1

Dr. Khaled Hyari
Department of Civil Engineering
The Hashemite University
Zarqa, Jordan
5 – Construction Cost
Estimating
Construction Cost Analysis and Estimating
(0401448)
• Why?
– To know in advance the expected cost in varying
degree of accuracy, at different phases of the
project
• Estimates are created by different people for
different reasons at different times with different
levels of detail
• On average, each building component is
estimated seven times during a project (Laitinen
1998)
Cost Estimating, Why?
2
• Who?
–Contractor
–Subcontractor
–Construction Developer
–Owner
–Government Agency (Municipalities, DOTs)
–Engineer, Architect, Construction Manager
Cost Estimating, Who?
Construction Cost Estimating 4 - 5
• Contractors/Subcontractors/ Construction
Developers
– Determine project cost and profit
– Implement cost control measure
– Develop data base that can be used for future
project
– Price change orders
• Owner
– Make investment decision in the conceptual stage
(Go/ no go decision)
– Establish construction budget
– Forecast probable actual cost
Cost Estimating, Why?
3
Construction Cost Estimating 5 - 5
• Owner
– Negotiate and finalize the contract at the
implementation phase
– Implement cost control measures
• Engineer/Architect/CM
– Provide the owner with probable estimate
– Evaluate alternatives
– Establish cost of design changes
– Use as a tool for Planning project
Cost Estimating, Why?
Construction Cost Estimating 6 - 5
• Contractor’s Estimator
– Determines accurate cost
of project for bidding
purposes
– Has detailed company
cost data for labor and
equipment
– Knows which
construction methods are
to be used
– Has knowledge of actual
materials suppliers to be
used and quantity
discount prices
• Engineer’s Estimator
– Determines expected
cost
– Does not know who will
receive award, therefore
does not know
contractor’s exact
resource costs. Does not
know actual labor rates.
– Must assume probable
construction methods to
be used
– Does not know who
project supplier will be.
Must use local list prices
Comparison of Contractors and
Engineers Estimator
4
Construction Cost Estimating 7 - 5
• Company’s Own Historical Data (Previous
Projects)
– Advantages
• It reflects quality and productivity of its own
equipment and crews
• It reflects company’s management system
and construction methods
– Limitations
• Accurate field information should be collected
and updated
Sources of Estimation Data
• Company's Historical Data
Div. Work Desc. Unit Low Avg. High
2 Site work ft
2
0.30 0.35 0.39
2 Excavation yd
3
3.56 4.57 4.93
3 Formwork sfca 2.56 2.71 3.11
3 Reinforcement lb 0.35 0.38 0.42
4 Masonry (...) ft
2
5.82 6.21 7.34
Sources of Estimation Data II
SFCA: Square Foot Contact Area
5
Construction Cost Estimating 9 - 5
• Commercial cost books
– published and updated periodically
– contain specifications, labor rates, labor
productivity, prices, photos, calculations, etc.
• The most common references are:
– Means Building Construction Cost Data , R.S.
Means Company
– Dodge Manual, McGraw-Hill Cost Information
Systems
– Walker Building Estimator’s Reference Book,
Frank R. Walker Company
Sources of Estimation Data III
Construction Cost Estimating 10 - 5
• Limitations of Commercial Cost Books
– They represent composite data (average of
many projects)
– They fail to recognize technological changes
– There is a reporting time lag
Sources of Estimation Data IV
6
• Published Data
– These guides are valuable to estimator who
do not have access to actual job records.
– Vendor's Data
– information published by the manufacturer
or distributor which usually gives the unique
features and specifications relating to the
product
– e.g. Sweet's catalog
– Periodicals
– gives various construction cost indices for
all cites all over North America.
– e.g. Engineering News Records (ENR)
Sources of Estimation Data V
Construction Cost Estimating 12 - 5
• Prototype Modeling
– Build a model for unique work where no
published literature are available,
– examples: spread concrete on an airfield
parking ramp or sample for building exterior
• Professional Associations
– American Association of Cost Engineering
AACE
– National Estimating Society
– Seminars, training organizations
Sources of Estimation Data VI
7
Construction Cost Estimating 13 - 5
• Previous Bid Tabulations
– Available from previous bid openings (public
works)
– Generally, limited to the lowest three bidders
Sources of Estimation Data VII
Construction Cost Estimating 14 - 5
• All estimates are approximations based upon
judgement and experience
• Even final reported cost figures on completed
projects will differ in detail from what the true
costs really were. Considerable judgement is
required in recording and allocating cost
figures
• From “educated guesses” to “contractor bid
estimates”
Types of Estimates
8
Construction Cost Estimating 15 - 5
• Estimator must:
– Must build the project on paper
– Must assess quantities not only of the contracted
materials but also of the temporary materials
(formwork, temporary plant, etc)
– Hypothesize alternative construction methods
with determination of resources required by each
method
• Anyone can do a quantity survey and multiply the
