CONSTRUCTION COST

ESTIMATE

Arizo, Cindy V.
Mago, Elleiah Joyce Ann
 Cost Estimate is an approximation or
anticipated cost for specified work scope
of a work, project, or operation that is the
process of predicting the cost of a facility
through quantitative analysis of the work
required by the design documents to
evaluate a single total value and may have
identifiable component values.

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 Builders and clients both worry about the
financial impact of cost overruns and failing to
complete a project. That’s why they devote time
and effort to estimating how much a project will
cost before deciding to move forward with it.
Clients considering large projects often seek
multiple cost estimates, including those prepared
by contractors and those calculated by independent
estimators.

A good cost estimate prevents the builder from

losing money and helps the customer avoid
overpaying.

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Failing to prepare a reliable cost estimate can
have disastrous results. One notorious example
was the Marble Hill nuclear power plant in
Indiana. The owner abandoned construction in
1984, seven years after it began. The Public
Service Company of Indiana had completed the
project only halfway and spent $2.5 billion due
to cost overruns.

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 For contractors, good cost estimates win jobs.
Customers usually select the lowest bid that meets
the standards and specifications they set. In a
competitive bidding situation, the time and effort
you spend preparing the estimate are a cost of
doing business and an investment in winning the
job. If urgency is a factor for a project, the speed at
which you prepare a bid can also be a differentiator.
 
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9 BASIC PHASES OF CONSTRUCTION

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1. COMMISSIONING A PROJECT
2. DETERMINING THE REQUIREMENTS
3. FORMING A DESIGN TEAM
4. DESIGNING THE STRUCTURE
5. BIDDING BASED ON THE SCOPE OF WORK
6. SIGNING THE CONTRACT
7. CONSTRUCTION
8. CLOSE-OUT
9. COMPLETION

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 METHODS USED IN ESTIMATING
TRADITIONAL METHOD
 This involves reviewing the
project's plans and specifications
to produce a quantity survey,
which is a listing of all the
materials and items of work
required for a construction project
by the construction documents.
Together with prices for these
components, the measured
quantities are the basis for
calculation of the direct cost.
Indirect costs and profit are added
to arrive at a total amount.[
SPREADSHEETS
 Cost estimators used columnar sheets
of paper to organize the take off and
the estimate itself into rows of items
and columns containing the
description, quantity and the pricing
components.
 With the advent of computers in
business, estimators began using
spreadsheet applications like VisiCalc,
Lotus 1-2-3, and Microsoft Excel to
duplicate the traditional tabular
format, while automating redundant
mathematical formulas.
COMMERCIAL SOFTWAR
 While spreadsheets are relatively easy
to master and provide a means to
create and report a construction cost
estimate their benefit comes largely
from their ability to partially relieve
estimators of mundane calculations.
Accuracy, however, is not necessarily
improved and productivity is not
maximized. For example, data entry
remains tedious and prone to error,
formula errors are common.
 As a result, commercial cost
estimating software applications were
originally created to overcome these
errors by using hard-coded formulas
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and data structures.
BASIC
ESTIMATING
SPREADSHEET

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COSTS ASSOCIATED WITH CONSTRUCTED
FACILITIES

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The capital cost for a construction project includes the expenses related to the inital
establishment of the facility:

1. Land acquisition, including assembly, holding and improvement

2. Planning and feasibility studies
3. Architectural and engineering design
4. Construction, including materials, equipment and labor
5. Field supervision of construction
6. Construction financing
7. Insurance and taxes during construction
8. Owner's general office overhead
9. Equipment and furnishings not included in construction
10. Inspection and testing
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 Creating a cost estimate for a project as complicated as a building calls for a systematic
way of enumerating costs. To simplify the process, cost estimators may use the Uniformat
system of viewing a building as a set of seven functional divisions. These are: 
Substructure
Shell
Interiors
Services
Equipment and furnishings
Special construction
Building site work 

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 In most construction budgets, there is an allowance for contingencies or unexpected costs
occuring during construction. This contingency amount may be included within each cost
item or be included in a single category of construction contingency. The amount of
contingency is based on historical experience and the expected difficulty of a particular
construction project.

1. Design development changes,

2. Schedule adjustments,
3. General administration changes (such as wage rates),
4. Differing site conditions for those expected, and
5. Third party requirements imposed during construction, such as new permits.

Contingent amounts not spent for construction can be released near the end of
construction to the owner or to add additional project elements.

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 THE ELEMENTS OF A
CONSTRUCTION COST
ESTIMATE
1. Quantity Take-Off: Developed during the pre-construction phase, a quantity take-off measures the materials and labor needed to complete a
project. 

2. Labor Hour: The labor hour, or man hour, is a unit of work that measures the output of one person working for one hour. 

3. Labor Rate: The labor rate is the amount per hour one pays to skilled craftsmen. This includes not just the basic hourly rate and benefits, but the
added costs of overtime and payroll burdens, such as worker compensation and unemployment insurance.

4. Material Prices: Since the cost of materials is prone to fluctuation based on market conditions and such factors as seasonal variations, cost
estimators may look at historical cost data and the various phases of the buying cycle when calculating expected material prices. 

5. Equipment Costs: Equipment costs 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. 

6. Subcontractor Quotes: Most contractors will hire multiple specialist subcontractors to complete parts of the construction. You add these
subcontractors’ quotes to the contractor’s total estimate.

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7. Indirect Costs: Indirect costs 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.
8. Profits: Of course, in order to make a profit, the contractor adds a margin on to the cost of completing the work.

