1 - Conceptual Cost Estimating - Part

Conceptual Cost Estimating
Part (1)
Dr. Mohammad S. El-Mashaleh
Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 1
Purpose of estimating
• The purpose of estimating is to

determine the forecast costs required to
complete a project in accordance with
contract plans and specifications

Dept. of Civil Eng.
1
• Because construction estimates are prepared
before a project is constructed, the estimate
is, at best, an approximation of the actual
costs
• The true costs of the project will not be known

until the project has been completed and all
costs have been recorded
• Thus, the estimator does not establish the

cost of a project. Rather, he simply
establishes the amount of money the
contractor will receive for constructing the
project
Dept. of Civil Eng.
Types of estimates
• There are several estimates and re-
estimates for a project, based on the
stage of project development
• Estimates are performed throughout the

life of a project, beginning with the first
estimate and extending through the
various phases of design and into
construction
Dept. of Civil Eng.
2
• Laitinen (1998) indicates that each building
component is estimated, on average, seven
times during the course of a project
• Peurify and Oberlender (2002) show 4

estimates and re-estimates before
construction starts
Sponsor's Preliminary Detailed

Procurement Construction
study engineering engineering
Initial estimate Re-estimate Re-estimate Bid-estimate
Source: Peurify and Oberlender (2002, p. 4) Construction Project Management

Dept. of Civil Eng.
Sponsor's Preliminary Detailed

Procurement Construction
study engineering engineering
Initial estimate Re-estimate Re-estimate Bid-estimate
• Initial cost estimates form the basis to which

all future estimates are compared
• Future estimates are often expected to agree

with (i.e., be equal to or less than) the initial
estimates
Source: Peurify and Oberlender (2002, p. 4) Construction Project Management
Dept. of Civil Eng.
3
• Cost estimates can be divided into
two different types, depending on the
purposes for which they are prepared
and the amount of information known
when the estimates are prepared
• These are:
(1) Approximate estimates
(2) Detailed estimates

Dept. of Civil Eng.
(1) Approximate estimates

• Also called: feasibility, screening,
authorization, preliminary, conceptual,
order-of-magnitude, equipment-
factored, or budget estimates
(2) Detailed estimates

• Also called: final, bid/tender, or
definitive

Dept. of Civil Eng.
4
• Different organizations make use of
different “estimate” classifications
• Consider the following examples

Dept. of Civil Eng.
Association for Advancement of Cost

Engineering (AACE) International Cost
Estimation Classifications
Estimate Level of End usage Expected
class project (Typical purpose accuracy
definition of estimate) range
Class 5 0% to 2% Concept screening -50% to +100%
Class 4 1% to 5% Study or feasibility -30% to +50%
Class 3 10% to 40% Budget, authorization, -20% to +30%

or control
Class 2 30% to 70% Control or bid/tender -15% to +20%
Class 1 50% to 100% Check estimate or -10% to +15%

bid/tender
Dept. of Civil Eng. Source: AACE (1997) Dr. Mohammad El-Mashaleh
5
Construction Industry Institute (CII)
Cost Estimate Definitions
Estimate class Percent range Description/

methodology
Order-of-Magnitude ± (30 to 50%) Feasibility study – cost/capacity
curves
Factored Estimate ± (25 to 30%) Major equipment – factors applied
for costs
Control Estimate ± (10 to 15%) Quantities from mech/elect/civil

drawings
Detailed or definitive ±(<10%) Based on detailed drawings
Source: CII (1986)

Dept. of Civil Eng.
Halpin (2006)
Estimate Level of project definition Expected
class accuracy range
Conceptual Prior to the commencement of ±10%

design
Preliminary Design 40% complete Not indicated
Engineer’s Design complete ±3%

estimate
*Bid estimate Design complete ±3%
(prepared by
GC)
* A rough rule of thumb states that the preparation of a bid estimate by the contractor will
cost 0.25%-1% of total bid price
Source: Halpin (2006, p.205) Construction Project Management

Dept. of Civil Eng.
6
Peurify and Oberlender (2002)
Conceptual Level of design Accuracy
estimate
level
Level I Little or no design -10 to +40%
Level II Completion of preliminary -5 to +25%

design
Level III Completion of final design -3 to +10%
Source: Peurify and Oberlender (2002, p.64-65) Construction Project Management

Dept. of Civil Eng.
Source: Merritt (1975) Construction Project Management

Dept. of Civil Eng.
7
Preparation of conceptual estimates
• The conceptual estimate is generally

prepared by the owner during the
owner’s feasibility study or by the
designer during the design phase
• It may be prepared by the contractor for

negotiated work between an owner and
a contractor

Dept. of Civil Eng.
• Multi-builder owners are involved with the

construction of projects on a continual basis
• Examples on these owners: electrical utilities,

oil and gas firms, retail stores with nationwide
locations
• To initiate a project, these firms generally

conduct an owner’s study
• The owner’s study consists of a technical

feasibility study and an economic feasibility
study of the proposed project

Dept. of Civil Eng.
8
• The economic feasibility study includes
a conceptual cost estimate for the
project
• Also, designers prepare conceptual cost

estimates throughout the design
process
• The estimate is used in the selection of

design alternatives and to keep the
owner informed of forecast costs
Dept. of Civil Eng.
• In negotiated contracts, the contractor may be

asked to prepare a conceptual cost estimate
for the project for which there are no, or
limited, plans and specifications
• Cost information from previous projects of

similar type and size is essential
• The estimator must combine all known

information with his personal experience and
use considerable judgment to prepare reliable
conceptual estimate