quantities times a historical labor factor. The genius
behind successful estimating is to know and
compare different methods of how the job should
be built, the risks of each method, and what the
company’s capabilities are in this type of project
Types of Estimates II
Construction Cost Estimating 16 - 5
• Different types of estimates are required as a
project evolves
– Conceptual and preliminary estimates
• Prior to engineering design completion
– Detailed estimates
• Prepared from completed plans and
specifications
– Definitive estimates
• forecast the project cost within allowable limits
from a combination of conceptual and detailed
information often including partial contract and
other procurement awards
Types of Estimates III
9
Construction Cost Estimating 17 - 5
Types of Estimates IV
Construction Cost Estimating 18 - 5
Types of Estimates V
10
Construction Cost Estimating 19 - 5
Types of Estimates VI
Construction Cost Estimating 20 - 5
• A cost prediction based solely on size and/or
capacity of a proposed project
• Before any engineering or design is
completed
• Rely on broad data from already executed
projects
– Relate cost in dollar to the main capacity/size
parameter
• Number of beds in hospital
• Square feet of office space
• Number of students in school
Conceptual and Preliminary Estimate
11
Construction Cost Estimating 21 - 5
• Advantageous
– Allows a quick determination of the feasibility of a
project
– A quick screening on alternatives, etc. (e.g., should
it be a concrete building or a steel building !).
• Purpose:
– 1. Ranking alternatives
– 2. Evaluate economics and financial feasibility
– 3. As a check on more detailed estimates
Conceptual and Preliminary Estimate
Construction Cost Estimating 22 - 5
• Vary considerable from one type of
construction to another
• Fall into one or more of the following
categories:
– Time-referenced cost indices
– Cost-capacity factors
– Component ratios
– Parameter costs
A
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Conceptual and Preliminary Estimate
12
Construction Cost Estimating 23 - 5
• Show changes of costs over the time
• Changes in:
– Technology
– Methods
– Productivity
– Inflation
• Published periodically by Engineering
News-Record and other publications
Cost Indices
Construction Cost Estimating 24 - 5
• First approach:
– Periodically reprices and totals a constant
package of resources that serve as input to a
typical construction project. The index is
computed by dividing this cost by the cost of
the resources in a base reference period.
Cost Indices II
13
Construction Cost Estimating 25 - 5
• ENR’s Building Cost Index is computed as
follows:
– Components:
• 1088 board feet of lumber (2x4, S4S, 20-city
average)
• 2500 pounds of structural-steel shapes, base mill
price
• 2256 pounds of Portland cement (bulk, 20 city
average)
• 68.3 hours of skilled labor (20-city average)
Cost Indices III
Construction Cost Estimating 26 - 5
• We convert from one base period to another
– “current cost” = 2730 (assumed)
– Base cost (1967) = 676
– Index on 1967 base = 2730/676 x 100% = 404%
• Example 1:
– Warehouse estimate: Assume you have an
estimate to a similar warehouse completed in
1978 for a cost of $4,200.000. We are planning
to build the new one in 2004. The ENR index for
1978, relative to the base date of 1967, was
1674/676x100 = 248%
Cost Indices IV
14
Construction Cost Estimating 27 - 5
• Solution:
– (404%/248%) x 4,200,000 = $ 6,840,000
• Second approach:
– Based on the cost of a completed
construction project, or else on a survey of
completed unit cost of selected components
of projects, such as concrete pavement for
highways.
– Based on the output of the construction
process
– From there on the process of computing the
index is similar to the first approach
Cost Indices V
Construction Cost Estimating 28 - 5
• Can yield accuracy within 20% to 30% of actual cost
• Can provide this information with almost negligible
time and effort
• Valuable for policy and planning decisions early in
the life of a project
• Can be location-referenced
Cost
city A
= Cost
city B
*( Index
city A
/ Index
city B
)
Cost Indices VI
15
Construction Cost Estimating 29 - 5
• Problems if the proportions of the input
components in an input-type cost index do
not reflect the resources used in the project
in question
• Problems if the project which the index is
based have very little in common with the
project under consideration
Cost Indices - Limitations
Construction Cost Estimating 30 - 5
• Indices based on input components do not
consider factors such as productivity,
changes in technology, and
competitiveness of contractors
• The output type of indices are usually
much more narrow in scope.
• Very important to recognize geographic
and demographic bases
Cost Indices – Limitations II
16
Construction Cost Estimating 31 - 5
• Average periodic change Based on Cost Indices:
• Where,
– r = average rate per period, percentage
– I
e
= index at end of period
– I
b
= index at beginning of period
– n = number of periods (monthly, yearly etc)
• For an index beginning with 94.9 and ending with
106.8 over a 5-year period, the average rate is:
Cost Indices
100 1
/ 1
×


