Chapter Four

Estimating Project Costs

 Introduction

*) Estimating is a dynamic process that begins in the very

early stages of a project and ends when the project is
turned over to the owner
*) Estimating is critical in the development of the project
because it inform the owner of costs, which in turn guide
design decisions.
*) Estimators consider past project while anticipating new
factors ( current technologies, marketplace demands on
material and labor, quantities of materials, level of quality,
and the requirements for completion)
 Common Estimating Traits

All estimates shear common traits such as:

1) As project develop, there is continual competition among

issues of quality, size, performance, and cost.
2) Estimating combines science and art. Estimates are a product
of information supplied by the designer , the owner , and the
suppliers.
3) Estimates are not guarantees of costs.
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4) An estimate can only be as accurate as the information upon

which it is based ( Scope definition, Time to Prepare, Quality of
Cost Data, Estimator Skill)
5) Estimate’s accuracy increase as the design became more
precisely defined
6) Methodology and procedure are important for accurate
estimating
7) Each estimate is based on previous estimates
 Estimate Considerations

Every estimate, whether prepared in the conceptual phase or at

bid time, considers the same basic issues. Project price is
affected by the size of the project, the quality of the project, the
location, construction start and duration, and other general
market conditions. The accuracy of an estimate is directly
affected by the ability of the estimator to properly analyze these
basic issues
 Project Size

The size of the project is a factor of the owner’s needs. Size is

handled differently depending on which stage the project is at
The principle of economy of scale is an important factor when
addressing project size.
 Project Quality

An owner may require a high-quality project to create a specific

image
Owner may need a facility for a specific use.
The expected quality of a project increase, the cost of
providing this quality increase as well .
The estimator moves to the bidding stage, quality must be
precisely quantified per individual unit.
 Value of quality
Vs.
Cost of Quality

The optimum level of design quality is the point at which the

slope of the two curves is equal. Beyond that point the cost of
providing one more unit of the value exceeds its
corresponding value to the owner
 Location

*) Construction a facility in one area is very different from

constructing one in other area. The differences are in the
labor costs, the availability of materials and equipment,
delivery logistics, local regulations, and climate conditions.
*) Local conditions can influence the costs of the project.
*) The cost of labor and material in different locations can be
predicted by establishing location indices for different
cities and parts of the country.
 Time

*) A project is estimated at a given point in time, but usually the

actual procurement and field construction occur at some point
in the future.

*) The estimate must take into consideration when the actual

project will be built. Labor and material costs usually escalate
in time.

*) The estimator takes past actual costs and adjusts them to

today’s costs
 Time/Location Adjustment
example

You have been asked to prepare an estimate for a 40,000 square-

foot office building to be located in Canton, Ohio , with
construction to start in the spring of 2011. Your company
constructed a similar building in San Antonio, TX, in 1980 for $
1.5 million
 Solution

Refer to the 2012 Means Square Foot Data Book.

Use historical and location indices to make necessary adjustments
According to Means, the estimated time and location index for Canton
in 2011 is 172.1 ; whereas the combined time and location index for
San Antonio in 1980 is 55
The Canton building cost can be calculated as follows:
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1,500,000 Canton building cost

--------------------- = ----------------------------
55 172.1

Cross-multiply:

$ 150,000 X 172.1
--------------------------------------- = Canton building cost = $ 4,693,636
55

The estimated building cost in Canton is $ 4,693,636

 Type of Estimates

An estimate can be prepared at any point in the life of a project .

