KYAMBOGO UNIVERSITY

SCHOOL OF BUILT ENVIRONMENT

DEPARTMENT OF ARCHITECTURE

BACHELOR OF ARCHITECTURE

ARC 424: THEORY OF INVESTMENT

LECTURER: MR. MULUMBA PADDY

SUBMITTED BY

MUSEDDE NELSON CALVIN

20/U/ARD/4686/PD
Estimates are made throughout the design and planning stages of a proposed construction
project; nevertheless, there appear to be around four approved non-absolute techniques of
estimating. Examine the four alternative estimation approaches that have been suggested.

Four Alternative Estimation Approaches in Construction Projects

Estimating is a crucial aspect of construction projects, providing a foundation for decision-

making, resource allocation, and risk management. While various estimation techniques
exist, four primary approaches are commonly employed:

1. Order of Magnitude Estimating (OOM)

• Purpose: Provides a rough estimate at the early stages of a project, often based on
limited information.

• Method: Utilizes historical data, similar projects, or industry benchmarks to derive a

ballpark figure.

• Accuracy: Typically within ±30% to ±50% of the actual cost.

• Use Cases: Feasibility studies, preliminary budgeting, and concept development.

2. Unit Price Estimating

• Purpose: Determines the cost of a project based on the quantity and unit price of
individual work items.

• Method: Requires detailed drawings, specifications, and a comprehensive scope of

work.

• Accuracy: More precise than OOM, with an error range of ±10% to ±20%.

• Use Cases: Detailed project planning, bidding, and contract negotiations.

3. Comparative Estimating

• Purpose: Compares the estimated cost of a proposed project to similar completed

projects.

• Method: Involves collecting data on comparable projects, including costs, scope, and
site conditions.

• Accuracy: Depends on the similarity between the projects being compared.

• Use Cases: Preliminary cost estimation, benchmarking, and risk assessment.

4. Parametric Estimating

• Purpose: Uses historical data and statistical models to predict costs based on
project characteristics.

• Method: Identifies key project parameters (e.g., square footage, complexity, location)
and applies regression analysis to estimate costs.

• Accuracy: Can achieve high accuracy with reliable data and well-developed models.
 • Use Cases: Detailed cost estimation, project control, and performance analysis.

Key Considerations:

• Project Phase: The choice of estimation technique depends on the project's stage of
development. OOM is suitable for early stages, while parametric and unit price
estimating are more appropriate for later phases.

• Data Availability: Accurate estimation requires reliable historical data and project
information.

• Risk and Uncertainty: Estimation techniques should account for potential risks and
uncertainties that may affect project costs.

• Project Complexity: More complex projects may require a combination of

techniques for accurate estimation.

References:

• Construction Specifications Institute (CSI). (n.d.). Retrieved from

https://www.csiresources.org/

• Associated General Contractors of America (AGC). (n.d.). Retrieved from

https://www.agc.org/

• Construction Management Association of America (CMAA). (n.d.). Retrieved from

https://www.cmaanet.org/
Question One b)

Cost plans are a progression from the orders of cost estimate that have already been
prepared as each cost plan provides a stepping stone to the next as more design information
becomes available. Explain in detail the procedure a cost consultant will follow while
preparing a formal cost plan.

A Cost Consultant's Approach to Preparing a Formal Cost Plan

Understanding Cost Plans

A cost plan is a detailed breakdown of the estimated costs for a construction project,
providing a roadmap for financial management and control. It evolves as the project
progresses, incorporating more specific design information and refining cost estimates.

Procedure Followed by a Cost Consultant:

1. Project Initiation:

o Client Consultation: The cost consultant meets with the client to understand
the project's scope, objectives, and budget constraints.

o Review of Existing Documentation: Existing documents, such as design

briefs, feasibility studies, and preliminary cost estimates, are analyzed.

2. Initial Cost Estimate:

o Order of Magnitude Estimating (OOM): Using historical data, industry

benchmarks, and analogous projects, the consultant prepares a preliminary
cost estimate.

o Risk Assessment: Potential risks and uncertainties are identified and

quantified to inform the cost estimate.

