MODULE 5

CONSTRUCTION ESTIMATES AND VALUE ENGINEERING

CONSTRUCTION ESTIMATES
- Used to forecast how much it will cost to build the structure in your project plan. Understandably,
this is one of the most important steps taken at the early stages of any construction project
management process.
1. The ESTIMATOR is responsible for including all items specified in the drawings and project manual
in the submitted bid. The estimator must meticulously examine everything and double-check
everything.
An estimator needs to have to be successful, including visualizing the project's various phases of
construction just by looking at the drawings, having sufficient construction expertise, maintaining
a database of all costs associated with the project, having a working knowledge of computers,
possessing good writing and presenting abilities, and maintaining a laidback attitude while
meeting bid deadlines. Must have the following qualities:
a. Visualizing the project
b. Construction expertise
c. Database management
d. Computer skills
e. Meeting deadlines
f. Communication skills
2. CONTRATORS must present a competitive cost estimate for projects constructed using the
design-bid-build delivery system.
3. CONSCTRUCTION BIDDING is a competitive business, with numerous businesses fighting for a
single project. To remain viable, a contractor must be the lowest qualifying bidder on a specified
number of contracts while keeping a profit margin that is acceptable.

COST ESTIMATES

- The approximation of the cost of a program, project, or operation. The cost estimate is the
product of the cost estimating process. The cost estimate has a single total value and may have
identifiable component values.

PURPOSE OF ESTIMATION

1. To ascertain the amount of money that the owner will require to accomplish the proposed project.
2. Determine the number of materials required in order to schedule their procurement in a timely
manner.
3. Calculate the number of people required to perform the work within the allotted time.
4. Determine the tool and equipment needs for completing the task as specified in the program.
5. Calculate the duration of the project based on the volume of work included in the estimate.
6. Justify the investment by comparing the benefit to the expense

DETAILED ESTIMATE
 - Includes the detailed particulars for the quantities, rates, and costs of all the items involved for
the satisfactory completion of a project. Best and most accurate estimate that can be prepared

ROUGH ESTIMATE

- An approximate estimate to determine an approximate cost in a short time.

- Area Method/Rule of thumb

APPROACHES TO COTS ESTIMATION

1. PRODUCTION FUNCTION. In construction, the production function may be expressed by the

relationship between the volume of construction and a factor of production such as labor or
capital.
2. EMPIRICAL COST INFERENCE. Empirical estimation of cost functions requires statistical
techniques which relate the cost of constructing or operating a facility to a few important
characteristics or attributes of the system.
3. UNIT COSTS FOR BILL OF QUANTITIES. A unit cost is assigned to each of the facility components
or tasks as represented by the bill of quantities. The total cost is the summation of the products
of the quantities multiplied by the corresponding unit costs.
4. ALLOCATION OF JOINT COSTS. Allocations of cost from existing accounts may be used to develop
a cost function of an operation. The basic idea in this method is that each expenditure item can
be assigned to particular characteristics of the operation. Ideally, the allocation of joint costs
should be causally related to the category of basic costs in an allocation process.

TYPES OF CONSTRUCTION COST ESTIMATES

DESIGN ESTIMATES

1. PRELIMINARY ESTIMATES. The project is decomposed into major structural systems or

production equipment items.
2. DETAILED ESTIMATES. The project is decomposed into components of various major systems.
3. ENGINEER’S ESTIMATES. The project is decomposed into detailed items of various
components as warranted by the available cost data.

BID ESTIMATES

1. SUBCONTRACTOR QUOTATIONS. The decomposition of a project into subcontractor items

for quotation involves a minimum amount of work for the general contractor. However, the
accuracy of the resulting estimate depends on the reliability of the subcontractors since the
general contractor selects one among several contractor quotations submitted for each item
of subcontracted work.
2. QUANTITY TAKEOFFS. The decomposition of a project into items of quantities that are
measured from the engineer’s plan will result in a procedure similar to that adopted for a
detailed estimate or an engineer’s estimate by the design professional. The levels of detail
may vary according to the desire of the general contractor and the availability of cost data.
3. CONSTRUCTION PROCEDURES. If the construction procedure of a proposed project is used as
the basis of a cost estimate, the project may be decomposed into items such as labor, material
and equipment needed to perform various tasks in the projects.
 CONTROL ESTIMATES

- For monitoring the project during construction, a control estimate is derived from available
information to establish:
1. Budget estimate for financing
2. Budgeted cost after contracting but prior to construction
3. Estimated cost to completion during the progress of construction.

