AN INVESTIGATION INTO CURRENT COST ESTIMATING PRACTICE

OF SPECIALIST TRADE CONTRACTORS

Moayad Al-Hasan, Andrew Ross and Richard Kirkham

School of the Built Environment, Liverpool John Moores University, Liverpool,

L3 3AF
M.Al-Hasan@2004.ljmu.ac.uk
A.D.Ross@ljmu.ac.uk
R.Krikham@ljmu.ac.uk

ABSTRACT: Although extensive research has been undertaken on cost estimating processes
of contractors for construction projects, very little research has considered the cost estimating
practice within specialist construction contractors.
The objective of this paper is to gain an understanding on current cost estimating practice of
specialist mechanical and electrical contractors for construction projects.
The paper reports upon semi-structured interviews and a questionnaire survey of mechanical and
electrical contractors that was undertaken in Jun 2005.The respondents were classified into five
groups based on annual turnover, namely: very small, small, medium, large, very large.
The data analysis indicated that the main cost estimating method being used by electrical and
mechanical contractors was: the unit rate method, followed by comparison with similar past
projects based on documented facts, comparison with similar past projects based on personal
experience, parametric estimating, and then operational estimating.
The study showed that almost half of the respondents surveyed (48%) do not routinely utilize and
rely upon historical cost data provided as site feedback when producing estimates. The reasons
revealed by the survey were: unique characteristics of each project, unstructured site feedback,
lack of confidence in data provided; incompatibility of information for future estimating needs.
The data analysis also showed that the main causes of inaccuracy in cost estimating are:
insufficient time for estimating, inadequate specifications, and then incomplete drawings.
The paper sets out a framework for research into the development of a cost estimating
model/technique in order to improve the prediction of specialist resources productivity.

Key words: accuracy, cost information, estimating, site feedback, and specialist contractors.

1. INTRODUCTION

The code of estimating practice produced by the Chartered Institute of Building (CIOB, 1997, P.
xiii), in addition to many other authors (Kwakye, 1994; Brook, 2004; Ashworth, 2002) define
estimating as the technical process or function undertaken to assess and predict the total cost of
executing an item(s) of work in a given time using all available project information and
resources. Therefore, for a construction company to thrive, it must have the ability to forecast
the likely cost of proposed construction work, and thus at least be able to establish a baseline
figure from which a price can be quoted to the client.
Cost estimating methods have been developed for preparing estimates of various types and
for various purposes (Daschbach and Apgar, 1988). Many standard textbooks on cost estimating
(e.g. Bentley, 1987; Buchan et al., 1991; Kwaky, 1994; Smith, 1995; Brook, 2004 and Ashworth,
2002) are readily available. In this regard, Akintoye and Fitzgerald (2000) in their study of UK
current cost estimating practices reported that the main method used by construction
organisations is the standard estimating procedure, followed by comparison with similar projects
based on documented facts, and comparison with projects based on personal experience. Such
commonly applied methods do not differ from traditional ways of estimating, where costs of
construction elements (labour, materials, plant, sub-contractor, and preliminary) are established
and to which allowance for profit, overhead, and risk is added.
In this regard Curran (1989) has argued that these conventional or traditional methods of
estimating often fail to cope with the realities of todays world, which involves elements of
uncertainty. Bryan (1991), argued that estimating a construction project is time consuming and
often tedious. To improve the quality of estimating, he advocates the use of an assembly pricing
technique (also called work module pricing, system pricing, rapid pricing or aggregate pricing).
Uman (1990) contends that it is difficult to develop a standard process from which to develop a
cost estimating system for construction, due to such factors as extreme diversity in building
systems, methods, projects, suppliers, contractors and workforce.
However, such methods rely upon judgment and estimators experience, and are within the
domain of what Ntuen and Mallik (1987) called experience-based models. Hegazy and Moselhi
(1995) argued these methods are often inaccurate and unstructured and are based solely on
contractors own experiences and the general-purpose procedures dictated by the software
systems they use. Law (1994) outlined a general procedure for building contractor cost
estimating. However, he reckoned that in practice, contractors devise their own methods for cost
estimating and bidding. Skitmore and Wilcock (1994) investigated estimating processes of
smaller builders based on an experiment conducted with eight practicing builders estimators.
The work investigated the process of estimating rather than the practice of cost estimating, by
looking at methods that estimators used to price selected items from bills of quantities and the
variability associated with the outcomes. The results showed that just over half of the items were
rated by the detailed methods prescribed in the standard texts. The remaining items were rated
mainly by experience.
Although extensive research has been undertaken on cost estimating processes of contractors
for construction projects, very little research has considered the cost estimating practice within
specialist trade contractors.
This paper reports upon an investigation of current cost estimating practice for mechanical
and electrical construction organisations, and sets out a framework for research into the
development of a cost estimating model/technique in order to improve the prediction of specialist
resources productivity.

