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BACKGROUND & PURPOSE

Construction cost estimating is the process of forecasting the cost of

building a physical structure.
It is to determine a project’s scope and feasibility and to allocate
budgets.
Cost estimate prevents the builder from losing money and helps the
customer avoid overpaying
They are also essential for large civil projects or mega-projects
because of their sizable scope and the potential involvement of public
money.
Customers usually select the lowest bid that meets the standards and
specifications they set.
 overview of the
construction estimation process
COMMISSIONING A
PROJECT
Commissioning is
essentially a verification constructing a project is a
process that ensures a
builder designs, constructs,
and delivers a project
according to the owner’s
requirements.
DETERMINING FORMING A DESIGN
REQUIREMENTS TEAM
The first real step in The project owner contracts
with an architect who will
pre-design phase or then select other
planning phase. specialized consultants to
form a design team.
 overview of the
construction estimation process
DESIGNING THE BIDDING BASED ON
STRUCTURE THE SCOPE OF
WORK
This step deals with the Once the construction
architect creating a series documents are finalized,
of designs they are released to
contractors who wish to bid
on the project.
SIGNING THE
CONTRACT
Once the contractor has
been selected, they execute
a set of contract
documents with the owner.
 overview of the
construction estimation process
CONSTRUCTION CLOSE-OUT
When the builder comes
close to finishing a
During the construction structure, the contractor
phase, the contractor requests the architect
oversees building in perform a substantial
accordance with the completion inspection in
construction documents. which the architect verifies
the near-complete status
of the project.
COMPLETION
If the contractor has
completed the structure
according to construction
drawings and
specifications, the architect
will issue a certificate of
final completion, and the
contractor is entitled to
receive the full payment.
 MAIN TYPES OF CONSTRUCTION
COST ESTIMATES

Level 1 : Order of Magnitude Estimate

It is created when project design has not yet begun, to assess the
overall viability of a construction project. To assess the overall
viability of a construction project.

Level 2 : Schematic Design Estimate

An estimate produced in line with schematic design

Level 3 : Design Development Estimate

An estimate made during the design development phase

 MAIN TYPES OF CONSTRUCTION
COST ESTIMATES

Level 4 : Construction Document Estimate

An estimate based on the construction drawings and
specifications

Level 5: Bid Estimate

An estimate prepared by the contractor, based on construction
documents. The bid estimate is the basis of the bid price offered
to the customer.
 MAIN TYPES OF CONSTRUCTION
COST ESTIMATES

DESIGN ESTIMATES
These estimates, prepared during a project’s pre-design and design
phases, start with an order of magnitude estimate, or screening
estimate, which determines which construction methods and types
are most feasible

BID ESTIMATES
Contractors prepare bid estimates when bidding to construct
the project.

CONTROL ESTIMATES
Prepared after one sign a contractor agreement and before
construction gets underway, the control estimate functions as a
baseline by which you assess and control actual construction
costs.
 A Contstruction cost
estimates perspective
on building systems
 A Contstruction cost estimates
perspective on building systems
For a project as complex as a skyscraper, estimating costs requires a methodical approach to enumerating
expenses. Cost estimators can use the Uniformat System which divides a structure into seven functional
sections, These are:

Substructure
Shell
Interiors
Services
Equipment and furnishings
Special construction
Building site work
 When submitting a bid, contractors will draft a bill of quantities, which is a detailed inventory
of the labor and supplies needed for the project.

Taking-Off Quantities
It’s important to follow one of the standard methodologies, such as the New Rules of Measurement

Squaring Abstracting Biling

The quantity surveyor The collecting and It involves
multiplies the dimensions
ordering of the presenting item
of the component into
squared dimensions. descriptions and
square area and multiplies
this by the number of Similar tasks and quantities in a
times this work item components are structured format, the
occurs in the construction bill of quantities
grouped together
The Elements of a Construction
Cost Estimate

QUANTITY TAKE- LABOR HOUR LABOR RATE

OFF
is the amount per hour one
pays to skilled craftsmen.
·Developed during the pre- The labor hour, or man hour, This includes not just the
construction phase, a is a unit of work that basic hourly rate and
quantity take-off measures measures the output of one benefits, but the added
the materials and labor person working for one costs of overtime and
needed to complete a hour. payroll burdens, such as
project. worker compensation and
unemployment insurance
 The Elements of a Construction
Cost Estimate
EQUIPMENT COST
Refer primarily to the cost of
running, and possibly renting,
heavy machinery, such as cement
mixers and cranes. It’s important to
note that the equipment in use
influences how quickly you can
complete the project, so the use of
equipment actually impacts many
costs outside of those directly
associated with running the
equipment.
SUBCONTACTOR
COST
Most contractors will hire
multiple specialist
subcontractors to complete
parts of the construction. You
add these subcontractors’
quotes to the contractor’s total
estimate. (It can be helpful to
use a tracker to collect all the
subcontractor documentation
in one place.
INDIRECT COST
Are expenses not directly
associated with construction
work, like administrative
costs, transport costs, smaller
types of equipment,
temporary structures, design
fees, legal fees, permits, and
any number of other costs,
depending on the particular
project.
The Elements of a Construction
Cost Estimate