Dept. of Civil Eng.
9
Sources for preparation of
conceptual cost estimates
• Usually derived from one of two
sources:
(1) Pricing manuals that are published

annually by several organizations
(2) Cost records from previous projects of

similar type and size
Dept. of Civil Eng.
(1) Pricing manuals
• For buildings, public works, and heavy

construction projects, the RS Means
Cost Guide is commonly used
• Also Walker’s building estimator

reference book is used in building
construction

Dept. of Civil Eng.
10
• The Richardson’s manual for construction
estimating is a common reference for
petrochemical and processing projects
• These pricing manuals provide costs per unit

for various types of projects, such as cost per
square foot of building area for offices,
warehouses, and maintenance buildings
• These costs are derived from previous

projects that have been completed at
numerous geographic locations

Dept. of Civil Eng.
Example from RS Means
• RS Means shows cost per SF for

different types of buildings

Dept. of Civil Eng.
11
Source: R. S. Means (2000, p. 575) Construction Project Management
Dept. of Civil Eng.
• If size is different than the “typical” one,

then modify for size by using the cost
modifier curve

Dept. of Civil Eng.
12
Example 1

Dept. of Civil Eng.

Dept. of Civil Eng.
13
• More detailed information from pricing manuals

Dept. of Civil Eng.
Hashemite University Source: Oberlender (2000, p. 82) 27

Dept. of Civil Eng. Source: Oberlender (2000, p. 82) Dr. Mohammad El-Mashaleh
14
(2) Cost records from previous
projects of similar type and size
• The best source of information for preparation
of conceptual cost estimates is the cost
records from previous projects
• Although the range of costs will vary among

projects, the estimator can develop unit costs
to forecast the cost of future projects

Dept. of Civil Eng.
Several methods for determining

conceptual cost estimates
• Average
• Index value (inverse)
• Index value (root of products)
• Weighted average

Dept. of Civil Eng.
15
Formulas
C1 + C2 + .... + Cn
Average =
n
n
Index Value (inverse) =
1 1 1
( ) + ( ) + ..... + ( )
C1 C2 Cn
1
Index Value (root of product) = (C1 × C2 × ...... × Cn ) n

Dept. of Civil Eng.
CMin + 4CAvg + CMax

Weighted average =
6
CMin = minimum unit cost of previous projects

CAvg = average unit cost of previous projects
CMax = maximum unit cost of previous projects

Dept. of Civil Eng.
16
Example 2

Dept. of Civil Eng.

Dept. of Civil Eng.
17
Example 3

Dept. of Civil Eng.

Dept. of Civil Eng.
18

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Conceptual Cost Estimating

Construction Project Management

• The purpose of estimating is to

Construction Project Management

• The true costs of the project will not be known

• Thus, the estimator does not establish the

• Estimates are performed throughout the

• Peurify and Oberlender (2002) show 4

Sponsor's Preliminary Detailed

Initial estimate Re-estimate Re-estimate Bid-estimate

Source: Peurify and Oberlender (2002, p. 4) Construction Project Management

Sponsor's Preliminary Detailed

Initial estimate Re-estimate Re-estimate Bid-estimate

• Initial cost estimates form the basis to which

• Future estimates are often expected to agree

Construction Project Management

(1) Approximate estimates

(2) Detailed estimates

Construction Project Management

• Consider the following examples

Construction Project Management

Association for Advancement of Cost

Class 4 1% to 5% Study or feasibility -30% to +50%

Class 3 10% to 40% Budget, authorization, -20% to +30%

Class 2 30% to 70% Control or bid/tender -15% to +20%

Class 1 50% to 100% Check estimate or -10% to +15%

Estimate class Percent range Description/

Control Estimate ± (10 to 15%) Quantities from mech/elect/civil

Source: CII (1986)

Construction Project Management

Conceptual Prior to the commencement of ±10%

Engineer’s Design complete ±3%

Source: Halpin (2006, p.205) Construction Project Management

Level I Little or no design -10 to +40%

Level II Completion of preliminary -5 to +25%

Source: Peurify and Oberlender (2002, p.64-65) Construction Project Management

Source: Merritt (1975) Construction Project Management

• The conceptual estimate is generally

• It may be prepared by the contractor for

Construction Project Management

• Multi-builder owners are involved with the

• Examples on these owners: electrical utilities,

• To initiate a project, these firms generally

• The owner’s study consists of a technical

Construction Project Management

• Also, designers prepare conceptual cost

• The estimate is used in the selection of

• In negotiated contracts, the contractor may be

• Cost information from previous projects of

• The estimator must combine all known

Construction Project Management

(1) Pricing manuals that are published

(2) Cost records from previous projects of

(1) Pricing manuals

• For buildings, public works, and heavy

• Also Walker’s building estimator

Construction Project Management