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Cost Estimation Fundamentals

Dr David Chew

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Why estimate? An estimate is an educated guess, an

appraisal, an opinion, or an approximation as to the cost of a project prior to its actual construction.

Estimate can be prepared at many points during the life of a project.

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Owner’s Perspective

From an owner’s perspective, an early estimate serves to answer important questions such as: Is the project affordable? How large a project can be constructed for the

money available? What level of quality can be included in a project? Which project options make the most sense?

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Designer’s Perspective Estimates also provide guidelines to the

designer. As a project is being designed, it is important that the designer select materials and size the project within the budget of the owner.

Estimating and designing are highly related, as a change in either forces a change in the other.

Advancement in computer modeling improves such integration.

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Contractor’s Perspective

Estimates must also be prepared by the individual trade contractors to figure their bid price.

These estimates are done with design documents complete or nearly complete and are the most time consuming and most accurate of the estimates.

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Types of Estimates

(Estimate times required for a $2 million building,

and accuracy level of each.)

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Conceptual Phase Prepared with little information, relying mostly

on historic data and descriptions available. Rough order of magnitude; may be prepared

several years before construction. E.g. based on number of beds for a hospital,

of students for a school, or megawatts for a power plant.

Time required to prepare is short. Often prepared for many program options so

the best alternative(s) can be selected.

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Schematic Phase Program provided by owner, and project team

incorporate alternatives into basic design Generally based on a design that is

approximately 30% completed and includes the following: Floor plans, elevations, and sections Outline specifications for most trade sections One-line drawings for mech. & elec. Systems

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Schematic Phase (cont’d) Includes area takeoff, calculating of major

elements such as GFA of building, exterior wall area, gross volume of earth excavated.

Key subcontractors might be asked for input. May take 1-2 weeks and carry 10%

contingency – added to allow for unknown design and engineering details that will be developed during the next design stage.

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Design Development Phase Similar to schematic, but much more defined Generally based on a design 60% complete

Elevations, sections, and details at larger scale All relevant specifications sections M&E systems well defined

Depending on delivery method, either key trade subcontractors or key consultants will be involved in pricing of complicated systems

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Design Development Phase (cont’d) In the case of D&B, a network schedule will

have been begun, allowing a better understanding of duration of project

Take 2~3 weeks; within 5~10% of final cost With this estimate, the costs of materials and

methods will be known and should be compared to past similar projects.

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Procurement Phase – Traditional DBB Estimate prepared by all bidding contractors Owner team prepares estimate to negotiate fair

price/verify accuracy of contractors’ prices Contractors break the job down into work packages

and request bids from prequalified subcontractors for each package Require a complete understanding of material

quantities and unit prices, usually involving input from local suppliers.

Bids would be submitted on a standard form Format differs for lump sum vs. unit rate

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Direct vs. Indirect Costs; Total Costs vs. Bid Price Direct: materials, labor, equipment, subcons

Occur in the field. Once the work is stopped, incurring of direct costs also stop.

Indirect: site overhead Salaries of site staff, cost of services at site

Total Costs = Direct + Indirect Mark-up: Corporate expenses, home office

overhead and Profit Bid Price = Total Costs + Mark-up

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Estimation Considerations

Size: economy of scale, learning effects etc. Quality: higher quality higher cost Location

Material delivery, method of transportation Availability of skilled labor

Time Use of indices to adjust for cost variation due to

inflation, location etc. Other market conditions

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Quantity Takeoff

Purpose is to accurately determine the quantity of work needs to be performed

Every work item needs to be measured and quantified using same units as pricing guides

Most prices are separated into units of labor, material, and equipment

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Some Practical Hints on Measuring Quantities Think ahead of the scheduling process as the

two are interrelated Preprinted forms may serve as useful tool Mark on drawings what have (not) been

estimated; avoid rounding off till final quantity Quantities must be adjusted for waste

Concrete spillage Soil swelling

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Preprinted Estimate Form

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Quantity adjustments for Wastage

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Adjustment for soil swelling/shrinkage

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Unit Pricing With the quantity takeoff complete, all typical

components that go into project and how many of each type are determined

Next task is to estimate how much each unit will cost to produce, deliver to site, accept and store at site, install in the correct position and maintain till project is accepted

Produce and deliver – material unit price Installation of material at site – labor and equipment Project overhead covers acceptance and storage at site

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Material Costs Generally the easiest to determine Most reliable source is the supplier Published prices in catalogs Some key questions:

Is quoted price valid until scheduled time of delivery? What is the lead time to delivery? Does the supplier maintain adequate stock? What are the payment terms? How reputable is the supplier?