Estimates are developed early in the design process so that the
owner and designer have cost information to guide the design.
Estimates also developed during later of design to ensure that
costs are within a given budget.
Estimate at the bid time, the most extensive estimate is done by
the contractor.
 Estimating during Design
*) Design estimates are important tools for the owner and
the project management team as they develop the
project’s scope of work.
*) The discipline of providing cost information throughout
the design phase makes cost a significant driver for the
project team.
*) Designer provide exciting solution to the program,
sometime lose sight of the budget parameters.
*) Owners can also get caught up in the excitement of
desirable design features that in reality could compromise
the budget or mean cutting the project in other areas.
 Square Foot/Cubic Foot Estimates

*) Once a design has reached the early schematic stage, it

will start to produce floor plants, elevations, and building
sections.
*) This information makes possible the calculation of floor
areas or building volume, which can then be multiplied by
appropriate unit costs to produce a Square foot or cubic
foot estimate.
 Square Foot Estimate
Example

Estimate the cost to construct a 55,000 S.F. motel. The motel will
be a two-story building. The exterior wall will be made of
decorative concrete block, and the building will use a precast
concrete floor system. Other features include 150 ceiling smoke
detectors, 10 nickel-cadmium emergency light, and a 500 S.F.
gunite pool.
Solution
The first page of the model displays a pricing breakout by size and
exterior wall and structure.
The second page provides a detailed breakout of one of the building
models
A 49,000 S.F., three story motel. This page provides a good overview
of what is included in the $ 160.00 per square foot price.
Notice: general contractor’s overhead and profit and a 6% design fee
are included in this price
 Calculation
1)From Figure A and using the interpolation we have

$ 167.45 61,000
$? 55,000
$169.00 49,000

6,000 X 1.5
167.45 - ---------------------------- = $ 166.68
12,000
The base cost for the building = $ 166.68/square foot X 55,000 S.F.
= $ 9,167,400
2) Add the costs of the pool, smoke detectors, and emergency lights.
150 smoke detector X $ 240/each = $ 36,000
10 emergency lights X $ 770/each = $ 7,770
500-square-foot gunite pool X $ 90/Square foot = $ 45,000
Total cost = $ 88,700
Total project cost (with additives) = $ 9,256,100
This cost assumes a construction start in early 2012 in a national average
location. The price does not include the cost of land purchase or any
substantial site work
 Estimating during Construction

Once the design documents are complete, companies interested

in actually performing the work price the project . Estimators
working on this type of bid hope to win the job with the most
competitive number while maintaining a reasonable profit for
the company
This estimate is the most detailed of all estimate types and is also
the most important. It carries with it legal implications.
 Organization of the Estimate

Good organization is key to preparing reliable estimates and

avoiding mistakes.
The most important information for the estimating team comes
from the contract documents, which explain the scope of the
work, the quality of the work, the conditions the contractor is
expected to meet, the legal requirements of the job, and the
schedule of completion.
 Quantity Takeoff

Once the estimating tasks are identified, categorized, and

organized, the team begins the quantity takeoff. This is the
foundation of the estimate. Its purpose is to accurately
determine the quantity of work that needs to be performed on
the project
 Unit Pricing

The next task is to determine how much each unit will cost to
produce, deliver to the site, accept and store at the site, install in
the correct position, and maintain until the project is turned over
to the owner.
 Material Cost
Material prices are usually the most straightforward to
determine
The most reliable source is the supplier
The estimator must ensure that the price quoted actually covers
all the specification requirements and the estimator’s
assumptions.

The following point must be verified

1) The material quoted is the correct model number, color, and finish
2) The price is valid until the scheduled delivery time
3) The price includes delivery to the job site
4) Adequate warranties and guarantees are provided
5) The lead time fits into the scheduled need on site
6) There is adequate stock available
7) Payment terms, discounts, and credits are well documented
 Labor Costs

The price of labor is the most difficult factor to determine

because both the hourly wage rate and crew productivity must
be considered
Union rates are available from the union locals and employer
bargaining groups
Nonunion labor rates are determined by each company and
depend on the geographic area.
 Factor to be consider

1) Expiration dates of the union agreement

2) Amount of overtime anticipated
3) A availability of skilled labor in the area
4) Amount and nature of any hazardous condition
 Equipment Costs
Includes small tools needed to complete specific tasks
Large equipment , mechanically driven machinery such as cranes,
lift trucks, and the like are usually covered on a project basis
since they often are used throughout the project for different
activities
Equipment costs fall into two general categories
The first category covers ownership, lease or rental,
interest, storage, insurance taxes, and license
The second category include gasoline, oil, periodic
maintenance, transportation, and mobilization.