-rate. ACTIVITY Project Identification Project Definition Project Execution PLAN OF WORK Consultation Brief Investigation Constructional Detail Working Drawing Construction ESTIMATING TYPES Preliminary Feasibility Viability Authorization Final budget Control COST PLANNING PROCESS Initial estimate Firm estimate Preliminary Cost Plan Final cost plan Cost check - The degree of accuracy will very much depend on the type of information provided to the quantity surveyor in addition to the quality of his pricing information. measured analysis or cost models. Table 1 Estimate Types Stage Activity Plan of Work Estimating Types Cost Planning Process STAGE 1. 2.
used widely in both the public and private sectors for controlling costs. Still in the course of development. Used mainly by contractors for contract estimating and tendering and tendering purposes. but now in disuse. It is used in circumstances where historical cost data may not be appropriate. Often used to fix cost limits for public sector building projects. Not strictly a method of approximate estimating. Mainly used for petrochemical engineering projects. As for the result. Largely unused in practice Still a popular method on difficult and awkward contracts and where time permits. and may at this stage not be quantified in any particular way. These methods may eventually prove to be superior to the existing methods .Table 2 Methods for Pre – Tender METHODS CONFERENCE FINANCIAL METHODS UNIT SUPERFICIAL SUPERFICIAL PERIMETER CUBE STOREY ENCLOSURE APPROXIMATE QUANTITIES ELEMENTAL ESTIMATING RESOURCE ANALYSIS COST ENGIN EERIN G COST MODELS Based on a consensus viewpoint NOTES Used to determine cost limits or the building costs in a developer’s budget Applicable to projects having standard units of accommodation. Can be applied to virtually all types of buildings. as in the case of a prototype . it has been shown that the group concerned must have relevant experience of estimating the costs of similar projects. but more associated with cost planning. Still widely used. CONFERENCE ESTIMATE This is a technique that can be used for the preparation of the earliest price estimate given to the client. and the most popular method of approximate estimating. Never used in practice Used to be a popular method amongst architects. It is based on a collective view of a group of individuals.
Alternatively. building and other development costs (excluding land) and profit could be calculated and deducted from the total selling price in order to determine a maximum price to be paid for the land.project. The architect must then ensure that the design can be constructed within such a cost limit. based on either unit of accommodation or rental values. and the remainder would represent the amount to be spent on building. For example. The standard units may represent. The builder would then deduct other development costs and profit from the total selling price. FINANCIAL METHOD These are methods that fix a cost limit on the building design. for example: • Schools – costs per pupil enplace • Hospitals – costs per bed enplace • Car parks – cost per car space . projects are often evaluated in terms of their selling price or rental value. The estimated cost of a project may be fixed in relation to the number of pupils who are likely to attend a completed school. UNIT METHOD The unit method of approximate estimating consists of choosing a standard unit of accommodation and multiplying this by an approximate cost per unit. This method is used to avoid or reduce the risk or embarking on a profitless venture. The assessment will take place at the outset. It also offers a qualitative viewpoint to reinforce or otherwise a measured estimate. in connection with a speculative housing development a market research survey would determine the possible selling price of dwellings on a new estate. and certainly before payment of the site purchase. In the private sector.
It is largely a post-1945 method. It is one of the simplest and quickest methods to implement. Storey heights. SUPERFICIAL AREA METHOD This is still the most common method in use for early price estimating purposes. The estimate of cost is easy to calculate and thus is expressed in a way that is fairly and readily understood by those in the industry and the average construction industry clients. market conditions regional changes and inflation. plan shape and methods of construction are particularly important when deciding on the rate to be used. but considerable experience is necessary in order to select an appropriate rate. adjustments based on professional judgment will always need to be made to take into account the various site conditions. size and construction. Functional units are those factors which express the intended use of the building better than any other. This rate can be obtained by the careful analysis of a number of recently completed projects of a similar type. This method is extremely useful on occasions where the building’s client requires a preliminary estimate based on little more information than the basic units of accommodation. However. specification changes. and became appropriate for projects such as schools and housing where storey heights were similar. therefore. to express cost within a range of prices that can be useful for budgetary estimating. The method of counting the number of units is extremely simple. the floor areas are calculated from the internal dimensions of the building.The technique is based on the fact that there is usually some close relationship between the cost of a construction project and the number of functional units it accommodates. Another consideration which favor the use of this method is that rates are readily available from many different . It suffers from the major disadvantage of lack of precision. The area of each of the floors is measured and then multiplied by the cost per square meter. but it must be used with care. and should only be used for establishing general guidelines. It is advisable. In order to provide comparability between various schemes.
