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Construction Cost Analysis

Lt. Col. Dr. Abbas Atef Hassan

2 Introduction
What Is an Estimate?
Estimating occurs in all industries and government agencies for two purposes that cover a
variety of possibilities:
• To prepare budgets for future expenditures, or
• To try to anticipate what something will cost to implement.

The basic approach to estimate the cost of a construction project:

• Identify the work items that have to be completed to finish the project.
• Measure the size of these work items.
• Assess the likely cost of this work.
Lt. Col. Dr. Abbas Atef Hassan
3 What Is an Estimate?
❑ Estimating is the scientific way of working out the approximate cost
of an engineering project before execution of the work.
❑ Estimating is not an exact science: Knowledge of construction
procedures, common sense, and judgment are required.
❑ Estimating material costs can be accomplished with a relatively high
degree of accuracy.
❑ However, accurate estimating of labor and equipment costs is
considerably more difficult to accomplish.
❑ It is totally different from calculation of the exact cost after
completion of the project.
Lt. Col. Dr. Abbas Atef Hassan
4 Estimating Construction Costs
Purpose of estimating Construction Cost
Forecast the cost required to complete a project with reasonable accuracy.

Owner Contractor Engineer

❑ Make investment ❑ Determine project cost
decision.
and profit. ❑ Evaluating design
❑ Negotiate and finalize
❑ Develop the bid price alternatives.
the contract.
of a project ❑ Check feasibility of the
❑ Develop project
❑ Control the progress on project.
cashflow analyses.
the construction site. ❑ Check contractor’s bid.
❑ Implement cost control
❑ Finance the work.
measures.

Lt. Col. Dr. Abbas Atef Hassan

6 Conditions Affecting the Overall Cost
❑ Type of work :each type requires a different method of construction.
Construction may be of an ordinary house or office and it may also be of
a Dam, Tunnel, Multistory building, Airport, Bridge, or a Road, already
in operation. Each of these works requires totally different construction
techniques, type of machinery, and formwork.

❑ Labour : quality of labour and labour output varies in different localities.

❑ Weather conditions greatly affect the output and, hence, the overall cost.

Lt. Col. Dr. Abbas Atef Hassan

7 Conditions Affecting the Overall Cost

❑ Soil conditions vary and change the method of construction. For

example, excavation may be dry, wet, hard, soft, shallow or deep
requiring different efforts.

❑ Site condition: the work may be in open site such as fields or it may be
in congested areas such as near or on the public roads, necessitating
extensive watching, lightening, and controlling efforts, etc.

Lt. Col. Dr. Abbas Atef Hassan

8 Conditions Affecting the Overall Cost

❑ Resources availability of a sufficient supply of materials of good

quality is also a factor.

❑ Construction machinery availability also affects the method of

construction.

❑ Access to the site must be reasonable. If the access is poor, temporary

roads may be constructed.

Lt. Col. Dr. Abbas Atef Hassan

9 Good Estimator
❑ A knowledge of the details of construction work.

❑ Having information regarding the materials required, machinery needed,

overhead problems, and costs of all kinds.

❑ Selection of a good method for preparing an estimate.

❑ Ability to be careful, thorough, hard working and accurate.

❑ Ability to collect, classify and evaluate data relating to estimation.

❑ Ability to visualize all the steps during the process of construction.

Lt. Col. Dr. Abbas Atef Hassan

10 Types of Cost Estimates

❑ There are two main types of estimates:-

▪ Rough estimate.
▪ Detailed estimate.

❑ Depending upon the purpose of estimate:

▪ Project type
▪ Project delivery systems
▪ Contract types / contract pricing mechanisms
▪ Project life cycle

Lt. Col. Dr. Abbas Atef Hassan

11 Project Type

Types of Projects and

Estimating Methods
(Delmar/Cengage Learning) Lt. Col. Dr. Abbas Atef Hassan
12 Project Delivery Systems

❑ Design-Bid-Build

❑ Construction Management

❑ Design-Build

❑ Turnkey

❑ Public-Private Partnerships (P3)

Lt. Col. Dr. Abbas Atef Hassan

13 Design-Bid-Build
❑ Traditional Delivery\ Design-Bid-Build
❑ Design and construction are usually performed by two different parties who interact
directly and separately with the owner