2. METHODOLOGY AND RESEARCH FRAMEWORK

A two-phase mixed design strategy is adopted. The mixed method approach has been
successfully used in number of recent studies (Fortune, 1999; Hall, 1999; Ross 2005). It has its
roots partly in the construct of triangulation, in increasing the validity of a study by considering
data from different sources, gathered under different conditions, and using different data
gathering instruments. Triangulation has been identified by Denzin and Lincoln (2003) and Yin
(1994) as having four aspects: data source triangulation- where the data are considered to be
similar in different context, investigator triangulation- when several investigators consider the
same phenomenon, theory triangulation- when investigators with differing perspectives
investigate the same phenomenon and methodological triangulation- where one approach is used
to inform a second approach that takes a different methodological stance. In this study
triangulation is from both data source and methodological approaches.
 The first phase of the study adopted a quantitative approach to the collection and analysis of
the data. It used the results of a comprehensive literature review to inform the theoretical
selection of a number of informants to be interviewed using a semi-structured interviews
approach. The results of the data collected from the semi-structured interviews were used to
design a measuring instrument that was administrated to a sample population. Multivariate
statistical analysis techniques were used on the resultant data set; the results will then be used to
inform the second phase of the study.
The second phase of the study will adopt an in-depth case study approach in order to explain
the results obtained from the first phase. The resultant data from the two phases will then be used
in developing a cost estimating model/technique in order to improve the prediction of specialist
resources productivity using historical productivity data provided as site feedback.

3. SEMI-STRUCTURED INTERVIEWS

3.1 Semi-structured Interviews Design and Sample Selection

It was decided that the most appropriate approach was to carry out semi-structure interviews with
a number of senior estimators in order to get a better understanding of current estimating practice
within mechanical and electrical construction organisations prior to the development of the
operationalised constructs for the study.
A covering letter was sent to the chief estimator of selected organisations. The letter
indicated the objectives of the research and requested that the interviewee should be a staff
member responsible for cost estimating activities in the organization. A two-page in length
protocol with 19 questions was prepared based on a combination of an extensive review of the
literature dealing with cost estimating practice in the United Kingdom.
The covering letter was mailed to 14 mechanical and electrical construction organizations
based in the North West of England. Organisations were randomly selected from available lists
of mechanical and electrical construction organisations in the Directory of Members of Heating
and Ventilating Contractors Association (HVCA). Five organisations were returned with one
firm has no estimating department.
The semi-structured interviews schedule also sought information regarding the following
areas:
1. Characteristics of responding organisations in term of annual turnover, typical sizes
of projects undertaken, total number of craftsmen, and percentage of work sub-
contracted;
2. Factors affecting accuracy of cost estimating;
3. Difficulties that estimators face when estimating typical project cost;
4. Suggestions regarding any improvements required in estimating.

The subsequent semi-structured interviews were conducted in each of the participants office
and lasted for 30 to 40 minutes each. The interview protocol was given to the participants and
their permission was sought to tape record the interviews for further analysis. The option was
given for confidentiality; however, none of the participant requested that their transcripts
remained confidential.
 Table 1: Schedule of organisations characteristics
Organisation Annual Typical Project Number of % of work
Turnover Size Range Craftsmen Sub-contracted
Organisation 1 20m Up to 15m 50 30%
Organisation 2 144m Up to 24m Unknown 60%
Organisation 3 15m Up to 2m 120 25% to 30%
Organisation 4 69m Up to 4m 25 Unknown

3.2 Semi-Structured Interview Data Collection

The interview protocol was considered carefully, as effective in-depth interviewing requires
considerable skill in order to yield meaningful data. Descriptive questions were used, such
questions were useful to encourage the participants to describe their experiences and approaches
to particular issues, however, it was found that directly asking for a rationale i.e. using why
was seen as being a little to interrogative and led to a loss of rapport. It was found as well that the
use of clarification questions was particularly useful to open up areas for further explanation.
The interviews were recorded and transcribed.
The phrasing of the questions was refined as the interviews proceeded from case to case and
to ensure clarity and reliability of the questions the interviewer took care to avoid the use of
statement that may have biased the collected data.

