Romblon State University

COLLEGE OF ENGINEERING AND TECHNOLOGY

Department of Civil Engineering

CHAPTER 2
Introduction to Construction Cost
Construction costs form part of the overall costs incurred during
the development of a built asset such as a building. Very broadly, construction costs will
be those costs incurred by the actual construction works themselves, and on
some projects may be determined by the value of the contract with the main
contractor.

However, the construction contract may include costs that might not in
themselves be considered literal construction costs (hard costs), such
as fees, profits, overheads, and so on.

Many projects will also include costs that it is not possible to determine when
the construction contract is awarded (such as prime cost sums and provisional sums),
and there may be construction works that are awarded by the client outside of the main
contract (such as fitting out the interior, minor alterations to
the completed works, installation of equipment, and so on).

In addition, the contract is likely to allow for the contract sum to be adjusted as a
result, for example, of variations to the works, claims for loss and expense,
or fluctuations (a way of dealing with inflation on large projects that may last for several
years). It is because of these unknowns that clients are advised to hold a contingency.

As a result, what is considered the actual 'construction cost' of a project must be

clearly defined and may not be finally determined until well after the actual construction
works have been completed. This is true, even if a contract is described as having a 'fixed
price' or 'guaranteed maximum price'.

Types of Construction Cost Estimates

The ability to quantify precise construction cost estimates is vital to projects of all
sizes. Construction costs constitute a significant portion of any project budget, and it is
only through close, ongoing collaboration with a contractor and cost estimator that
investors can receive a reliable initial cost estimate as well as revised estimates
throughout the various stages of project development.

Understanding the Three Major Categories of Cost Estimates

Cost estimates are broken down into three categories that serve one of three
basic functions: design, bid, and control. To establish a project’s financing, you must start
with a design estimate or a bid estimate.
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

 Design Estimates

Design estimates include screening (order of magnitude) estimates,

preliminary (conceptual) estimates, detailed (definitive) estimates, and
engineer’s estimates. These estimates run parallel with the planning and
design of a project.

For the owner or its designated design professionals, the types of

construction estimates run parallel with the planning and design as follows:

 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

 Bid Estimates

Bid estimates are submitted to the investor for purposes of

competitive bidding or general negotiation. These estimates consider the
direct construction cost including field supervision, as well as a markup to
cover general overhead and profits. Direct construction costs include
subcontractor quotations, quantity takeoffs, and construction procedures.

For the contractor, a bid estimate submitted to the owner either for
competitive bidding or negotiation consists of direct construction cost
including field supervision, plus a markup to cover general overhead and
profits. The direct cost of construction for bid estimates is usually derived
from a combination of the following approaches.
 Subcontractor quotations
 Quantity takeoffs
 Construction procedures

 Control Estimates

Control estimates are used throughout a project to monitor costs. A

control estimate establishes the budget estimate for financing, the
budgeted cost before construction, and the estimated cost of completion
during an ongoing project.

For monitoring the project during construction, a control estimate is

derived from 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
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

Cost estimation is vital to the success of any construction project, but if you fail to
utilize the correct type of cost estimates, your project could result in failure.

Preliminary Estimates

A preliminary estimate is the approximate cost of the project that is calculated at

the conceptual stage of the project. When the project drawings and specifications are
not available, a preliminary estimate is prepared. It forecasts the total budgeted cost of
the specific construction project. Apart from new construction, it can also be prepared
for demolition or renovation works.

Depending upon the type of infrastructure, the estimation technique and units
may change.
 For buildings: The rate per square foot/per cubic foot/per room/per
occupant is given
 For Roads and Highways: The rate per Km is provided depending upon the
thickness of layers and the type of construction material.
 For Irrigation channels: The cost per Km is given. It can also be based on a
per hectare basis (area irrigation by the canal/water channel).

The preliminary cost estimate of buildings is based on areas and length

measurements of various elements of the structure. Moreover, the total square footage
of the plot is also considered to get the approximate cost for building the house, plaza,
or multi-story building. Most of the clients require the preliminary budget estimate from
contractors and It helps to get a rough idea about the total expenses for the completion
of the project. So we can say that it is based on:
 Total square footage of building
 Linear Measurements (walls, etc.)
 Area Measurements (Rooms, Floors, etc.)