Even with such a primitive method it was necessary to provide some rule for comparable quantification of purposes. All architects’ offices used to keep a ‘cube book’ for future estimating purposes.sources already operating. . The wall/floor area ratio is known to be an important factor in the economic design buildings. It was a method extensively used by architects. Tests have indicated that more accurate results can be obtained than when using floor area alone. This is the second most important variable. they can be calculated very easily from existing scheme cost data. SUPERFICIAL PERIMETER METHOD This method of approximate estimating is a variation on the superficial floor area method. The formula combined floor area with the length of the building’s perimeter. alternatively. The cost of a new job could then be determined by calculating its volume and selecting an appropriate rate from the book. this method has not been used in practice. Due to the reluctance of surveyors to change to this method of approach and of cost data sources to publish appropriate rates. but has since been superseded because of its inherent disadvantages. Realizing that the floor area has the greatest single variable-correlated price produces a formula that showed an increase in the accuracy of early price prediction. Once the contract was signed its costs would be divided by the cubic content and entered into office price book. CUBE METHOD The cube method of approximate estimating was used extensively at the beginning of this century. and attempts to take into account plan shape when linked with floor area.
This method does provide a more detailed and reliable method . The area of the roof measured on plan. iii. etc. a new method was devised using the following rules of calculation. this method relates to the importance of measurement. Extra costs of providing usable floor areas below ground (by using multipliers) APPROXIMATE QUANTITIES Approximate quantities provide a more detailed approximate estimate than any of the methods described above. The Method Attempted to Take Into Account: a. Plan shape (by measuring each floor) b. 45% for the third floor.STOREY-ENCLOSURE METHOD In an attempt to overcome the many disadvantages of the other single-price methods of estimating. iv. Total floor area (by measuring the external wall area) c. ii. Overall building height (ratio of roof area to external wall area) f. They represent composite items which are measured by combining or grouping together typical bill-measured items. The area of the external walls. Twice the area of the upper floors. Vertical position of the floors (by using different multipliers for each floor) d. i. Storey heights (ratio of floor and roof area to external wall area) e. Twice the area of the lowest floor. plus an addition of 15% for the first floor. 30% for the second floor. Whereas the methods described above estimate costs on the basis of measurement and some cost relationship.
of approximate estimating. The latter would be based on an agreed method of measurement. more reliable when one is attempting to estimate the costs of major refurbishment projects. where the project must be designed within an overall framework of a cost limit. It keeps the designer fully informed of all the cost implications of the design in relation to an approved approximate estimate and is likely to be accepted as the tender sum. The first form is known as elemental cost planning. The other alternative form is comparative cost planning. This method analyses the cost of the project on an elemental basis. considerably more information is required from the designer if the method is to be applied in practice. offering the client better value for money. The method is therefore suited to a more advanced design stage. The former. however. but involves more time and effort than any of the methods (1)-(7). ELEMENTAL ESTIMATING The first stages of cost planning can be used to determine the approximate cost of a construction project. Two alternative forms of cost planning have been developed. It is often referred to as ‘designing to a cost’. It provides cost advice during the design process. however. which often incorporate some form of cost limit. Cost planning. also seeks to do much more. This method is referred to as ‘costing a design’. would be much briefer because several of the bill items would be grouped together within a single description. In practice it is more appropriate to public sector projects. . although in practice a combination of both is now generally used. No particular rules of measurement exist. attempting to make use of the cost analyses from other similar projects. and the composite items resulted from the experience of each individual surveyor. It is. which is used for approximate estimating purposes. Also. Contractors favor this method when they have to prepare tenders on the basis of a drawing and specification projects. Full cost planning services today would also incorporate the attributes of life-cycle costing and value engineering. Approximate quantities should not be confused with the bill of approximate quantities. where alternative designs can be examined within an economic context.
size. CCI) Where Q = capacity throughout . Each part is then cost’d on the basis of output. Each individual measured item is analyzed into its constituent parts such as labor. In these circumstances. M. plant hours. Alternative analytical methods can be calculated based on resource costs on the basis of operations rather than individual bill items. however. Functional Approach The average cost of a functional unit in a process is the function of the various process parameters. T. a new material or construction process is envisaged. COST ENGINEERING METHODS There are three methods used for capital cost estimating in the process-plant industry. for example. be applied in circumstances where. location. material quantities. gang size. In theory the contractor will make extensive use of feedback. shape and height as important factors affecting the contractor’s costs. materials and plant. These are: 1. although some evidence suggests that the whole process is largely determined by value judgments on the basis of previous experience. where existing cost data are not available the design team may have few alternatives available other than to refer to resource-based estimating. It can. because of the amount of time and the type of data required.RESOURCE ANALYSIS This is a method that is traditionally adopted by contractors’ estimators to determine their individual rates for measured items in bills of quantities. Resource estimating is not strictly a pre-tender method of price prediction. etc. The estimated cost may therefore be represented in the following way: Cost = F (Q. P. Particular emphasis is placed on such project features as type.
