COST ESTIMATION IN CONSTRUCTION: THE CORNERSTONE IN EVERY PROJECT

 

Cost Estimation in Construction

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Cost estimation in construction is the method to assess or predict a value for a project through keen calculations, analysis, and experience.

Cost Estimation in the field of construction is the first step in any project and holds the stakeholder strata involved in a project together.

For example, a contractor uses it to determine the cost of capital investment that must be invested. The client uses it to assess the feasibility of the design.

Construction cost estimates – prepared diligently by estimators, are used by the contractors forbidding any project and are aimed at calculating the prospective financing value of a project instead of actual cost expenditure.

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Generally, an estimate may be of four types

A gross rough cost estimate: along with a feasibility study for the client to decide if he’s up for the execution of the project or not.

Preliminary estimate: done after finalization of the design by the planning consultant. Considered to be more accurate because of more details and the already finalized design and RKS.

Detailed estimate: made by contractor taking into account all the major and minor aspects. It is the most detailed one and surrounds all the affecting factors and contingencies thoroughly.

The actual cost calculated after the completion of a construction project by the contractor. The cost agreed in a contract is the fixed earning for a contractor, while the actual cost is spent completing the project.

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Responsibilities of Estimator

Quantity take-offs require keen analysis and precision to generate accurate cost estimates, hence, an estimator should not only be familiar with the basic materials as proposed in the planning drawings but also the supporting and temporary supplies and equipment that could be needed alternatively.

A very important, yet often neglected, part of cost estimate preparation is the field survey of an estimator accompanied by the project manager to get all the necessary information about the materials and supplies.

Another important step is to take into account the complete data about labor and their skills so that the estimator can relate the right workforce with the right needs in the job.

What is cost estimation in project management?

Read how you can do cost estimation in project management.

Key Steps of Estimation

Overall estimated cost usually includes a calculation analysis of five main elements:

Material costs: It includes the calculation of all the material costs, both basic and supporting, used for each building component.

Labor Cost: the most challenging aspect of the overall cost analysis as many influential factors are to be taken into accounts such as workplace conditions, skills, and productivity of labor, local cost of living index, and many more.

Equipment Costs: include purchasing, renting, mobilizing, installing, dismantling, and all other operating costs of machinery and equipment. Therefore, all the technical specifications and the need of the equipment is kept in mind before choosing equipment.

Indirect Costs: are divided into two groups; general costs or overheads (includes salaries of employees, office rent, etc.) and project costs.

Corporate Profits: ranging from 8-12%, this is the value expressed as a percentage of the total financing amount.

Some other types:

Direct costs: including Materials, Labor, and Equipment costs. These are directly related to project execution.

Indirect costs: including Overhead, contingencies, profit. These are not directly related but are inevitable.

Direct Cost Estimation Calculation

For building materials, all the required materials, their market stock, and prices, waste materials are thoroughly studied.

For wages, rates per unit volume, daily minimum wages in accordance with the labor law and wholesale rates are kept in mind

For equipment, all the costs to run the equipment, repairs, maintenance, and other relevant costs are kept in mind.

Overhead Cost calculation:

Further classified as:

• Project Overheads i.e. personnel cost estimation in construction the field, quality control costs, utilities on the project including lighting, communication, transportation, bank interest, building permits, taxes, etc.
• Office overheads i.e. cost of renting the office and its facilities, office staff salaries, business permits, etc.

Differences in the calculations:

Differences occur due to several reasons:

1. Quantity calculations

2. Pricing errors

3. Labor wages

4. Forecasting workers productivity

5. Working methods

6. Equipment costs variations

7. Indirect costs

9. Loose prognosis of location conditions

11. Expenditure related to construction execution time

12. Profits

13. Unexpected risks and costs

14. Errors in the estimation formula

15. Market conditions

Types of Cost Estimation in Construction

Here’s the Chart Representation of Cost Estimation in Construction which you can see below: