Components of Cost Estimation

Analysis of Rates
Introduction

While filling the tender if a contractor wants to quote the rate of a particular item,
first he has to work out the rate. The procedure for working out the rate of an item
is known as rate analysis. For example, he wants the rate of R.C.C. slab, from
experience or by other means (drawing etc.) he works out the quantities of
materials, that are how many bags of cement, aggregates and steel is required for
the slab. Along with the materials he also calculates how many labours are
required to complete the work in stipulated time and then adds his percentage of
profit. At the same time he keeps other factors also, which can influence his work,
in mind and arrives at a figure for each item and quote it in tender which is the
rate for that particular item at that place in that particular condition and time.

Aim of Rate Analysis

(a) To know the approximate cost per unit of item.

(b) To find out the optimum use of material, procedure, and labour.
(c) To work out the cost of any extra item.
(d) To revise the rates due change in rates of materials and labours.
(e) To revise the rates due to change in technique or change due to technical
alterations.
(f) To plan out the construction work effectively.

Factors Affecting the Rate Analysis

1. Quality of materials.
2. Proportion of construction materials.
3. Facilities available at site and around.
4. Location of the site work.
5. Transportation charges etc.
6. Overhead charges.
7. Miscellaneous expenditures.
8. Profit desired.
9. Experience of workers and supervising staff.
10. Management

Fixing up Rates/Unit of Items

Following factors should be taken into to fix up the rates per unit of item
(a) Quantity of materials and cost: It includes cost of transportation charges, sales
tax, insurance charges etc.
(b) Labour cost: The number and wages of different categories of labours,
(skilled, unskilled, semiskilled, should be known per unit of item)

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(c) Cost of equipment: Operation cost, rent charges etc. for each tool to be used.
The total cost should divide for the whole duration of the work and should be
added to the particular item.
(d) Overhead charges: It includes office rent, depreciation of equipment, postage,
lighting, traveling, telephone bills, small tools etc.
(e) Profit: Generally a profit of 10 % is considered reasonable, but it varies from 8
% for big projects to 15 % for small projects.

Bid Project Profit intended

Price = Cost + P
BD Pc

Project cost Direct Gross overheads

Pc = Cost + GoH
Dc

GoH = Covers cost of maintaining Head office, staff office space (cost of
owning /Rental) cost of borrowed capital etc.

The overheads have to be distributed to all the ongoing projects.

GoH GoH = Total gross overhead charges

R = ------------- DCt = Total sum of direct cost of all the
DCt ongoing projects.

GoH = R x Dc

Direct cost: This is incurred only when the project is taken up after the work is
awarded.

Dc = Task cost + PoH

Task cost: tasks for completion of various activities of the project.

PoH: project overheads costs are incurred for salary of project manager, office
staff at project site office, communication temporary accommodation etc.
It is also includes insurance premium & compensation etc.

Task cost components are:

_ Material costs, Mc
_ Labour cost, L
_ Equipment costs, E
_ Sub contractor costs, if any, Sc

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For correct estimate of task costs it is necessary that bill of quantities should
precisely be known.

Material cost Cost of material that Cost of material

Mc = becomes part of the + can be reused
Structure

An allowance for wastage, damage and pilferage should be included. These

values vary from site to site ranging between 15 to 25 %.

The quantity of the material to be used for a particular task known from the bill of
quantities

Mc = K * Q * Uc + D + ST

K = is a factor greater than unity to account for wastages, damages etc.

Q = is the quantity of material rounded off to standard unit ( of supply )
Uc = Unit cost of material
D = Delivery cost
ST = Sale’s tax
Mc = Material cost

Labour cost, L = N * t * Hc + F * t

N = number of resources e.g. No. of Masons.

t = time of working for which craftsman to be paid.
Hc = hourly wage cost including fringe benefits like pension, insurance
compensation etc.
F = effective wage rate of foreman/supervisor.

Task duration:- depends upon quantity of work and nature of work, also on No.
of resources employed.

For each activity, there is a critical resource person/equipment and usually no. of
this critical resource is limited (fixed). For example, in excavation task,
excavators are critical resources and masons are critical resource for brick work.

Production rates of different craftsman / skilled workers available from in-house

information / hand books etc.

Task Duration = Q/ N * ROP

Q = Quantum of work as determined in bill of quantity (estimation process)

N = No. of resources employed.
ROP = average rate of production
Equipment cost: this is incurred if equipment is to be used in any task.

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Normally the routine equipments such as concreting mixers or vibrators are not
considered separately but included in the rate of the concrete. For special
equipment to be borrowed from market:

E = N * t * Hc + DAR

N = the number of equipment.

t = duration for which required.
Hc = hourly cost of operating and maintenance.
DAR= delivery & return cost

Alternatively, the contractor on the basis of his past experiences can change for
equipment on lumpsum basis or as % of other component – Equipment for
excavation: Birr/ m3 of excavation.

Sub- contractors cost: If any activity needs highly specialized services then
the sub- contract would be given for that.