UNIT-I

General principles of Estimation

Definition of Estimation:-
Estimation is an art of assessment of quantities of different items and
cost thereof to plan the amount required for executing a work before
actually carrying out the work. It includes, listing the materials, stating
their specifications and approximate cost.
Thus a detailed estimate should include:
• Cost of different item of work
• Spares
• Erection charges
• Supervision charges
• Transportation
• Allowance for contingencies to accommodate expenditure.
• Establishment charges
• Inspecting charges
• Insurance if any
Importance or purpose of estimation and
costing:
 Estimating is also essential as it provides us an accurate
assessment of the amount of money required, availability of
material etc.
 Before accepting or offering tender or to decide the terms of
contracts, it is necessary that estimate must be prepared
reaching to an approximate cost of job. Every organization
even medium sized one, have separate department of
estimating. The person preparing the estimate is known as
estimator.
 The tenders and firm contracts are based upon estimates that is
the work of estimator, to achieve work orders and to avoid
losses it is necessary that estimates should be prepared as
accurate as possible
 The estimator should have knowledge far reaching and his
statement must be based on reliable evidences if he wants to
do justice to his task.
 The estimator must understand production cost including
labour and material of his own organisation products as well as
the discounts permissible on outside purchases in order to
work out profit.
Electrical Schedule:
Electrical schedule is that list or plan of building which provides
us the information regarding the number of points (ceiling
outlets, bracket outlets , single pole three way and 4-way rotary
switches, wall plugs and other special plugs) in each room of a
building under estimation
Catalogues:
For the pricing of the estimate up-to-date catalogues, quotations
from manufacturers and wholesale dealers for special materials
must be available with the estimator. The estimator saves time by
making judicious selection of standard catalogues which are most
useful for his work.
Market survey and source selection:
Good estimating is possible only with update knowledge of
• Availability of products.
• Source for production , vendor selection
• New products and their quality.
• Prices of products, discounts etc.
• In order to make a survey easily accessible
categorisation/classification of products can be made in a
format as given below:
Sl Product Specifications Acceptable Acceptable Remarks
no makers Vendors

1 Tumbler switches 5A, 220V,

1-way
2 Piano switches -------do--------
3 Copper conductor 1mm2 , single –
cable core PVC
insulated 650V
grade
4 Aluminium 1.5mm2 , single
conductor cable –core PVC
insulated 650V
grade
5 Main switch ICDP 240v, 1-Φ,
16A
Recording of Estimates:
All estimates must be written in a book, kept for this sole purpose. It is
preferable to write estimates on loose sheets in order to file them with contract
papers. With the help of estimates prepared on loose sheets and collected in
book form, the actual cost complete job can be more easily compared with the
estimated cost. More ever much labour is saved in preparing new estimates for
similar job, which is only possible if the estimates are kept together in a book
form. The most convenient ruling for estimate book is below. Each estimate
should headed with a sufficient description, giving the date of submission and
name of the estimator.
 Description of Quantity Required Rate Amount Remarks
Sl material with
no complete specification
Quantity Unit Rs p per Rs p
 Determination of required quantity of material:

The determination of required quantity of material for casing-

capping, batten or conduit and wire for house wiring is tedious
job and is as follows:
 The first step is to decide the layout to be adopted.
Labour Conditions:-
The next and most difficult item to estimate is labour and there
are several factors in the construction of building which affect it.
Determination of cost material and Labour:
Best way to determine the cost of material required for wiring is
to prepare a table previously shown.
To determine the labour cost one of the following methods must
be adopted.
1. Determine the total number of points. Then find out total
labour cost charging @ Rs.65, Rs 105 Rs.125 per point for
cleat, casing-capping, batten and conduit wiring respectively.
2. Determine the labour required from the table -2 then estimate
the total labour wages given in table-1.1
3. Provide the labour charges as 15%, 29$ or 25% of material
cost.
4. After totalling the material cost and total cost provide
some percentage of above cost under heading of
contingencies and arrive at the final cost of the wiring
work.
Contingencies:
The amount is provided under the head of contingencies to
cover the unforeseen expenditure such as to cover extra costs
on the account of delays in delivery, minor accidents and
unforeseen variations from the plans of estimating
department. It is usually expressed as a percentage of total
cost(material +labour cost) say 5%.
The contingencies fully compensate additional material cost,
labour cost and other allied expenses which cannot be
accounted for. Such expenses may be due to natural
calamities such as floods, earth quakes, storms etc...
 Over head charges:
The over head charges or standing charges of the business cover
all expenditure necessary to carry out the business in addition to
special expenditure, incurred in carrying out a particular job.
These can be classified under the following headings:
Rent of the office and workshop.
Allowances for wear and tear of the building.
Plant and machinery depreciation.
Wages of clerical staff.
Lighting and heating
Rates and taxes.
Advertising
Travelling expenses.
Legal cost.
To arrive at the true cost of the job 10 t0 15% is to the net cost of
each estimate.
 Profit:
This is usually added in the form of percentage to the true
cost of the job in order to determine the selling price of the
job. This amount is purely discretion of the contractor, and his
decision is governed by the following factors.
Size of the job
Degree of competition.
The state of turn over.
His anxiety to secure a particular job and so on.
If estimate is proved accurately, small percentage of profit is
added, it will be profit and never loss.
 Purchase system:
Purchase may be divided into three major heads;
1) Purchase objective:- The purchase procedure enlist the
following objectives
• To purchase competitively and wisely authorised requirements as
per desired specifications from approved/reliable sources at
available reasonable prices with in the time schedule to support
the project plans.
• To ensure that fair and open purchase practices are followed and
a healthy and good relationship develops with suppliers/vendors
to foster the commercial interest of the firm.
• Training of purchase personnel in the latest techniques of
materials management.
• To serve as information centre on materials knowledge- prices
source of supply, detailed technical specifications, catalogues etc
for all department of the organisation.
• To keep management/concerned authority appraise of the likely shortfalls
in purchase performance by introducing appropriate report system with a
view to seek management’s/concerned authority intervention at right time.
2) Purchase functions:- purchase department is responsible for
following activities;
• Creation of comprehensive and continuously updated list of
selected reliable vendors.
• Maintenance of vendor evaluation and rating records on Performa
given below
• Conducting market surveys with a view to establish/develop new
reliable and better sources of supply by making available
information on latest products/development.
• Analysing bids for decision making by the competent technical
authority.
• Arranging negotiations with suppliers/vendors , when necessary.
• Issue of purchase order in time.
• Obtaining govt clearances/licenses, where necessary.
• Follow –up the purchase order to ensure arrival of materials,
ensure after sales service during warranty and post-warranty
periods.
• Finalization of rate of contracts for regular stock items.
• Maintaining library of product catalogues,
manufacturers/distributer’s price list.
• Maintaining updated information regarding govt laws on sales tax,
excise, customs duty, service tax, income tax etc..
• Submission of M/S reports on performance of purchase.
• Entering into transit insurance agreements for goods in transit.
 Purchase setup(or organisation):
purchase Head