9. Contingencies: Since even the most accurate estimate is likely to be affected by unforeseeable factors, such as materials wastage, an estimate
will usually have a predetermined sum of money built in to account for such added costs.

10. Escalation: Escalation refers to the natural inflation of costs over time.

11. 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.
12. Capital Costs: Capital costs are simply the costs associated with establishing a facility.
13. Operations and Maintenance Costs: More a concern for the owner than the contractor, one accounts for operations and maintenance costs
during the design phase. Operating costs include land rent, the salaries of permanent operations staff, maintenance costs, renovation expenses
(as needed), utilities, and insurance.

14. Variances: Owners will often allocate construction budgets that are larger than cost estimates because even good, thorough cost estimates
have a tendency to underestimate actual construction costs. For example, wage increases, which can be difficult to forecast, will make
construction costs rise. Seasonal or natural events, such as heavy rainfall, may call for action to protect construction or restore the construction
site. Large projects in urban areas may face regulatory or legal issues, such as a demand for additional permitting. And lastly, owners who begin
construction without finalizing the project’s design will over-budget to account for design changes and the inevitable cost increases that result
from throwing a project off schedule.

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APPROACHES TO COST
ESTIMATION
 Cost estimating is one of the most important steps in
project management. A cost estimate establishes the
base line of the project cost at different stages of
development of the project. A cost estimate at a given
stage of project development represents a prediction
provided by the cost engineer or estimator on the basis of
available data.
Virtually all cost estimation is performed according to
one or some combination of the following basic
approaches:

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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.

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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. The role of statistical inference is to estimate the best
parameter values or constants in an assumed cost function.
Usually, this is accomplished by means of regression analysis
techniques.

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3. UNIT COST FOR BILL OF QUANTITIES
• The total cost is the summation of the products of the
quantities multiplied by the corresponding unit costs.
• The unit cost method is straightforward in principle but quite
laborious in application. The level of detail in decomposing into
tasks will vary considerably from one estimate to another.

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4. ALLOCATION OF JOINT COSTS
• Allocations of cost from existing accounts may be used to
develop a cost function of an operation.
• In construction projects, the accounts for basic costs may be
classified according to (1) labor, (2) material, (3) construction
equipment, (4) construction supervision, and (5) general office
overhead. These basic costs may then be allocated
proportionally to various tasks which are subdivisions of a
project.

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TYPES OF CONSTRUCTION COST ESTIMATE

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1. DESIGN ESTIMATES
For the owner or its designated design professionals, the types of cost
estimates prepared during a project’s pre-design and design phases:
• Screening estimates (or order of magnitude estimates)
• Preliminary estimates (or conceptual estimates)
• Detailed estimates (or definitive estimates)
• Engineer's estimates based on plans and specifications
For each of these different estimates, the amount of design
information available typically increases
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A. SCREENING ESTIMATE
• Also known asorder of magnitude estimate
• Usually made before the facility is designed, and must therefore
rely on the cost data of similar facilities built in the past.

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B. PRELIMINARY ESTIMATE
• Also known asconceptual estimate
• Based on the conceptual design of the facility at the state when
the basic technologies for the design are known.

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C. DETAILED ESTIMATE
• Also known asdefinitive estimate
• Made when the scope of work is clearly defined and the detailed
design is in progress so that the essential features of the facility
are identifiable.

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D. ENGINEER’S ESTIMATE
• Based on the completed plans and specifications when they are
ready for the owner to solicit bids from construction contractors.
In preparing these estimates, the design professional will
include expected amounts for contractors' overhead and profits.

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 Types of Construction Cost Estimates
2. BID ESTIMATES
Bid Estimate is submitted to the owner by the contractor for
competitive bidding or negotiation.
This consists of direct construction cost
including field supervision, plus a markup to
cover general overhead and profits.
 Unit Cost Method of Estimate
For bid estimate:
• SUBCONTRACTOR QUOTATIONS
• QUANTITY TAKEOFFS
• CONSTRUCTION PROCEDURES
 Unit Cost Method of Estimate
For bid estimate:
SUBCONTRACTOR QUOTATIONS.

The decomposition of a project into subcontractor items for

quotation involves a minimum amount of work for the general
contractor.
 Unit Cost Method of Estimate
For bid estimate:
QUANTITY TAKEOFFS.

The decomposition of a project into items of quantities that are

measured (or taken off) 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.
 Unit Cost Method of Estimate
For bid estimate:
CONSTRUCTION PROCEDURE.

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.
4 PICS 1 WORD

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S C N P T
R L O L O

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 Types of Construction Cost Estimates
2. CONTROL ESTIMATES
For monitoring the project during construction, a control
estimate is derived from the available information to establish:

Budget estimate for financing

Budgeted cost after contracting but prior to construction
Estimated cost to completion during the progress of construction
UNIT COST METHOD OF ESTIMATION
• For the purpose of cost estimation, the project can be
decomposed into elements at various levels of detail.
• The unit cost for each element in the bill of quantities must be
assessed in order to compute the total construction cost.

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4 PICS 1 WORD

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S B L P O R
P A K L A E

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Ballpark Estimate
BALLPARK ESTIMATE
• Ballpark figure is a rough numerical estimate or approximation
of the value that is otherwise unknown.
• Assessed for the purpose of business negotiations, dealmaking
or general brainstorming.
• It is acceptable measurement for the size or amount of
something cannot yet be determined.
• “in the same ballpark” means “approximately of the same
amount”
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END