ESTIMATING METHODS

1. DETAILED ESTIMATES. Is used to estimate the cost of a construction project or any other project
that involves physical or material components, and it provides a more accurate and reliable
estimate of the project's cost compared to other estimating methods.
2. ASSEMBLY ESTIMATES. Is a method of estimating the cost of a construction project or
manufacturing process by breaking it down into its component parts or assemblies.
3. SQUARE-FOOT ESTIMATES. Is a method of estimating the cost of a construction project or
renovation by calculating the cost per square foot of the project.
4. MODEL ESTIMATES. Is a method of estimating the cost of a construction project or any other
project by creating a digital model of the project and using specialized software to generate
estimates based on the model.
5. PROJECT COMPARISON ESTIMATES. Is a method of estimating the cost of a construction project
by comparing it to similar completed projects, known as benchmark projects.

UNIT COST METHOD OF ESTIMATION

- The unit cost for each element in the bill of quantities must be assessed in order to compute the
total construction cost. This concept is applicable to both design estimates and bid estimates
although different elements may be selected in the decomposition.

HISTORICAL COST DATA

- This will be useful for cost estimation only if they are collected and organized in a way that is
compatible with future applications.

TYPES OF INFORMATION IN CONSTRUCTION COST DATA

1. Catalogs of vendors’ data on important features and specifications relating to their products for
which cost quotations are either published or can be obtained.
2. Periodicals containing construction cost data and indices.
3. Commercial cost reference manuals for estimating guides.
4. Digests of actual project cost.

COST INDICES

- The input price indices of labor and/or material reflect the price level changes of such input
components of construction; the output price indices, where available, reflect the price level
changes of the completed facilities, thus to some degree also measuring the productivity of
construction.
TYPES OF BIDS

1. COMPETITIVE BIDDING. Competitive bidding involves each contractor submitting a lump-sum bid
or a proposal in competition with other contractors to build the project.
2. NEGOTIATED BIDDING. Negotiated work the parties arrive at a mutually agreed-upon price, terms
and conditions, and contractual relationship.

COST ASSOCIATED WITH CONSTRUCTION FACILITIES

- The capital cost for a construction project includes the expenses related to the initial
establishment of the facility:
1. Land Acquisition
2. Planning and Feasibility Studies
3. Architectural Engineering Design
4. Construction, including materials, equipment, and labor
5. Field Supervision
6. Construction Financing
7. Insurance and taxes during construction
8. Owner’s General Office overhead
9. Equipment and furnishing not included in the construction
10. Inspection and Testing

VALUE ENGINEERING

- A systematic and organized approach to provide the necessary functions in a project at the lowest
cost. Value engineering promotes the substitution of materials and methods with less expensive
alternatives, without sacrificing functionality. It is focused solely on the functions of various
components and materials, rather than their physical attributes. Also called value analysis.
- Value engineering is utilized to give a clear and complete analysis of how to effectively accomplish
the project's goals.
- “To give the most value for the least amount of money.”

COMMONLY USED VALUE TECHNIQUES

1. VALUE MANAGEMENT (VM) The full range of value techniques available. It is a higher order title
and is not linked to a particular project stage at which value techniques may be applied.
2. VALUE PLANNING (VP) Value techniques applied during the planning phases of a project.
3. VALUE ENGINEERING (VE) Value techniques applied during the design or engineering phases of a
project.
4. VALUE ANALYSIS (VA) Value Techniques applied retrospectively to completed projects to analyze
or audit the project’s performance.

PRINCIPLES OF VALUE ENGINEERING

1. Identifying the main elements of a product, service or project.

2. Analyzing the functions of those elements.
3. Developing alternative solutions for delivering those functions.
4. Assessing the alternative solutions for delivering those functions.
 5. Allocating costs to the alternative solutions.
6. Developing in more detail the alternatives with the highest likelihood of success.

