The basis for the rest of the project is laid out in a construction estimate. Your estimate’s accuracy will decide whether you complete the project on schedule and budget or whether you experience cost overruns and delays.
In this article, you will know what construction estimating is, the importance of accurate cost estimation, the key components of a cost estimate, and how many estimates are used in the project.
What is Construction Estimating?
What is The Importance of Accurate Cost Estimation
Depending on who conducts the measurement, construction cost estimates serve a variety of purposes. For example, a design engineering company will prepare a cost estimate used as a guide during bidding and construction. On the other hand, contractors offer cost forecasts in which they strive for a fair price while making a healthy profit.
When using value engineering and monitoring the construction phase, cost estimates are required. The project’s finished work can be compared to the expected work to see if it’s on track, and the total cost can be compared to the budgeted cost.
A major calculation error can have significant implications because many project decisions are focused on cost. When building costs are underestimated, it affects both project owners and contractors. Normally, the person that made a mistake is responsible for the additional costs. Owners may end up spending more than they planned, and contractors may be forced to finish projects at a loss or with decreased income.
Key Components of a Cost Estimate
A cost estimate is a total of all the costs associated with effectively completing a project from start to finish. The costs of a project can be classified in a variety of ways and at various levels of detail, but the most basic classification divides costs into two categories: direct and indirect costs.
- Direct costs are described as those that are directly related to a single region (such as a department or a project). Direct costs are expenditures that are billed solely to a particular project in project management.
Some examples of direct costs are:
– field workers (labor)
- On the other hand, indirect costs cannot be assigned to a single cost center and are instead incurred concurrently by a variety of projects in varying amounts.
Examples of project overhead expenditures are:
– quality control
– security costs
– administrative costs
– temporary structures
– legal fees & permits
A cost estimate is more than just a list of costs; it also details the assumptions of each cost. These assumptions (along with cost accuracy estimates) are incorporated into a report called the basis of estimate, including information on cost exclusions and inclusions.
The estimate report serves as a foundation for project stakeholders to view project costs and consider how and where actual costs vary from estimated costs.
The Five Tiers of Construction Estimates
Tiers are so named because they build on top of one another, increasing in complexity as the design is completed. Throughout the course of a project, two or three of them — often both of them — can be included.
Project Estimation Cost Levels:
- Order of Magnitude Estimate: This form of an estimate is normally completed long before the design process begins in order to give the owner a rough idea of how much a specific project could cost.
- Schematic Design Estimate: This form of an estimate can be done once the general scope of work has been decided. These are often focused on comparable properties in the area’s square-foot prices.
- Design Development Estimate: Many of the components, processes, and quantities are in place, but the designs and specifications have yet to be completed. After this estimation is presented, it is common for quality and scope to change.
- Construction Document Estimate: The design document estimate is based on the construction requirements and sketches and provides a 5-percentage-point margin of error. Since the contractor has more finalized project reports about deliverables and targets, this calculation may also be the substantive estimate for determining unit costs.
- Bid Estimate: This is the final estimate, which specifies the expense that the contractor promises to achieve. It’s based on a finished, published drawing kit, complete with specifications.
Depending on the size of the construction project, estimates can be broken down into smaller sub-categories. The accuracy of the projections will improve as the project progresses through each process.
Determining Budget from Estimates
In construction management, establishing a budget is critical. The estimator or project manager determines the overall project costs as well as the amount of funding and budget allocations required to complete the project. The budget is generated as a result of this estimate. Using the calculation, the project manager calculates the overall expense, which includes risk control activities as well as reserves (contingency and management).
Estimating construction costs is a meticulous method. To produce an accurate estimate, you’ll need an estimator who is knowledgeable about their industry, current construction standards, and market trends.
Construction estimating services may benefit companies who don’t have an estimator on staff or can’t justify the costs of introducing estimation tools. These services cut down on estimation time and effort while delivering reliable bids that help construction projects move forward.