Department of Humanities and Social Science

Indian Institute of Technology, Bombay

Cost Estimation in a
Construction Company
Under the guidance of
Prof. K. Narayanan
Submitted by :-
Deepak Garg (05329015)
Priyesh Wadhwa (05329011)
Saurabh P. Singh (05329037)
Mukesh S. Rawat (05329020)
Road Map
Introduction
Types of Construction Cost
Estimates
Approaches to Cost Estimation
Unit Cost Method of Estimation
Other Methods
Introduction
Cost Estimation
Cost estimation is one of the most
important steps in project management.
What, why, when, how.
Costs in Construction Firm
Initial Capital cost
Land acquisition
Planning and feasibility studies
Architectural and engineering design
Construction, including materials, equipment and labor
Insurance and taxes during construction

Operation and maintenance cost

Operating staff
Labor and material for maintenance and repairs
Utilities
Periodic renovations
Insurance and taxes

Unexpected cost during construction

Design development changes
Schedule adjustments
General administration changes
Types of Construction Cost Estimates
Design Estimates
Screening estimates (or order of magnitude estimates)
Preliminary estimates (or conceptual estimates)
Detailed estimates (or definitive estimates)
Engineer's estimates based on plans and specifications

Bid Estimates
As a contractor, a bid estimate is submitted to the owner
either for competitive bidding or negotiation.
Control Estimates
Budget estimate for financing
Budgeted cost after contracting but prior to construction
Estimated cost to completion during the progress of
construction.
Approaches to Cost Estimation

Production function
Q = P(I1,I2,.. In)
Empirical cost inference
Unit costs for bill of quantities
Allocation of joint costs
Unit Cost Method of Estimation

Simple Unit Cost Formula

Formula Based on Labor, Material and Equipment

Example

Cost estimate using labor, material and equipment

rates.
Other Methods
Allocation of joint costs
- Difficult causal relationship b/w element and associated costs
- Joint costs are prorated in proportion of basic costs of
elements
For example : F being overhead associated with different
elements
Fi = F * yi/y
Then total cost can be written as :-
Li = yi + Fi

Historical cost data

- Widely used for forecasting / estimation future costs
- Collected and organized for future use
- Continuous updates
- May effect cost substantially if relative prices change
Other Methods contd.
Cost indices
- Reflect price level changes for inputs and outputs
- Weighted aggregate average of different components of selected
element
- Can be used for cost forecasting with historic data
- General price indices are provided by govt.
- Construction specific price indices are collected from industry
sources
- Screening estimates are generally made on single factor like
constructed area, no. of rooms etc
- Adjustments are made to these using
- Inflation indices
- Construction specific indices
of detailed factors
Other Methods contd.
Based on Engineer's List of Quantities
- based on a list of items and the associated quantities
- list is provided to contractor
- costs for winning bidder is taken as starting estimates
- progress payments are made to contractor depending upon
the units of work done and unit prices listed
- each unit defined the level of detail of measure
- ex. Sample entries in bid table for engineers list-

Item Unit Quantity Unit price Item cost

Tiling sf 1000 12 12000
Water sf 1000 7 7000
Proofing
. . . . .
. . . . .
Rs.19000
Computer Aided Cost
Estimation
Types:
Simple spreadsheet calculation software.
Integrated systems.
Features:
Databases for unit cost items.
Databases of expected productivity for
different components types, equipments, and
process.
Version control, Flexible reporting formats,
import and export utilities, archive of past
projects.
Advantages: Rapid cost estimation and with
less efforts.
Example : as will be shown
Estimation of Operating Costs
Depends upon: maintenance
policies and facility use.
Minimized by: periodic repairs
and rehabilitation at periodic
intervals.
Example: Maintenance cost on a
roadway
C = 596 + 0.0019 V + 21.7 A
Where, C is the annual cost of
routine maintenance per lane-
mile.
V is the volume of traffic on
the roadway measured in
ESAL (equivalent standard
axle loads)
A is the age of the roadway in
years since the last
resurfacing.
Case study
Raheja builders
Estd. in 1952
Uses simple unit cost estimation
method
Uses simple accounting tools
In process of configuring ERP
Thanks

Questions?
 Allocation of Construction Cost
over time
Rate of work done
during various time
periods expressed
in percentage of
project cost per
unit time.
The value of work
completed at a
given time
expressed as a
cumulative
percentage of
project cost
Example

Decomposition of a building foundation into design

and construction elements.
Price indices in subsequent years show a proportionate changes due
to price changes. Percent change in price indices for year t+1-

jt+1=((It+1-It) / It )* (100%)

- Measure price level changes