3.3 Semi-Structured Interview Data Analysis

The analysis of semi-structured interviews showed that the main method being used by
mechanical and electrical construction organisations in predicting the likely costs of a typical
project was the unit rate method of estimating, which was found in most estimating text books,
where costs of labour, materials, plant, subcontractors and preliminaries are established and to
which allowances for profits, overhead and risk is added.
It was also identified in the analysis of the data collected in the semi-structured interviews
that estimators relied upon judgment when assessing productivity rates for labour, plant and sub-
contractors. The interviewees were asked about difficulties they face when estimating a typical
project cost, which also have been considered as causes of inaccurate cost estimates. The main
difficulty being identified by all interviewees was insufficient time for estimating. The
interviewees were asked about their opinion in the areas of estimating that require more
improvement. Three of the interviewees indicated that the improvement is required in the quality
of the data provided to estimators as site feedback. The fourth interviewee had no answer.

4. QUESTIONNAIRE

4.1 Questionnaire Design

The questionnaire survey was undertaken to determine the opinion of mechanical and electrical
construction organisations regarding the current practice on cost estimating in the UK. The
questionnaire was designed to be as attractive as possible; a columnar format was used with
colours highlighting the questions. The header of the questionnaire indicated the logos of the
HVCA and Liverpool John Moores University. The questionnaire was four pages in length with
21 questions. The questionnaire design was based on a contribution of an extensive literature
review and the results obtained from the semi-structured interviews that had been conducted. The
final questionnaire was developed with the aid of a series of pilot questionnaires involving
estimating departments of mechanical and electrical construction organisations.
The questions were collected together to ensure that the informant kept the research construct
to mind when answering the questions and also to ensure the questionnaire was considered
trustworthy, and covered the following sections:
Section one: organisational information, annual turnover, staff volume, business sector, and
client type.
Section two: project size, tendering and procurement approaches
Section three: estimating practice, techniques being used, factors affecting accuracy, role of site
feedback.
Section four: personal information
Section five: improvement to cost estimating.
However, this paper focuses on the major results of the survey (main methods of cost
estimating, cause of inaccurate cost estimates, and role of site feedback in improving accuracy of
cost estimates) rather than talking in detail about each of these sections.
In total 1000 copies of the questionnaire were sent out to practicing estimators of mechanical
and electrical construction organizations in June 2005. The final total response rate was 10.4%
(104), this is considered as low when compared to other recent survey response rates (Ross,
2005; Akintoye et al, 2000).

4.2 Estimating Techniques and Methods

Mechanical and electrical construction organisations were classified into five categories based on
their annual turnover in the last financial year, namely:

Very Small (N=24) : <1.5m

Small (N=16) : 1.5m-2.99m
Medium (N=20) : 3m-6.99m
Large (N=21) : 7m-24.99m
Very Large (N=19) : >25m

The respondents were asked to provide information on the effectiveness of the estimating
techniques that their organisations used when predicting the likely cost of a typical project. A six
point Likert scale was used to gather the data, ranging from 1=least effective to 6=most effective.
The techniques were drawn from the literature review and were, unit rate technique, operational
method, comparison with similar past project based on personal experience, comparison with
similar past project based on documented facts, and parametric estimating technique.
Descriptive statistics indicated that the most effective technique was the unit rate method of
estimating (mean=4.2), followed by comparison with similar past projects based on documented
facts (mean=3.8), comparison with similar past projects based on personal experience
(mean=3.7), parametric estimating technique (mean=3.5), and then operational estimating
(mean=3.4).
To determine whether there was a significant difference between different organisation sizes
and the main method of cost estimating being used by mechanical and electrical construction
organisations, a non-parametric Kruskal-Wallis (KW) test was carried out, which indicated that
the only two methods that approached a significant difference in estimating construction costs
were unit rate method of estimating X2 (4,88)= 11.9, = 0.018, method of comparison with similar
past projects based on personal experience X2 (4,92)= 10.6, = 0.031. No significant difference
was found between different organisation sizes and operational method of estimating X2 (4,66)=
2.2, = 0.702, method of comparison with similar past projects based on documented facts X2
2
(4,83)= 7.44, = 0.114, and parametric estimating technique X (4,55)= 6.3, = 0.178.
In order to establish whether a significant correlation existed between organisation sizes and
the estimating techniques being used, a non-parametric bivariate analysis was carried out. In
each case Spearmans rho is reported and displayed in Table 2