|
|
.
|

\
|
=
n
b
I
Ie
r
% 39 . 2 100 1
9 . 94
8 . 106
5 / 1
+ = ×


|
.
|

\
|
= r
Construction Cost Estimating 32 - 5
• If the average index is expected to persist:
• Suppose, we want an index after 7 years (Previous
example)
Cost Indices
n
b e
r
I I
|
.
|

\
|
+ =
100
1
112
100
39 . 2
1 9 . 94
7
7
=
|
.
|

\
|
+ × = I
17
Construction Cost Estimating 33 - 5
• Apply to changes in size, scope, or capacity
of projects of similar types
• Reflect the nonlinear increase in cost with
size (economies of scale)
• Expressed by the following equation:
– C
2
= C
1
(Q
2
/Q
1
)
x
– Where
• C
2
= estimated cost of the new facility with capacity Q
2
• C
1
= known cost of facility of capacity Q
1
• x = the cost-capacity factor for this type of work
Cost Capacity Factor
Construction Cost Estimating 34 - 5
• X is empirically derived factors based on
well-documented historical records for
different kinds of projects
• Q are parameters that reasonably reflects
the size of the facility (barrels per day
produced by a refinery, tons of steel per
day produced by a steel mill, gross floor
area for a warehouse, etc)
Cost Capacity Factor II
18
Construction Cost Estimating 35 - 5
• Example 2:
– Consider the cost-capacity factor x = 0.8 for the
warehouse from example 1. We have available
an estimate for a similar warehouse located
nearby, with usable area of 120,000 square
feet. The prospective owner for the new
warehouse wants a structure with a usable
area of 150,000 square feet
Cost Capacity Factor III
Construction Cost Estimating 36 - 5
• Solution:
– C
2
= 4,200,000 x (4.04/2.48) x
(150,000/120,000)
0.8
= $ 8,178,000
• Cost-capacity factor can be accurate to
within 15 to 20% of actual costs
Cost Capacity Factor IV
19
Construction Cost Estimating 37 - 5
• Relate early known component cost to overall
project cost for installation of that project
• Used on industrial projects w/ major equipment
• After major items of installed equipment are
identified (compressors, pumps, furnaces,
refrigeration units, belt conveyors, turbine
generators, etc)
• Industrial construction have good historical
documentation and analytical techniques using
ratios like “equipment-installation-cost-ratios” or
“plant-cost-ratios”
Component Ratios
Construction Cost Estimating 38 - 5
• First approach:
– Multiply the purchase cost of the equipment
by an empirically documented factor to
estimate the installation cost of the equipment
– Estimates can be accurate within 10 to 20%
of final costs
Component Ratios II
20
Construction Cost Estimating 39 - 5
Component Ratios III
Construction Cost Estimating 40 - 5
• Second approach:
– Plant-cost-ratios use equipment-vendor-price-
quotations as a basis for determining the cost
of the whole constructed facility
Component Ratios IV
21
Construction Cost Estimating 41 - 5
Component Ratios V
Construction Cost Estimating 42 - 5
• Commonly used in building construction
• ENR occasionally publishes examples in
some of its “Quarterly Cost Roundup”
issues
• R.S.Means publishes “Means Square Foot
Costs” annually which includes unit costs
for a number of building types as well as
for individual constructions tasks
Parameter Costs
22
Construction Cost Estimating 43 - 5
• Relates all costs of a project to just a few
physical measures, or “parameters”, that
reflect the size or scope of the project
• Warehouse - the “parameter” would be
“gross enclosed floor area”
• With good historical records on
comparable structures, parameter costing
can give reasonable levels of accuracy
for preliminary estimates
Parameter Costs II
Construction Cost Estimating 44 - 5
Parameter Costs III
23
Construction Cost Estimating 45 - 5
Parameter Costs IV
Construction Cost Estimating 46 - 5
• After most or all of the detail design work
is complete, approximate estimates are
supplemented by detailed estimates
• Require a careful “Quantity takeoff” -
tabulation of all the quantities for a
project or a portion of the project
• These quantities are then multiplied by
unit costs - sum represents the estimated
direct cost of the facility
Detailed Estimates
24
Construction Cost Estimating 47 - 5
• Estimated direct cost + indirect costs + plant
and equipment + home-office overhead +
profit + escalation + contingency = total
estimated project cost
• Two types:
– Fair-cost estimate
– Contractor’s bid estimate
Detailed Estimates II
Construction Cost Estimating 48 - 5
• Proper evaluation of labor productivity,