VALUE ENGINEERING AND SUSTAINABILITY

1. Value engineer is concerned with maximizing value, not just reducing cost, it seeks optimum
solutions to remove unnecessary waste and reduce life cycle costs whilst improving function,
quality and sustainability.
2. Unnecessary waste might include; unnecessary cost, materials, resources, energy, water, time,
plant, lead-in times, transportation, maintenance, replacement, and disposal activity.

MODERN PROJECT MANAGEMENT TECHNIQUE

1. Project planning and the development of design proposals, project execution, quality and
environmental management plans.
2. Project sustainability, addressing for example: material sustainability impact, circular economy
approaches, low carbon solutions, and social impact.
3. Combined with supplier engagement through last planner or briefing sessions it can be a powerful
tool for exploring integrated and shared economy approaches.
4. Linked to building information model (BIM) development to ensure optimum solutions within the
BIM model.

VALUE METHODOLOGY

- A systematic and structured approach for improving projects, products, and processes. VM, which
also known as Value Engineering, is used to analyze and improve manufacturing products and
processes, design and construction projects, and business and administrative processes.
- Value is the reliable performance of functions to meet customer needs at the lower overall cost
and it can be calculated like this:
𝐹𝑈𝑁𝐶𝑇𝐼𝑂𝑁 + 𝑄𝑈𝐴𝐿𝐼𝑇𝑌
𝑉𝐴𝐿𝑈𝐸 =
𝐶𝑂𝑆𝑇
PROBLEMS THAT CAN BE AVOIDED WITH VALUE ENGINEERING

1. Last minute design and scope changes to save money and time.
2. Architectural redesign mid-project, forcing delays, cost overruns, and a change in vision.
3. Stress on general contractors to build within the agreed upon budget.
4. All people working on the project are maxed out in time, abilities, skills, resources, logistically,
and financially.

MAIN STAGES OF AN APPLIED VALUE ENGINEERING PROJECT

1. PLANNING. At the Planning Stage of development, there are additional benefits to be derived
from a Value Engineering Workshop. An independent team can:
a. Review the program
b. Perform a functional analysis of the facility
c. Obtain the owner/users definition of value
d. Define key criteria and objectives for the project
 e. Verify/validate the proposed program
f. Review master plan utility option
g. Offer alternative solutions
h. Verify if the budget is adequate for the developed program
2. DESIGNING. This is the stage that the most VE participants are used to becoming involved, when
the design has at least made it to the schematic stage. Most government agencies require at least
one VE session at the design stage on projects over a certain amount size.
3. CONSTRUCTION. During this phase, value engineering is still possible through the use of Value
Engineering Change Proposals (VECP). Contractors can be provided monetary incentives to
propose solutions that offer enhanced value to the owner, share in the financial benefits realized.
Clearly, the owner must consider contractor-generated proposals very carefully, from a life-cycle
perspective and a liability perspective.

METHODOLOGY AND APPROACH

1. INFORMATION PHASE. The team reviews and defines the current conditions of the project and
identifies the goals of the study.
2. FUNCTION ANALYSIS PHASE. The team defines the project functions using a two-word active
verb/ measurable noun context. The team reviews and analyzes these functions to determine
which need improvement, elimination, or creation to meet the project’s goals.
3. SPECULATION(CREATIVE) PHASE. The team employs creative techniques to identify other ways
to perform the project’s function(s).
4. EVALUATION (ANALYSIS) PHASE. The team follows a structured evaluation process to select
those ideas that offer the potential for value improvement while delivering the project’s
function(s) and considering performance requirements and resource limits.
5. DEVELOPMENT PHASE. The team develops the selected ideas into alternatives (or proposals) with
a sufficient level of documentation to allow decision makers to determine if the alternative should
be implemented.
6. PRESENTATION PHASE. The team leader develops a report and/or presentation that documents
and conveys the adequacy of the alternative(s) developed by the team and the associated value
improvement opportunity.