Table 2: Bivariate analysis of estimating techniques - Spearmans rho

Unit Operational Personal Docu.
rate exper. facts Parametric
Spearman' Org. Corr.
.295
s rho annual Coef. .080 -.266(*) -.182 -.271(*)
**
turnover
Sig.
(2- .005 .521 .011 .099 .046
tailed)
N 88 66 92 83 55
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).

The analysis indicated that a positive correlation significant at the 0.01 level was found
between unit rate method r = +0. 319, = 0.002 and organisation sizes. A negative correlation
significant at the .05 level was found between comparison with similar past projects based on
personal experience r = -0.266, = 0.011 and organisation sizes. No significant difference was
found for other estimating techniques.
This indicated that larger organisations tended to consider unit rate method of estimating as
being the most effective technique compared to smaller organisations that considered
comparison with similar past projects based on personal experience as being the most effective
estimating technique. Bearing in mind what the literature review revealed about insufficiency of
these methods, a more sophisticated estimating technique is suggested to improve the quality of
the estimating process.

4.3 Site Feedback

One of the reliable sources of information upon which estimating is based, should be from
recorded company data derived from site feedback or work-study exercises. Only 52% of
respondents indicated that their organisations rely upon historical cost data provided as site
feedback when producing estimates. The results displayed in Table 3 indicated that the most
important reason why estimators do not routinely use site feedback in estimating cost,
irrespective of organisation size, was: unique characteristics of each project; followed by
unstructured site feedback; lack of confidence in data provided; incompatibility of the
information for future estimating needs. However, the data analysis indicated that unstructured
site feedback was rated more highly (mean=4.053) as a reason for not using site feedback in
predicting resources productivity with very large organisations compared to other organisation
sizes. This indicated that for historical productivity data provided as site feedback to be
routinely used by very large mechanical and electrical construction organisations (annual
turnover >25m) needed to be more structured. Smith (1995) in this regard, reported that a major
reason given why estimators disassociate themselves from site feedback is due to the poor
recording systems employed by contractors and hence a lack of confidence in the data provided.
Despite the above, there is no doubt that, systematic, realistic and more structured site
feedback would be of great benefit to the estimator as this will minimize estimators reliance
upon judgment and experience in estimating construction cost which leads to more accurate
results.

Table 3: Reasons for non- use of site feedback

Reasons Overall V. Small Med. Large V.
Small Large
The unique characteristics of each 3.630 3.571 3.875 3.526 3.619 3.579
project
Unstructured site feedback 3.620 3.238 3.688 3.579 3.667 4.053

Lack of confidence in data provided 3.370 3.143 3.438 3.211 3.476 3.579

Incompatible of information for future 3.260 2.762 3.375 3.211 3.470 3.474
estimating needs.

The results displayed in Table 4 indicated that increasing the accuracy of the estimate was
rated very highly as an effect of site feedback on the estimating process (mean=4.218), compared
to increasing the time required to develop estimate (mean=2.655), and increasing net cost of
estimate (mean=2.636). This indicated that while site feedback had a high effect on increasing
the accuracy of the cost estimate, it had a low level of effect on increasing the time and the net
cost of estimate. Adrian (1982: p. 31 et seq.), from Smith (1995), for example, asserts An
important component of any estimating system is the collection of past project data and the
structuring of the data for use in estimating future projects.

