Estimating Construction Costs

Cost estimating is the process of looking into the future and trying to
predict project costs and resource requirements.

Cost Estimating

The key to a good job and successful cost control is the

development of a good cost estimate as the basis for bid submittal.
The estimate represents the cost flight plan that will be followed by
the constructor and that will aid him or her in achieving profit.
One major reason for the failure of construction firms is incorrect and
unrealistic estimating and bidding practices.
A consistent procedure for preparing an estimate is needed to
minimize errors and achieve reliable results.

Types of Estimates

Types of Estimates

Estimating methods vary in accordance with the level of

design detail available to the estimator.

Conceptual Estimate

Four Levels of Estimates

Prior to commencement of design, when only conceptual information

is available, a comprehensive unit is used to characterize the facility
being constructed. This representative unit is multiplied by a price per
unit to obtain a gross cost estimate.

Conceptual Estimate
Preliminary Estimate
Engineers Estimate
Bid Estimate

Conceptual estimate is useful in schematic or budgetary phase.

This data is of limited use for project cost control.
Preliminary Estimate
Based on preliminary design (around 40% completion of design).

Types of Estimates
Engineers Estimate
Based on final or detailed design. It indicates the total job cost
without markup.

Types of Estimates
The contractor continues estimating during the construction phase in
order to predict profit or loss.
A list of estimates is commonly developed for large and complex
industrial projects (power plants, chemical process plants, etc.)

Engineers estimate is used to

(1) Ensure that the design produced is within the owners
financial resources to construct; and
(2) Establish a reference point in evaluating the bids submitted
by the competing contractors.
Bid Estimate
The contractor prepares his estimate of the jobs cost to include a
markup for profit based on the final drawings and specifications.

The magnitude level estimate is similar in purpose to the conceptual

estimate. It is used to reflect gross costs for planning and decision
purposes before preliminary and definitive design phases begin.
The definitive estimate is a pre-final estimate developed just prior to
the production of final drawings and specifications.

Detailed Estimate Preparation

The preparation of a detailed bid-level estimate requires that the
estimator break the project into cost centers or cost accounts
(subelements of a cost center).
Cost centers typically relate to some physical component of the
project, e.g., foundation piles, excavation, steel erection, interior dry
wall installation.
Some cost centers are not related to physical components, e.g.,
insurance and bonding premiums, fees for licenses and permits,
expense for special items related to safety and minority participation
programs, and home office overheads.
Costs are estimated based on characteristic resources required:
man-hours, materials, subcontrators, and equipment-hours.

Estimate types

A chart of cost centers/accounts acts as a checklist for the estimator

to review the plans and specifications to highlight what cost
centers/accounts are present in the contract being estimated.

Steps in Developing Estimate

1. Break the project into cost centers.
2. Estimate the quantities required for cost centers for physical end
items; for nonphyisical cost centers, determine a appropriate
parameter for cost calculation.
3. Price out the quantities determined using historical data, vendor
quotations, supplier catalogs and other pricing information. May
require an analysis of production rates.
4. Calculate the total price for each cost center by multiplying the
required quantity by the unit price.

Typical estimate summary

Definition of Cost Centers

The subdivisions into which the project is divided for detailed cost
estimation purposes are variously referred to as:
1. Estimating accounts
2. Line items
3. Cost accounts

Cost Estimate, Control and Coding

Cost summation of all individual work packages can be used
to track total costs and determine the overall cost status at
any time during construction.
For consistency and structured management of large systems,
a code of cost accounts is used as a template to define and
catalog cost centers within a project.

4. Work packages
The estimating account is typically defined so as to provide target
values for the cost accounts that will be used to collect as-built costs
while the job is in progress.
Work packages are used for both cost control and time control.

The breakdown of a project into estimating accounts or work

packages is aided by a comprehensive chart of cost accounts or list
of typical work packages that can be used as a checklist.

Consistent with WBS, cost coding systems utilize a numerical

or alphanumerical labeling which is multi-level or hierarchical.
A cost coding system must be (1) suitable for computerization;
(2) compatible with companys financial & accounting systems;
and (3) facilitating information gathering and reporting.
Cost coding system should facilitate the rolling up of costs.

Coding System
Some companies have a universal coding system for identifying activities. A
numbering system replaces verbal descriptions of activities.
Each activity defined for a project would be identified by a pre-defined code
specific to that activity.
A common nomenclature or identification system facilities integration of
organizational efforts and improves information flow.
It aids consistency in definitions and categories between projects and
among the various parties involved in a project.

Coding System
A typical cost code might define

(1) the project designator

(2) area of work
(3) work discipline (e.g., civil, mechanical, electrical, etc.)
(4) the trade specialty required

Common coding systems also aid in the retrieval of historical records of cost,
productivity and duration on particular activities.
Electronic data storage and retrieval operations are much more efficient with
standard coding systems.

Masterformat
The most widely used standard coding system in building construction in
North America; developed by the Construction Specifications Institute of the
United States and Construction Specifications of Canada.
Hierarchical coding system with keyword text descriptions of each item.
Major divisions: sixteen divisions for work and one division for the condition of
the contract. Two digits are used to represent a division.
Each division is further specified by a three digit extension indicating another
level of subdivisions.
Subdivisions are further divided with additional three digits to identify more
specific work items or materials.