effects of local practices, market
competitiveness, weather conditions, and
completeness of plans and specifications are
extremely important in the preparation of
detailed estimates
• Difference in these factors can result in
sizable differences in the final estimate
based in exactly the same quantity takeoff
Detailed Estimates III
25
Construction Cost Estimating 49 - 5
• Prepared from the actual bid documents
provided to the bidders (before award)
• Used by owner’s representative to evaluate
changes (after award)
• Absence of lump-sum subcontract quotations
• Somewhat simplified number of line items
• One of the primary tools in establishing a
basis for measuring job progress, for
scheduling and for cost control
Fair-Cost Estimates
Construction Cost Estimating 50 - 5
• Low enough to obtain the work, yet high
enough to make profit
• Is estimating a structured undertaking? - A
look at bids received for a typical project in a
competitive area will sometimes show more
than 50% difference between the low and the
high bidders
• Sometimes less detailed than fair-cost
estimates - subcontractors from 30 to 80% of
the project
Contractor’s Bid Estimate
26
Construction Cost Estimating 51 - 5
• There comes a time when a definitive
estimate can be prepared that will
forecast the final project cost with little
margin for error…….
• This error can be minimized through the
proper addition of an evaluated
contingency
• Four categories for purposes of
reviewing definitive estimates: Unit-
price, traditional, design-construct and
professional CM
Definitive Estimates
Construction Cost Estimating 52 - 5
• Traditional
Delivery Approaches to Design and Construction
• Design-Build
• Construction Management
Contract Types
• Fixed price
• Lump sum
• Unit price
–Cost reimbursable
• Cost plus
• Guaranteed Maximum Price
27
Construction Cost Estimating 53 - 5
• Traditional Projects:
– Lump-sum, guaranteed maximum price,
cost-plus-a-fee
– Lump-sum - definitive estimate = low
bidder’s quotation + evaluated contingency
– Fast track guaranteed maximum price -
definitive estimate will need detailed
project and specifications to obtain the
definitive estimate - same thing for fast
track cost-plus-a-fixed-fee projects
Definitive Estimates III
Construction Cost Estimating 54 - 5
• Design-Build Projects:
– Lump-sum, guaranteed maximum price, cost-
plus-a-fee
– Lump-sum can be misleading to an
unknowledgeable owner. The cost is known
but the facility that is going to be delivered is
unknown
– In guaranteed maximum price and cost-plus-
a-fee contracts the definite estimates can be
obtained earlier if compared to the traditional
approach because one entity is performing
both design and construction
Definitive Estimates IV
28
Construction Cost Estimating 55 - 5
• Professional Construction Management
Projects:
– The definitive estimate can be accurately
prepared about the same time as the
guaranteed-maximum or cost-plus-a-fee
option under traditional approach
– Examples show that is possible to develop
definitive estimates after the detailed design is
about 95% complete.
Definitive Estimates V
Construction Cost Estimating 56 - 5
• Unit-Price Projects:
– Usually heavy construction projects like dams,
tunnels, highways, and airports - Prices
constants while quantities vary within limits
inherent in the nature of work.
– Quantities may overrun or underrun owing to a
number of potential causes such as additional
foundation, excavation to solid rock, poor
ground conditions, etc
– Without reliable geological information the final
cost may not be known accurately until the end
of the project
Definitive Estimates II
29
Construction Cost Estimating 57 - 5
Contingency
Evaluation
Construction Cost Estimating 58 - 5
Project Cost Summary
30
Construction Cost Estimating 59 - 5
• Different units for same line items
• Double count same items
• Omissions (testing, reinforcement chairs)
• Misinterpretation
• Take-off error
• Construction methods not compatible with
field conditions
• Too optimistic
• Too much time on small items
Sources of Mistakes
Construction Cost Estimating 60 - 5
• Economic conditions stable
• Labor available and reliable
• Weather
• Reasonable project participants
• Historical costs are accurate and applicable
• Productivity will be consistent
• Soil conditions
• Contract fine print
• Accurate design
Assumptions for Estimating

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