3. Design Development:

o Collaboration with Design Team: The consultant works closely with

architects, engineers, and other design professionals to understand the
project's design intent and requirements.

o Cost Analysis: As design details emerge, the consultant analyzes the impact
on costs, including material quantities, labor requirements, and subcontractor
bids.

4. Detailed Cost Plan:

o Work Breakdown Structure (WBS): The project is broken down into smaller,
manageable work items.

o Cost Element Identification: Costs are categorized into various elements,

such as materials, labor, equipment, and subcontractors.
 o Unit Price Estimating: Unit prices for each work item are determined based
on market rates, historical data, and project-specific factors.

o Quantity Takeoffs: Quantities of materials, labor, and equipment are

estimated from design drawings and specifications.

o Cost Calculations: The unit prices are multiplied by the quantities to

calculate the estimated cost of each work item.

o Contingency Planning: A contingency factor is added to account for

unforeseen risks and uncertainties.

5. Cost Plan Review and Approval:

o Internal Review: The cost plan is reviewed by the cost consultant's team to
ensure accuracy and consistency.

o Client Review: The plan is presented to the client for review and approval.

o Modifications: Based on client feedback, necessary modifications are made

to the cost plan.

6. Cost Control and Monitoring:

o Regular Updates: The cost plan is updated throughout the project as design
changes occur and actual costs become available.

o Variance Analysis: The consultant compares actual costs to the estimated

costs to identify variances and investigate their causes.

o Cost Management Strategies: If variances are significant, the consultant

may recommend cost-saving measures or adjustments to the project scope.

References:

• Construction Specifications Institute (CSI). (n.d.). Retrieved from

https://www.csiresources.org/

• Associated General Contractors of America (AGC). (n.d.). Retrieved from

https://www.agc.org/

• Construction Management Association of America (CMAA). (n.d.). Retrieved from

https://www.cmaanet.org/
Question Two

In preparation of an order of cost estimate; knowledge of several terms is paramount

in accordance with the New Rules of measurement (NRM 1) published by RICS;

Evaluate the following terms below.

1. Formal Cost Plan stage

2. Element Net internal area

3. Cost limit

4. Formal Cost Plan

5. Risk value

6. Functional unit

7. Construction inflation

Evaluating Key Terms for Cost Estimation in NRM 1

Note: While I cannot access the specific definitions provided in RICS' NRM 1, I can offer
general explanations of these terms based on their common usage in the construction
industry. Please refer to the official NRM 1 document for exact definitions and context.

1. Formal Cost Plan Stage

• Definition: A specific phase within the overall project planning process where a
detailed and comprehensive cost plan is developed. This stage typically involves
gathering detailed information about the project, estimating costs for various
elements, and considering potential risks.

2. Element Net Internal Area

• Definition: The total usable area within a building or structure, excluding external
walls, corridors, and shared spaces. This measurement is often used to calculate
construction costs based on a per-square-foot or per-square-meter rate.

3. Cost Limit

• Definition: A predetermined maximum amount that a project is allowed to cost. This

limit can be set by a client, a funding agency, or internal company policies.

4. Formal Cost Plan

• Definition: A detailed document outlining the estimated costs for a construction

project, including breakdowns of materials, labor, equipment, and other expenses. It
serves as a financial roadmap for the project.

5. Risk Value
 • Definition: A numerical representation of the potential impact and likelihood of a
particular risk occurring. Risk values are used to assess the overall risk profile of a
project and to allocate resources accordingly.

6. Functional Unit

• Definition: A standardized unit of measurement used to compare the performance or

output of different projects or systems. In construction, functional units might include
square footage, cubic meters, or the number of units produced.

7. Construction Inflation

• Definition: The increase in the cost of construction materials, labor, and services
over time. Construction inflation can have a significant impact on project budgets and
schedules.

References:

• Royal Institution of Chartered Surveyors (RICS). (Year). New Rules of Measurement

(NRM 1). RICS.

• [Insert any relevant academic articles or textbooks on construction cost estimation

and project management]