This is followed by a detailed estimate that includes a list of all the construction
materials along with the specifications. The detailed BOQ (Bill of Quantities) can be
priced based on the cost of each line item including masonry estimate, concrete
estimate, etc. and the total budget amount for the construction can be estimated
precisely in this way. The quantity takeoff sheet can be priced easily by putting the unit
cost and most of the clients require such cost filled BOQ’s from contractors.

Benefits of Preliminary Estimates

You might be wondering that why clients need this initial estimate from the
contractor? The following are the major reasons:
1. To get rough idea about total construction cost
2. Get beforehand information regarding the major material required
3. Helps in quick planning and initial execution of project
4. Helps in managing the project budget and costs
5. Allows the clients to choose the best contractor
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

Work Breakdown Structures

A work breakdown structure (WBS) is the first step toward constructing a schedule.
One begins by specifying a goal statement for the project and then successively
subdividing that goal into smaller and smaller portions until all the basic construction
objectives have been identified. The WBS forces the planner to compartmentalize his
thinking as he goes deeper into the series of objectives to be performed. Once the
identified tasks have been detailed in a manner that facilitates completion.

Work breakdown structure (WBS) in project management is a method for

completing a complex, multi-step project. It's a way to divide and conquer large projects
to get things done faster and more efficiently.

Work breakdown structure (WBS) in project management is a method for

completing a complex, multi-step project. It's a way to divide and conquer large projects
to get things done faster and more efficiently.

How to Create a Work Breakdown Structure

Before you create a work breakdown structure, it's essential to first assess the
project scope by talking to all stakeholders and key team members involved.

As the project manager, you want to ensure that all critical input and deliverables
are gathered and transparently prioritized. You may use Gantt charts, flow charts,
spreadsheets, or lists to show the hierarchical outline of importance and connectivity
between the tasks needed to complete the project.

After outlining the deliverables and tasks in order of completion, you can then
assign each task to a project team member. Ensure no team member carries the majority
of the project's weight by spreading duties and responsibilities across the team.

Characteristics of Work Breakdown Structure

The Project Management Institute (PMI) defines WBS as "a deliverable-oriented

hierarchical decomposition of the work to be executed by the project team to
accomplish the project objectives and create the required deliverables."

Each WBS level represents a new and increasingly detailed definition of work
needed to complete the project.

PMI's definition adds that a WBS structure must be constructed in a way that each
new level in the hierarchy includes all the work needed to complete its parent task. This
means that every parent task element must have more than one child task within it to
consider the parent task element complete.
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

Work breakdown structure Gantt chart. You can structure your WBS as a Gantt
chart that represents both a spreadsheet and a timeline. With a Gantt chart-structured
WBS, you can link task dependencies and show project milestones.

Work Breakdown Structure Examples

Your work breakdown structure for each project can be different.

As a project manager, you may have to experiment to see which WBS works best
for you and your team. The goal is to show the hierarchy of your projects and make
progress clear to everyone involved — whether they are a team member or an external
stakeholder.

Here are some work breakdown structure examples:

1. WBS spreadsheet: You can structure your WBS efficiently in a spreadsheet,

noting the different phases, tasks, or deliverables in the columns and rows.
2. WBS flowchart: You can structure your WBS in a diagrammatic workflow.
Most WBS examples and templates you may find are flowcharts.
3. WBS list: You can structure your WBS as a simple list of tasks or deliverables
and subtasks. This is the most straightforward approach to make a WBS.

CSI MasterFormat

CSI MasterFormat is the standard used to provide synchronicity between

manufacturers and builders. The MasterFormat is used by manufacturers to ensure that
their products meet requirements such as size, weight, or material types.

This enables construction companies to know what to expect and how to prepare
a scene for purchased items.

Here’s an easy example of how this works. A builder knows when fitting a toilet
when making a bathroom from scratch, the water and drainage pipes need to be
distanced properly from the wall and from each other. Because of the MasterFormat,
toilet manufacturers have pre-built the toilet to accommodate the plumbing- where and
how the builders have prepared.

This coding system works as a middleman, helping one industry make things clear
for the other. The end result is faster and more error-free manufacturing, easier
engineering, and quicker building times for construction companies.
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

Over the years, people within the building and construction manufacturing
industries have dubbed MasterFormat as “the Dewey Decimal System” of building and
construction. The CSI MasterFormat is a series of coding systems, broken down and
categorized by sections referred to as Divisions. More specifically, 50 Divisions in all to
date. Up until 2004, there were only 16 Divisions (more about the divisions below).