Lt. Col. Dr. Abbas Atef Hassan

14 Design-Bid-Build

Advantages Disadvantages Suitable

❑ Price competition
❑ Long project duration
❑ Total cost is known
❑ Design does not benefit
before construction starts
from construction
❑ Well documented
❑ Conflict between owner,
approach used in most
contractor and A/E
government projects.
❑ The project is clearly
definable.
❑ Design is completed
❑ Time need not be
shortened.
❑ Changes are unlikely to
occur during
construction

Lt. Col. Dr. Abbas Atef Hassan

15 Construction Management
❑ One alternative to the traditional system of project delivery is the use of a
construction management organization
❑ Progressively: Owner contracts with
various trade contractors through

❑ Competitive bidding

❑ Opportunity for
• Fast tracking is achieved by dividing
the project into a number of phases
• Value engineering

Lt. Col. Dr. Abbas Atef Hassan

16 Design-Build
❑ A single organization is responsible for performing both design and construction

❑ In some cases, providing certain “know-how” for the project.

Lt. Col. Dr. Abbas Atef Hassan

17 Design-Build
Advantages
❑ One contract that may
include know-how
❑ Minimum owner
involvement
❑ Used for fast-track projects
in order to reduce time
❑ Co-ordination between
design and construction and
easier in implementing the
changes
Disadvantages Suitable
❑ Contractors offer
❑ Cost may not be known
specialized
until end of the
construction ❑ Design
❑ High risk to contractor ❑ Construction
and more cost to owner ❑ know-how/expertise
❑ Design-build company
❑ Design is strongly
may reduce quality to
save cost influenced by the
method of construction.
Lt. Col. Dr. Abbas Atef Hassan
18 Turnkey
❑ Similar to Design-Build approach

❑ The organization being responsible for performing both design, construction, know-
how (if any), and project financing.

❑ Simplest contractual arrangement

❑ Usually on a lump sum basis

❑ Opportunity for

• Doing design & construction activities concurrently

• Value engineering

Lt. Col. Dr. Abbas Atef Hassan

19 Public-Private Partnerships (P3)

❑ Engaging the expertise and/or capital of the public and private sectors

❑ Private finance, design, building, operation & possibly temporary ownership of the
constructed project

❑ P3s gaining worldwide acceptance

❑ Common P3 models:
❑ Build-Own-Operate (BOO)
❑ Build-Own-Operate-Transfer (BOOT)
❑ Buy-Build-Operate (BBO)

❑ Opportunity for
❑ Doing design & construction activities concurrently
❑ Value engineering
Lt. Col. Dr. Abbas Atef Hassan
20 Contract Types / Pricing Mechanisms

❑ Single lump-sum or fixed price

❑ Unit price

❑ Cost plus fee

Lt. Col. Dr. Abbas Atef Hassan

21 Single Lump-Sum or Fixed Price

❑ Specific amount of work for a specific sum

❑ Both parties (owner & general contractor) try to fix the conditions!

❑ Advantage: Owner knows the cost of the project before contracting

❑ Disadvantage: Any change in the scope or any error the documents,

opens the door for increased costs

Lt. Col. Dr. Abbas Atef Hassan

22 Unit-Price Contracts

❑ Based on a pricing a breakdown of the work and estimated

quantities.
❑ Bidding: Estimated quantities

❑ Unit prices for items: including overheads & profit

❑ Payment: Actual quantities

❑ Competitive bid situation

❑ What if actual quantities are significantly different from estimated

quantities?
Lt. Col. Dr. Abbas Atef Hassan
23 Unit-Price Contracts

Lt. Col. Dr. Abbas Atef Hassan

24 Cost-Plus Contracts

❑ The contractor is reimbursed for actual cost plus a special fee for head
office overheads and profit, no special payment for risk.

❑ The fee may be a fixed amount or a percentage of actual costs.

❑ The contract involves a high level of flexibility for design changes.

❑ Payment may be made monthly in advance.

❑ Final price depends on changes and extent to which risks materialize.

❑ The contractor must make all his records and accounts available for
inspection by the client or by some agreed third party.
Lt. Col. Dr. Abbas Atef Hassan
25 Risk Level / Contract Types

Lump-Sum
Fixed Price

Unit Price

Cost Plus Fee

Owner Contractor
Risk Risk
Lt. Col. Dr. Abbas Atef Hassan
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Lt. Col. Dr. Abbas Atef Hassan