Types of Construction Cost Estimation and Their Purposes

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There are different types of construction cost estimation done by owner, contractor and engineer. They all have their own purpose to know in advance the expected cost of the project in varying degree of accuracy, at different phases of construction.

Purpose of Construction Cost Estimation

Owner's Purpose of Cost Estimation

1. Making investment decision in the conceptual stage.
2. Negotiate and finalize the contract at the implementation phase.
3. To implement cost control measures.

Contractor's Purpose of Cost Estimate

1. Determine project cost and profit.
2. To Implement cost control measure.
3. To develop data base for that can be used for future project.

Engineer's Purpose of Estimate

1. Provide the owner with probable estimate.
2. Evaluate alternatives.

Comparison of Contractor's and Engineer's Estimator

Contractor’s Cost Estimation	Engineer’s Cost Estimation
Determines actual cost of project for bidding purposes.	Determines expected cost.
Has detailed company cost data for labour and equipment.	Does not know who will receive award, therefore does not know contractor’s exact resource costs. Does not know actual labour rates.
Knows which construction methods are to be used.	Must assume probable construction methods to be used.
Has knowledge of actual materials suppliers to be used and quantity discount prices.	Does not know who project supplier will be. Must use local list prices.

Types of Construction Cost Estimation

Following are the different types of construction cost estimation:

1. Preliminary cost estimation
2. Unit price cost estimation
3. Assembly or Conceptual Cost estimation
4. Detailed cost estimation

Each phase of a project life cycle requires a different type of estimate--each estimate requires different types of information.

1. Preliminary Cost Estimation

• A cost prediction based solely on size and/or capacity of a proposed project.
• Before any engineering or design is completed.
• Rely on broad data from already executed similar project
• relate cost in rupees to the main capacity/size parameter
• number of beds in hospital
• square feet of office space
• number of students in school

Advantages of Preliminary Estimates

• Allows a quick determination of the feasibility of a project
• A quick screening on alternatives, etc. (e.g., should it be a concrete building or a steel building).

Purpose of Preliminary Estimates:

1. Ranking alternatives
2. Evaluate economics and financial feasibility
3. As a check on more detailed estimates

2. Unit Price Cost Estimation

Unit prices are obtained from data on projects already performed. Cost of labor, material, and equipment for all units of work are added together and divided by the number of units involved.

3. Assembly or Conceptual Cost Estimation

• Performed when conceptual design decisions are being made.
• Work package concept can be used to determine the element or assembly to be studied
• We need a breakdown of cost of a completed project into its functional elements to:
• Find the relationship between element cost and project cost
• Distribution of cost between constituent elements (sq. feet of _____)

4. Detailed or Definitive Cost Estimation

• Prepared after drawings and specification are completed.
• Requires a complete quantity takeoff based on drawing and the complete set of contract documents
• Need information on labor rate "productivity", material cost, cost of renting or purchasing equipment

Factors influencing Construction Cost Estimation

1. Construction Project Time

• We base our estimate on the cost of existing projects that were built in the past
• Price-level changes over time
• We need to project costs of future projects
• Many organizations publish construction cost data on regular basis.

2. Cost Indices

• Used to update old cost information

Uses of Cost Indices

1. To update known historical costs for new estimates
2. To estimate replacement cost for specific assets
3. To provide for contract escalation

Limitations

1. They represent composite data, average of many projects.
2. They fail to recognize technological changes.
3. There is a reporting time log.

To update old cost information to current date Cost of new facility = cost of old facility x (new cost index/old cost index) To predict future cost

F = P (1 + i)ⁿ

F  = future cost P  = present cost i   = predicted rate of cost escalation per period n  =  number of periods (years)

3. Construction Project Location

• Some factors affecting cost in different locations are:

1. Transport cost
2. Taxes
3. Labor supply and local productivity
4. Codes and local inspection

• Construction costs also vary in different regions of the USA.
• ENR and Means publishes periodically the indices of local construction costs in the major cities.

4. Project Size

As the quantity built increases, the unit cost decreases, Size Factor = (Proposed Size/Comparison Size) UCM = Unit Cost Multiplier UCM = SF^-1 5. Shape 6. Other Factors Hard to quantify but should be evaluated

• Quality
• Soil condition
• Weather Condition
• Competition
• Productivity