Major Divisions in the Masterformat

0 Conditions of the contract
1 General requirements
2 Site work
3 Concrete
4 Masonry
5 Metals
6 Wood and plastics
7 Thermal and moisture prevention
8 Doors and windows
9 Finishes
10 Specialties
11 Equipment
12 Furnishings
13 Special construction
14 Conveying system
15 Mechanical
16 Electrical
Example: Code 16-950-960 - Electrical Equipment Testing

Work Package Control Account Sheet

Quantity Takeoff
Quantity Takeoff/Quantity Surveying
The development of the quantities of work to be placed in
appropriate units (e.g., square feet, cubic yards, etc.) is referred to
as quantity takeoff or quantity surveying.
Common Errors in Quantity Takeoff
1. Arithmetic: Errors in addition, subtraction and multiplication

Quantity Takeoff
Advantages of Using Estimating Accounts/Work Packages

Advantages: (1) Estimating done by several responsible

estimators; (2) Facilitating computation; (3) facilitating
processing progress payment request; and (4) improving change
management.
Working Drawings vs Contract Drawings

2. Transposition: Mistakes in copying or transferring figures,

dimensions or quantities.

Check against Standard Checklist

3. Errors in omission: Overlooking items

Materials Takeoff Sheet

4. Poor reference: Scaling drawings rather than using dimensions

indicated

Summary or Recap Sheet

5. Unrealistic waste or loss factor

Material takeoff sheet

Construction support materials recap list

Methods of Detailed Cost Determination

Three Typical Methods for Cost Determination

Problems with Unit-Pricing Method

In unit-pricing method, the construction company keeps records
of dollars per unit, and in most cases no records of the crew
composition, cost, and production rates are maintained.

(1) Unit Pricing

(2) Resource Enumeration

In each job, the crew composition, costs and production rates are
unique. The dollar per unit figure represents an aggregate cost
per unit obtained by averaging values on previous jobs. This
should be treated with caution when applied to a particular job.

(3) Work package/assembly

Unit Pricing
Unit price values are available in many standard estimating references.
The standard references normally give a nationally averaged price per
unit. A multiplier is used to adjust the national price to a particular area.

Some of the estimators intuition must be applied to ensure that

the value is adapted to the conditions of the job being estimated.

The dollars per unit is calculated as follows:

Unit price =

Cost of resources per unit time

Production rate of resources
Example

Cost of resources per unit time

$/hr
Unit/hr

$/unit

Unit price =

Production rate of resources

The cost of resources per unit time varies significantly over time as the
costs of labor and machines vary.

Problems with Unit-Pricing Method

Quantification of Site & Job Unique Factors

To factor out the inflationary escalation inherent in resource

costs, some contractors maintain the ratio of man-hours or
resource-hours to production rate.

The unit pricing method assumes that historical data have been
maintained for commonly encountered cost accounts.

Use resource hours required per unit rather than dollars per unit.

For each cost account, data are collected and linked to a reference
unit such as a cubic yard or square foot.

The value is calculated as

The costs of materials and installation are aggregated and then

presented as a cost per unit.

Resource-hours per unit time

Production rate of resources

RH/hr

= RH/unit

Unit/hr

The cost per unit can then be calculated by multiplying the resource
hours per unit value by the average hourly cost per resource.
This method recognizes that the number of recourse-hours required
per unit is much more stable over years than the cost per unit.

The cost of a particular cost account is estimated by calculating the

number of reference units and multiplying this number by the unit price.
Typically, the estimator will intuitively adjust this estimate cost to
reflect special characteristics of the job, such as access restrictions,
difficult management environment, etc.
One approach to the qualification of these site and job unique factors
is the so called Dallavia method.

Resource Enumeration
The unit-pricing method is sufficiently accurate to estimate the common
accounts encountered on a given project. However, a project may have
unique features for which unit-pricing data may not be available.
For unique items, the price must be developed by breaking the special
work item into its subfeatures and assigning a typical resource group
to each feature. The productivity to be achieved by the resource group
is estimated by using either historical data or engineering intuition.
Advantages
More precise cost-per-unit definition.
Disadvantages
Resource enumeration method is time-consuming as it uses a
detailed level of cost definition.
Dallavia method

Resource Enumeration
Resource enumeration method is only used on
(1) Items for which no unit cost data are available;
(2) big-ticket items, which constitute a large percentage of the
overall cost of the job and for which such a precise cost
analysis may lead to cost savings that may provide the
winning margin at bid time;
(3) Extremely complex work items on complicated and unique
projects for which the use of the unit-pricing approach is
deemed inadequate.

Resource enumeration method of estimating

Work Package or Assembly-Based Method

A work package or assembly commonly encountered in
construction is viewed as an estimating group, and appropriate
dimensional and cost-related parameters defined for the package.
Work package/assembly method can be considered as a structured
extension of the resource enumeration method.
The method can be used either manually or through a
computerized system.
In a manual approach, a work package takeoff sheet is helpful in
organizing the collection of data.
In a computerized system, the estimator is interrogated by the
computer and provides the dimensional and methodology
information in a question-and-answer format.
Labor resource enumeration

Work package collection sheet concrete slab

Construction systems concept concrete footing

Work package collection sheet excavation

Summary
The estimate is the basis for the contractors bid. It has a significant
effect on whether or not a given project is profitable.
In building construction the four levels of estimate preparation are (1)
conceptual, (2) preliminary, (3) engineers, and (4) bid.
The first three of these estimates are typically prepared by the
architect/engineer and reflect the increasing refinement of the design.
Large and complex projects also include a magnitude and definitive
estimate.
Three estimate methods: 1. unit-pricing, 2. resource enumeration
and 3. work package/assembly method.
Selection of methods is a tradeoff between the need for accuracy and the
cost of obtaining that accuracy.
The keys to a successful estimate are (1) the ability to assess the required
level of accuracy and (2) the ability to achieve the required level of accuracy
at minimal cost.

Steps in the estimating process