say. The exponent x can be determined by plotting actual historical costs for the equipment or plant.T = temperature P = pressure M = materials of construction. Zimmerman (1965) has called these ratio-cost factors. A frequent value of x is 0. Factor Estimating This method relies on costing from only a portion of the scheme and then multiplying this by a factor to obtain the total cost.6. Thus the total cost of a building project may be estimated by multiplying the cost of the shell by. Exponent Estimating The costs of similar plants or pieces of equipment of different sizes vary with the size raised to some power. 3. . A range of factors have been derived empirically for different sorts of fixed capital equipment.6. and so relationship is often referred to as the six-length rule. These methods can also be used for estimating the costs of building and civil engineering works. and CCI = construction cost index 2. C2 = ( Q2 )x C1 Q1 Where C2 is the cost of the desired capacity Q2 and C1 is the cost of the known capacity Q1. 1.
However. however. such as SPSS. This assumption is now believed to be erroneous. The use of the computer has allowed more numerical methods such as statistical and operational research techniques to be applied to the forecasting of construction costs. During the early phase of their development it was assumed that estimating generally was solely a numerical process. Although they were first suggested during the early 1970s. It emphasizes that the correlation between cost items must be considered in the probability estimating methods when this correlation is significant. to have any chance of future practical application. Computer application became stronger with the fast development of mini and micro computers and especially with the availability of software packages like spreadsheets and statistical packages. considerable research has been undertaken in an attempt to convert the theories into practice. by trying to discover the true determinants of construction costs. There is. It also discusses various probability estimating methods and explains their applicability. The uncertainties about calculating project costs have been discussed in several papers. and the models. b) Provide more information for a more informed decision. little evidence at the present time that cost models offer any superiority over the traditional methods in terms of forecasting performance. These models attempt to formulate a better representation of construction costs than do their predecessors. Cost models are developed to advance five major aspects of cost information a) Provide cost information quicker. there is still only scant evidence of their use in practice. It assumes a normal distribution for various cost items and uses the probability estimating method with a 95% confidence level as the estimation limit. . BMB and others. must consider the input and expertise of the surveyor or estimator.COST MODELING METHOD Cost modeling is a more modern method that can be used for forecasting the estimated cost of a proposed construction project. SAS. Without computer facilities such applications would not be possible.
This method is easy to understand and can be related quickly to the construction projects. regression models. Application of these models can be conducted manually or by using computer aided system. and e) Provide information in a more understandable form Causal or empirical models. a multiple regression analysis would be applied. d) Provide information at an earlier stage in the design process. simulation. In any statistical analysis of relationship. . this is called linear regression analysis. exact relationships are not generally observed. one dependent variable is affected by more than one independent variables. and the assumptions to be made are fewer Heuristic are rule-of-thumb procedures which enable a near-optimum solution to be produced once the model has been built. Therefore in describing their relationship. Causal or empirical models are symbolic models which are based on relationships between the design variables and cost. One good example of causal or empirical models is bills of quantities. Regression analysis is a technique that uses the best fitted mathematical equation to express the relationship between the variables studied. heuristics. experiment and intuition. Simulation is done to avoid direct experiment error and it contains more variability if compared to other research methods. it is easier to understand. The simplest form of regression analysis involve only one independent variable and one dependent variable. The advantages using the simulation model is when problems occur it can be resolved quickly is not possible if it is done analytically. In the actual practice. A simulation model seeks to duplicate the behavior of the system under investigation by studying the interactions among its components. The equations developed are used for the purpose of estimating.c) Provide more reliable cost information. Secondly. It involves trial and errors based on the knowledge from experiences and skills of those involved. In other words. and which have been derived from observation. and expert systems are example of tools used for cost modeling.
But unfortunately.heuristic method of solution relies on intuitive or empirical rules that have the potential to determine an improved solution relative to the current one. FORMULATE THE PROBLEM COLLECTION OF DATA ANALYSIS OF DATA EVALUATION OF MODEL OPTIMUM MODEL MODEL BUILDING TESTING APPLICATION . It can acts as intelligent assistants to human expert. the expert’s ruleof-thumb are stored in the computer to help others to solve problems. there was too little attention given on these rules of thumb in recent years. Expert systems are computer programs that embody human expertise.
A scale for rating the popularity of practicing the estimating methods is used in this study.CONCLUSION The present study is focused on the cost estimation in construction industry. . The main purpose is to establish the method of cost estimating for building construction.
BIBLIOGRAPHY www.com Malaysia Construction Industry US Labor Articles Kingston Business School .google.constructionbusinessowner.com www.
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