Registration of Tender
Procurement Procurement vendors and market
of Heavy Of routine opening and
survey submission
plant and material
machinery of reports
 Indian Electricity Act
It is an act to amend the law relating to supply and use of electric energy which
extends to the whole of India except state of Jammu and Kashmir. The acts deals with
following sections.
• Grant of licences, amendment of licences.
• Purchase of undertakings, determination of purchase price etc.
• Overhead lines.
• Controlling of transmission and use of energy.
• Power to control distribution and consumption of electrical energy.
• Meters
• Power of government to interfere in case of defaults.
• Advisory boards
• Appointment of electrical inspectors.
• Power for central electricity board to make rules.
• Theft of energy.
• Penalties for different offences.
• Institution for prosecution.
• Arbitration.
• Amendments of land acquisition act etc.
 Purchase orders
All purchase orders (POs) shall carry the following information.
• Purchase order number and date
• Detailed specifications of the items as quoted by the tenderer/agreed additional
specifications, if any.
• Value of purchase order.
• Name of the supplier.
• Due date of delivery.
• Quantity of items ordered.
• Taxes if any to be specified in the order.
• Despatch details as agreed to
• Mode of payment as agreed to, advance, discount etc.
• Inspection system as agreed to.
Payments of Bills : In order to maintain credibility and project a proper image of the
ordering authority, it is of utmost importance that the bills of suppliers/vendors are paid
in an agreed time. All procedures/formalities to be taken up are to be properly co-
ordinated so that payment is not delayed.
 Modes of Tendering

The usual modes of tendering are;

1. Open tendering.
2. Global tendering.
3. Limited tendering.
4. Single tendering.
5. Proprietary tender.
6. Spot tendering.
1. Open/Public tendering: In this tendering system even non-registered dealers are
free to participate. Under this system all the known and possible sources for the
supply of a particular material are made aware of the requirements and allowed to
quote. For this tendering one of the following methods shall be adopted.
Giving an advertisement in at least three leading English language news paper of all
India circulations and where time permits, also in the Indian trade Journal/Indian
export service bulletin (IESB). Simultaneously copies of advertisement may be sent
to all the known and likely sources.
Addressing all the known and likely sources for a particular product.
2. Global tendering : Where items to be procured are not indigenously available,
global tendering shall be restored. Advertisement may be released in leading
national news paper as well as in Indian trade Journal/Indian export service bulletin
(IESB). In addition copies of the tender documents may be made available to the
Indian Embassies in potential vendor countries abroad for issuing to the tenderers
besides making the documents available to the trade commissioners of foreign
embassies in India.
3. Limited tender: In limited tender only most likely and suitable sources are
addresses. To invite adequate competition, it is necessary that at least five sources
of supply are addressed. The suppliers to be addressed shall be decided based on
past experience. The selection of suppliers to be addressed shall be decided based
on past experience. The selection of suppliers shall be carefully made based on
vendor rating or past experience.
4. Proprietary tender : Proprietary tender which is addressed only to a proprietary
manufacturer/his authorised agent because no equivalent is available from any other
sources and all possible suppliers quote only the product of one manufacturer.
5. Spot tendering : Spot tendering is to be restored only for emergent requirements.
All the readily approachable and well-known vendors are requested to assemble and
their offers are obtained after the requirement is explained/shown to them on spot.