PROFITS CONTINGENCIES ESCALATION

Since even the most
In order to make a profit, accurate estimate is likely
the contractor adds a
to be affected by
margin on to the cost of unforeseeable factors, such
completing the work. as materials wastage, an
Subcontractors do the estimate will usually have a
same when preparing their predetermined sum of
own quotes. money built in to account
for such added costs.
Refers to the natural
inflation of costs over time,
and it’s especially vital to
take into account for long-
running projects. Some
projects have escalation
clauses that address how
to handle this inflation.
 The Elements of a Construction
Cost Estimate
BONDS
An owner will usually require a
contractor to arrange for the
issuance of a performance bond in
favor of the project owner. The
bond functions as a kind of
guarantee of delivery. Should the
contractor fail to complete the
project according to the terms of
the contract, the owner is entitled
to compensation for monetary
losses up to the amount covered
by the performance bond.
CAPITAL COSTS
·Are simply the costs associated with
establishing a facility. These include the
following: the cost of acquiring land; the
cost of conducting feasibility studies and
the pre-design phase; paying the
architect, engineer, and specialist
members of the design team; the total
cost of construction, which covers not just
materials, equipment, and labor, but also
administrative, permitting, and supervision
costs, as well as any insurance fees or
taxes; the cost of any temporary
equipment or structures that are not part
of the final construction; the cost of hiring a
commissioner; and the cost of inspecting
the structure when it’s near completion.
OPERATIONS AND
MAINTNACE COSTS
More a concern for the owner than the
contractor, one accounts for
operations and maintenance costs
during the design phase. Making
choices that lower the total lifetime
cost of a building may result in higher
construction costs. Operating costs
include land rent, the salaries of
permanent operations staff,
maintenance costs, renovation
expenses (as needed), utilities, and
insurance.
The Elements of a Construction
Cost Estimate

MATERIAL PRICES VARIANCES

·Since the cost of materials Owners will often allocate
is prone to fluctuation construction budgets that
based on market conditions are larger than cost
and such factors as estimates because even
seasonal variations, cost good, thorough cost
estimators may look at estimates have a tendency
historical cost data and the to underestimate actual
various phases of the construction costs. This can
buying cycle when happen for a number of
calculating expected reasons.
material prices.
 Influences on Construction Costs

Building Site Location of the Regulatory

Construction Site Requirements
 Influences on Construction Costs

Certain construction sites

Time related Size and complexity
require the completion of
feasibility or impact studies aspects
 Influences on Construction Costs

Quality of plans and Government or quasi- All cost estimates add

governmental agency
specifications at least a tenth
commissions or funds the
project ( CONTINGENCIES )
 Using Historical Data in
Construction Cost Estimates
Historical data comes from several sources, including catalogs of vendor data,
databases, periodicals, commercial references, and digests of actual project costs.
Contractors may also look at successful past bids, assuming these proved accurate.

You’ll have to adjust most costs for inflation, depending on how old the data is. ,
you’ll have to adjust almost all standardized cost data to local economies, and
there’s likely to be a considerable degree of cost fluctuation even between cities
in the same region or country.

Labor costs are especially variable. Based on the demand for labor, the required level of skill,
and the condition of the construction site, which in turn hinge on such factors as the time of
year, economic and market conditions, and the location of the construction site, an estimator
will usually have to adjust historical labor data when creating a new estimate.
 Using Historical Data in
Construction Cost Estimates
For contractors with successfully completed projects under their belts, comparing
their actual cost data to their cost data reference can help gauge the accuracy of the
data reference

Good cost estimators will tend toward caution since cost estimates generally
underestimate the actual cost of construction. Even with contingencies built
into the estimate, factors such as design changes and unforeseeable economic
conditions can quickly increase costs

Both the contractor and the owner bear substantial risks when constructing large projects. Contractors don’t just
stand to have their profit margins cut and their reputations hit. Many end up declaring bankruptcy when it simply
becomes too expensive to complete a project. And while owners shield themselves somewhat from financial losses
through performance bonds and similar protections, the failure to complete a project on time may result in financia
damage due to lost potential profits or an inability to pursue a strategic plan.
 The Effects of Scale on Construction
Cost Estimates

“Costs are not always directly proportional to the size of a

facility or the number of units one’s building. If plotted on a
graph, this phenomenon, known as an economy or
diseconomy of scale depending on which way the cost varies,
would appear as a non-linear relationship between facility size
and costs. “
 The Effects of Scale on Construction
Cost Estimates
If the average cost per unit falls as the number of units increases, we have an economy of scale. If the
average cost rises as the number of units increases, we have a diseconomy of scale.

