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Cost Estimate in Construction

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Cost estimate is the approximate value of a project computed on the basis of available information. Generally, the accuracy of a cost estimate will reflect the information available at the time of estimation.

Cost estimating in construction involves pricing materials, labor, overhead, subcontractors and equipment needed to complete a project.

Purpose of Cost Estimate in Construction

The purpose of cost estimate in construction is to provide a realistic and accurate idea of the cost which is needed by owners or business managers, design team members and contractors in order to make budgetary and feasibility determinations. From the owner's perspective, the cost estimate is used to determine the scope of the project or whether it should proceed.

Elements of a Cost Estimate

  1. Quantity Take-off - determination of the quantities of materials needed in the project
  2. Labor Hours - unit of work representing the productive effort of one craftsman in one hour. The accuracy of the project's schedule and workforce requirements are dependent on the evaluation and definition of these hours
  3. Labor Rates - cost per hour for the craftsmen involved in the project. This includes basic wages and fringe benefits as well as overtime pay.
  4. Material Prices - prices of construction materials are usually affected by:
    • purchase at a peak or slack time of the year for the manufacturer
    • material availability
    • size of the order
    • delivery time requirement
    • delivery factors such as distance, road size or site access
    • payment terms
    • sole-source items
    • currency exchange rates
  5. Equipment Costs - correct size or capacity of equipment required to perform the work is determined based on the project conditions
  6. Subcontractor Costs - costs of specific tasks to be performed by subcontractors
  7. Indirect Costs - include labor, material and equipment items required to support the overall project
    • For the owner: design fees, permits, land acquisition costs, legal fees, administration costs, etc.
    • For the contractor and subcontractor: mobilization, staffing, on-site office, temporary facilities, equipment, small tools, consumables, etc.
  8. Profit Amount - profit rate is uniformly applied to original bid and change orders
  9. Types of Cost Estimate in Construction

    1. Design Estimate - type of cost estimate encountered during the planning and design of the project
    2. Design Estimates Reflecting the Progress of the Design

      • Screening Estimate - otherwise known as order of magnitude is usually prepared before the project is designed and relies on data from similar projects of the past
      • Detailed Estimate - otherwise known as definitive estimate is prepared when the scope of work is clearly defined and the detailed design is in progress
      • Engineer's Estimate - is based on the completed plans and specifications
    3. Bid Estimate - type of cost estimate submitted to the owner either for competitive bidding or negotiation
    4. Control Estimate - type of estimate used for monitoring the project during construction

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