Table 4: Suggested effects of structured site feedback

Effect of structured site feedback N Mean Std. Deviation Variance

55 4.2182 .73764 .544
Increasing accuracy of estimate

Increasing time consumed in 55 2.6364 .94992 .902

developing estimate
55 2.6545 .90714 .823
Increasing net cost of estimate
4.4 Accuracy of Cost Estimating

The overall purpose for an accurate cost estimate is its use in establishing the budget for a project
and as a tool used for scheduling and cost control. When bidding on a project, the accuracy of a
cost estimate has a number of different implications. The most obvious is the effect on winning
the contract. The importance of cost estimating is emphasized by Hicks (1992) that without an
accurate cost estimate, nothing short of an act of god can be done to prevent a loss, regardless of
management competence, financial strength of the contractor, or know how.
The survey revealed six major factors that affect the accuracy of the estimating process
within mechanical and electrical organisations, and is displayed in Table 5. Insufficient time for
estimate rated the highest factor (mean=4.398), followed by inadequate specification
(mean=4.252), incomplete drawings (mean=4.146), quality of project management
(mean=2.942), lack of historical cost data (mean=2.592), and then lack of confidence in
structured site feed back (mean=2.563).

Table 5: Factors that affecting accuracy of estimating process.

Reason Overall V. Small Med. Large V.
Small Large
Insufficient time for estimate 4.398 4.087 4.500 4.600 4.381 4.737
Inadequate specifications 4.252 3.826 4.250 4.300 4.333 4.579
Incomplete drawings 4.146 3.826 3.938 4.250 4.238 4.474
Quality of project management 2.942 2.957 3.250 2.900 2.714 2.947
Lack of historical cost data 2.592 2.783 3.000 2.550 2.238 2.421
Lack of confidence in structured site 2.563 2.435 3.000 2.800 2.238 2.526
feedback

Generally, however, very large organisations, where their turnover exceeded 25 million in
the last financial year rated insufficient time for the estimate as a cause of inaccurate cost
estimates (mean=4.737) more highly compared to other organisation sizes. This can be explained
by what the previous data analysis and the extensive literature review showed about the reliance
of very large organisations on unit rate as the main method of cost estimating and the more time
consumed in developing an estimate that is associated with such method.
The results displayed in table 5 indicated that incomplete drawings and inadequate
specifications as reasons for inaccurate cost estimates were rated more highly by very large
organisations (mean=4.474, mean=4.579 respectively) compared to other organisation sizes.
The data analysis clearly indicated that lack of confidence in structured site feedback rated
the lowest as being a cause of inaccurate cost estimates. This confirmed what previous analysis
showed that mechanical and electrical organisations, irrespective of organisation size, generally
have similar opinions regarding the confidence of site feedback in increasing the accuracy of cost
estimating.

5. CONCLUSION AND THE WAY FORWARD

Cost estimating is a process designed mainly to predict the likely cost of undertaking work.
However, the paper shows that the main methods of cost estimating being used by mechanical
and electrical construction organisations do not differ from conventional/traditional ways of
estimating, which entail estimating the cost of specialist construction resources for a project,
including labour, materials, plant, subcontractor and preliminaries, and to which profit, overhead
and allowance for risk is added.
The reviewed literature indicated that such traditional methods are inaccurate, unstructured
and rely up judgment and estimators own experience in assessing resources cost. However, one
of the reliable sources of the information upon which estimating is based, ought to be from
recorded company data derived from site feedback or work-study exercises. The survey revealed
that very large organizations (annual turnover >25m) considered unstructured site feedback as a
main reason of not using site feedback as a source for providing productivity information.
The paper highlighted that the main causes of inaccurate cost estimates are: Insufficient time
for estimate development (rated the highest factor); followed by inadequate specification;
incomplete drawings; quality of project management; lack of historical cost data; and then a lack
of confidence in structured site feed back. One of the reasons for such inaccuracy may be the
estimators reliance upon the unit rate method of cost estimating, which requires more time to
develop estimates. In order to address this problem and to improve the accuracy of the estimated
cost, a more sophisticated estimating technique requires developments.
The results from the first quantitative phase of the research will be used to inform the second
phase, which adopts an in-depth case study approach. The aim of the use of case study in this
research is to explain, expand, and generalise the results obtained from the first phase.
The resultant data from the two phases will then be used in developing the proposed cost
estimating model/technique in order to improve the prediction of specialist resources
productivity using historical productivity data provided as site feedback.

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