The cost exponent is an indicator of whether a scale economy or

diseconomy exists. For a discussion of how to calculate cost exponents in
construction, consult Project Management for Construction. If the exponent
is greater than zero but less than one, an economy of scale exists. If it is
greater than one, a diseconomy of scale exists. If it is equal to one, the cost-
capacity relationship is unaffected by scale.
 The Major Approaches to Construction
Cost Estimation

Production Function Stick Estimating Empirical Cost Inference

Production functions can be
Highly accurate, but incredibly
quite accurate for forecasting
time consuming, stick estimating This statistical method uses
input-output relationships for
is the practice of determining regression analyses to relate
projects of a particular type,
total costs by listing, in order, the the cost of construction to a
and there is extensive data to
costs for every single component model of predictors
draw from for certain project
of a job
types
The Major Approaches to Construction
Cost Estimation

UNIT COST ESTIMATING ALLOCATION OF JOINT

·Unit cost estimating simply
associates unit costs with each
COSTS
assembly involved in a construction You allocate costs that are
process. It’s fairly quick and
difficult to assign to individual
accurate, especially if one has used
project elements by using
the assemblies previously, and there
is evidence to justify the unit costs different mathematical formulas.
for each assembly.
THE CONSTRUCTION COST ESTIMATOR’S JOB

the cost estimator is central to the cost estimation process. Typically a

professional who is familiar with both design and construction and skilled at
navigating the myriad costs associated with construction projects, the cost
estimator must have both skill and training.
Essential skills for cost estimators include the ability to work quickly with
numbers, an in-depth knowledge of construction, and familiarity with
construction documents. On large projects, multiple specialist cost estimators
may be responsible for estimating different aspects of the project, so a
specialization or first-hand experience in constructing certain types of
structures can also be valuable.
THE CONSTRUCTION COST ESTIMATOR’S JOB

Although tertiary education is typically a requirement for cost estimators, first-

hand experience with construction and a knowledge of the contracting
landscape are perhaps more essential skills. Some estimators are individuals
who have risen through the ranks as construction workers. These experienced
construction professionals also know how to negotiate with subcontractors
and may be better able to appreciate the factors that impact estimated
amounts.
THE CONSTRUCTION COST ESTIMATOR’S JOB

Dedication to continued learning is necessary for all cost estimators, whether

certified or not. It’s key to keep abreast of the construction industry and also to
be able to learn and implement evolving cost estimation methods and
software, which we’ll talk about shortly.
In addition, cost estimators must be highly organized and highly attentive to
detail. They should know how to communicate cost information with accuracy
and integrity.
 BEST PRACTICES IN CONSTRUCTION
COST ESTIMATING AND WHAT NOT TO DO
Today, software applications
make cost estimation easier,
but the cost estimator’s role
remains as crucial as ever.
Some best practices can lead
to more accurate estimates
and more successful bids.
The cost estimator must
follow industry norms and
standards for measurement
units. He must also
consistently fill out costing-
related documents, such as
quantity surveys, and follow
cost-recording procedures in
a way that makes their work
verifiable and easy to handoff
to another cost estimator if
necessary.
Identifying indirect costs is
another key part of the cost
estimator’s job, and it’s to
some extent a skill developed
through experience. The
estimator examines
contractual terms to see which
of them may impact indirect
costs. They’re also responsible
for calculating indirect costs
and for coming up with a way
to record these.
 BEST PRACTICES IN CONSTRUCTION
COST ESTIMATING AND WHAT NOT TO DO

The estimator is responsible Ultimately, the cost estimator

for evaluating The cost estimator also helps may have to exercise
subcontractors’ bids, track costs in the field so as specialized skills, such as value
particularly taking into to allow the comparison of engineering, which usually
account the subcontractors’ actual costs with cost refers to increasing the
performance on past estimates. The idea is to see function-to-cost ratio. Value
projects. They will review which areas of the estimate engineering is usually a
construction drawings for were accurate, which weren’t, separate study, and it’s critical
constructability and and why. to structure an estimate so you
accuracy in representing the can swap out costs and assess
project scope. the effect of value engineering.
COMMON PITFALLS FOR CONSTRUCTION
COST ESTIMATORS
One common source of
problems is the failure to
read the project documents
carefully, which frequently
leads to a poor
understanding of the project
scope and certain associated
costs. These issue can be
compounded by neglecting
to thoroughly check the
completed estimate.
Finally, some cost estimators
Other oversights include the
who draw from cost data
failure to visit the site and the
repositories will fail to adjust
inability to fully understand
costs based on local
the site conditions. As we
conditions or will make
talked about earlier, a site’s
arbitrary adjustments without
natural conditions and
considering prior experience or
location can impact costs in
quantitative comparisons.
a number of ways, and a cost
Either of these can throw
estimator will develop an eye
estimates off and make it more
for spotting and asking about
difficult for another cost
these.
estimator to verify an estimate.
 NEW ASPECTS OF Construction Cost
EstimatING
Construction cost estimating continues to evolve as design, building methods, and
materials change. Some trends that impact cost estimating today include:

Building Information Modeling (BIM): A building information model is a

digital model of a structure and all its characteristics and dimensions.
Sustainability and LEED (Leadership in Energy and Environmental
Design) Certification: LEED certification is a point system for rating
buildings based on their environmental performance.
Lean Construction and Cost Control: Lean construction, a fairly new
approach, draws from the principles of lean management, which is the
systematic effort to reduce waste without affecting productivity.
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