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Labor Costs

Generally most difficult factor to determine Two components: Wage rates & Productivity Wages are widely published by local

construction authority L/Cost of activity = Labor Rate x Act Duration Duration is related to Productivity

Past project experience helps in determining this

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Equipment Costs Two general types: the equipment itself and

the cost of operating it Equipment: cost of ownership, lease, or

rental; cover interest, storage, insurance, taxes and license

Operating: cost of gasoline, oil, periodic maintenance, transportation, mobilization

Can be figured on an item-by-item basis (e.g. formwork use of small power tools); or a project basis (e.g. tower crane)

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Cross-relating to CV4201 Lectures on “Construction Measurement &

Quantities” discuss the Bill of Quantities Unit rate contract rather than lump sum Follows certain standards such as CESMM (3rd ed)

For estimation sake, the quantity takeoff procedure is the same; systems usually differ only in the ways of categorizing items You may use whichever ways in your project

assignment to arrive at your estimate

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Scheduling Fundamentals

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Definition of Scheduling The process of listing a number of duties or

events in the sequence that they will occur Not unique to construction Preconstruction

Plan of execution; expected date of completion Construction

Coordination + monitoring of day-to-day activities Schedule should be represented in different

forms for different people/usages

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Scheduling Methods

Bar Chart Schedules Graphically the most simple Frequently used in the planning stage by owners,

designers, construction professionals to quickly examine the overall timing on a project

However, because of inherent graphic limitations, it cannot define individual activity dependencies

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Sample Bar Chart

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Problem with Bar Charts

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Scheduling Methods

Line of Balance Used to efficiently plan out repetitive operations Slope indicates the activity’s work rate

Time-scaled Bar Chart Logic based; identifies activity relationships,

project’s critical path; sorted by activity codes Matrix Schedules

Used where work is accomplished in a repetitive manner, such as on a high-rise building

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Line of Balance

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Time-scaled Bar Chart

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Matrix Schedule

Typical cell matrix schedule

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Network Schedules Most sophisticated and detailed Each item of work is called an activity, and

each is given a duration, and they are connected in the so-called network diagram

Defines not just activity interrelationships and durations but also resources available

Also called the Critical Path Method (CPM) Network schedules can take two forms

Activity on Arrow notation Activity on Node or Precedence notation

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The Network Diagram A pictorial representation of activities and

order Some FAQs:

What activity must occur before this activity can be done?

What activity must follow this activity? What activity can be accomplished at the same

time that this activity is occurring? All networks have a single start and finish point Arrow notation vs. precedent notation

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Activity on Arrow Notation

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Arrow notation vs. Precedent notation Precedent notation allows overlapping of

activities – “leads and lags” Arrow notation requires creation of add. Activities

Precedent notation is more flexible, requires fewer activities to model the job sequence More software packages are geared towards this

Arrow notation is easier to calculate by hand, hence good technique to learn the basics

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Activity Duration

Can be determined by: Subcontractor’s/vendor’s schedule Contractual requirements Market conditions and Job factors Approval timeframe by authority Otherwise, it is basic mathematics (provided that

you have all the information required):

Quantity / Crew output = Duration (in days)

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Time Scheduling (following the Arrow notation) Looking at the activities (on arrow), we have:

Earliest Start time (ES) Earliest Finish time (EF) = ES + Duration (D) Latest Finish time (LF) Latest Start time (LS) = LF - D

Looking at the nodes, we have Earliest Event Time (EET): earliest possible at

which the event can occur Latest Event Time (LET)

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Time Scheduling (following the Arrow notation) An activity can be done either early or late,

and the difference between the late start time and early start time is equal to the difference between late finish time and early finish time

Float = LS – ES = LF – EF = LF – (ES+D)

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Activity Times in Perspective

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Critical Activities and Critical Path Activities with same ES & LS, or EF & LF

i.e. the float is zero, no slack is available Critical activities form a continuous chain,

which is known as the Critical Path It is usually the longest path through the network

(in terms of total duration) There can be more than one critical path in the

network

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Some Common Scheduling Softwares Primavera (P3) Microsoft Project SureTrak Project Manager Computers Associates SuperProject

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References

Gould, F.E. (1997) Managing the Construction Process. [TH438.G696]

Hinze, J.W. (1998) Construction Planning and Scheduling. [TH438.4.H666]

Feigenbaum, L. (1998) Construction Scheduling with Primavera Project Planner. [TH438.4.F297]