Every area of construction and manufacturing for the construction industry is

covered under the CSI MasterFormat. This is true for commercial, industrial, and residential
buildings.

CSI MasterFormat Divisions

As aforementioned, several Divisions are not yet populated with any information.
They have been reserved for further expansion as different categories may arise. This is
CSI’s solution for preparing for the next wave of technological and material leaps.

Each Division contains a host of subgroups that fall under the Division’s subject. For
the sake of expedience, we’ll just stick to the overall coverage by only displaying top-
level Division titles.

General Requirements Subgroup

 Division 01 – General requirements
Facility Construction Group
 Division 02 – Existing Conditions
 Division 03 – Concrete
 Division 04 – Masonry
 Division 05 – Metals
 Division 06 – Wood, Plastics, and Composites
 Division 07 – Thermal and Moisture Protection
 Division 08 - Openings
 Division 09 – Finishes
 Division 10 - Specialties
 Division 11 – Equipment
 Division 12 – Furnishings
 Division 13 – Special Construction
 Division 14 – Conveying Equipment
Facility Services Group
 Division 20 – Mechanical Support
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

 Division 21 – Fire Suppression

 Division 22 – Plumbing
 Division 23 – Heating Ventilating and Air Conditioning
 Division 25 – Integrated Automation
 Division 26 - Electrical
 Division 27 – Communications
 Division 28 – Electronic Safety and Security
Site and Infrastructure Subgroup
 Division 31 – Earthwork
 Division 32 – Exterior Improvements
 Division 33 - Utilities
 Division 34 – Transportation
 Division 35 – Waterways and Marine Construction
Process Equipment Subgroup
 Division 40 – Process Interconnections
 Division 41 – Material Processing and Handling Equipment
 Division 42 – processing Heating, Cooling, and Drying Equipment
 Division 43 – Process Gas and Liquid Handling, Purification and Storage
Equipment
 Division 44 – pollution Control Equipment
 Division 45 – Industry-Specific Manufacturing Equipment
 Division 46 – Water and Wastewater Equipment
 Division 48 – Electrical Power Generation

Key Components of Cost Estimates

A key component of any cost-estimating effort is to establish the framework, or

format, within which the project costs will be distributed, often referred to as a Work
Breakdown Structure (WBS). There are a variety of estimating formats used today, but the
two most commonly used are MasterFormat and Uniformat. MasterFormat, often referred
to as CSI MasterFormat™, currently provides WBS into 16 trade/materials based divisional
categories (in the process of being expanded to 49 divisions). Uniformat represents WBS
costs according to a hierarchy of system elements, and is supported through various
organizations, e.g. the U.S. General Services Administration and CSI. Although different in
their system headings, each provides a hierarchical WBS by systems. MasterFormat™ is
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

widely used within the design and construction industry when estimating for Construction
Document design phases, as it aligns well with MasterFormat specification sections. On
the other hand, Uniformat-based estimating is often used in providing planning stage and
early design phase estimating, where take-off measurements do not readily allow
MasterFormat databases to be applied. In either case, the key to successful estimating is
whether accurate cost data is available (through databases or other sources) that
enable WBS quantities to be applied. Key also is whether WBS categories enable
effective cost management, associated with the ability to compare current estimate
breakdowns to previous estimate components—having lineage back to the project's
programmed budget.

Cost Planning

Cost planning is an imperative part of any construction project. During this process
we take into account current market rates and previously completed jobs and allows us
to calculate an accurate and realistic plan that is in line with your goals and budget. We
take a multi-disciplined approach to set lifecycle budgets and cost controls to manage
the quality and delivery of the project’s outcomes over a set timeframe. As a commercial
builder, we tender for many projects and this provides us with a mass of current market
data and knowledge, applicable to a wide range of projects.

Cost planning investigates fiscal feasibility in the early stages of a proposed

project. This assists our clients in determining whether a project is feasible within their time
and budget constraints. In addition, cost planning can also be used as an aid in securing
funding for projects from banks, investors and government. Effective and accurate cost
planning can be the difference between a successful job and one that runs over time
and exceeds the budget.

Activity:

ESSAY.

1. How does construction cost estimate important in the start of the project?
 Romblon State University
COLLEGE OF ENGINEERING AND TECHNOLOGY
Department of Civil Engineering

2. As an engineer, what if you don’t have enough knowledge in estimating a project

in a construction? What will happen to the project?