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Key Components of Cost Estimation in construction


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Some of what i studied as part of my cost estimation course.
It contains a description of cost estimation with respect to civil engineering.

Published in: Education
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Key Components of Cost Estimation in construction

  1. 1. PURPOSE OF CE • To establish project budget • To order services and materials
  2. 2. Profit margin • Profit margin is defined as the acceptable rate of return or compensation for a project, based on the risk associated with the project.
  3. 3. Types of estimates • Detailed – Cost of each and everything required for the project is determined in detail. • Assembly – Bid by groups of components e.g. making a bed • Square-foot or analogous – Cost based on average cost per square foot or any other unit. • Parametric – Cost determined based on statistical relationship between building parameters and cost or between building components.(Use of regression equations) • Model – Estimate prepared using a computer model and on the basis of answers of the estimator to questions relevant in calculating cost • Project Comparison – Cost of proposed project determined in comparison to the cost of a similar completed project.
  4. 4. Quantity Take off Skills • Be able to understand and interpret structural drawings and plans • Knowledge and application of math specifically geometry • Patience, diligence and punctuality • Computer literate with special skills in quantity take off and estimation softwares, Be able to manage a database of cost estimates • Be able to visualize building from plans • Experience in Construction processes; Labour productivity, problems, methods of construction, conversion of productivity to costs • Strong presentation and writing skills
  5. 5. Types of bids: Competitive • contractors bid in competition to other contractors. • Project awarded based on best value or price • Price - usually the lowest cost proposal is awarded the project • Best Value – Bids compared based on a specified criteria including price
  6. 6. Types of bids: Negotiated • Contractors and clients negotiate on virtually all aspects of project. Mutual agreement is required on cost, terms and conditions and a contractual relationship.
  7. 7. Types of contracts : Single • Contract for entire project given to a single contractor; prime contractor • Prime contractor may hire subcontractors for various phases of project directly answerable to him • Markup included (contingencies and risks). Prime contractor may absorb that markup when subcontractors don’t perform • Prime contractor has enormous responsibility
  8. 8. Types of contracts : Separate • Owner hires contractors for different phases and aspects of construction • Aspects such as Plumbing, electrical works, General construction • Markup loss to prime contractor is eliminated • Choice of contractors lies with the owner • Owner has to manage project work or may have to hire personnel to do so
  9. 9. Types of agreements • Lump-sum or fixed sum: Contractor agrees to work for a fixed price set through bidding or negotiations. Contractor takes on most risk. • Unit-price: Price for each unit of work is provided and bids are made on the basis of estimates made from quantities and unit price. Lower bidder determined on basis of quantity estimates of owner. Payments made on actual work. Exact Project cost not known until completion. • Cost plus fee: Cost paid for actual construction within agreement terms and conditions
  10. 10. Types of Cost + fee Agree. • Percentage fee: actual cost + percentage of the actual cost depending upon actual work • Fixed fee: Actual cost + a fixed fee agreed upon within contract • Fixed fee + Guaranteed Maximum cost: • Sliding scale fee: Actual cost+ a reducing percentage fee (% vs 1/t) • Fixed fee with a bonus or penalty: Target cost is set up, If cost is less than target then a bonus fee awarded. A penalty is awarded if the cost exceeds the target.
  11. 11. Agreement Provisions • Scope of work: Project and its components are defined • Time of completion: Start and completion date, completion date expressed in number of days or a specific date. Liquidated damages and bonus clauses listed here • Contract Sum: • Lump sum: Agreed upon cost or bid amount stated. • Cost plus: Reimbursable and non reimbursable items listed, exact type of compensation stipulated. • Progress payments: Schedule of payments (due dates) is listed. Payment criteria is given, action to be taken in case of no payment release is also stated. • Retained Percentage: Part of the payments is retained as a way of ensuring the contract is not breached (usually 10%). • Schedule of values: sales prices for specific items to be used in project is listed. Contractors overvalue the prices to compensate for change in market values of the items. This is called front end loading. • Work in place and stored materials: work in place is calculated as a percentage of total work completed. Method of Payments for storage of materials is set. • Acceptance and final Payment: Retainage partly released after final inspection and certification and acceptance of work done. The withheld part of retainage is used for maintainenace purposes over a certain period of time.
  12. 12. Types of bonds • Surety: Compensation guarantee on breach of contractual obligations. It ensures contract completion in event of a default by the contractor or principal to the obligee or owner. Surety company must find another contractor or compensate for financial losses. • Contractors may have to work with an unfamiliar specified company and will have to submit financial reports, experience records and details of projects they have worked on and are currently working on. • Bid: Submitted with bid and guarantees that if the bid is accepted the contractor will abide by the terms of the contract entered into and will provide all other specified bonds. • Performance: Guarantees contractor will perform all work according to specifications of contract document • Labor and Material: Guarantees contractor will pay for labor and materials  Subcontractor bonds: Performance, labor and material bond provided by Sub to prime  License or permit bond: Guarantees that contractor will abide by all local ordinances and statutes relevant to the project work. Required when law dictates a contractors require permit
  13. 13. Insurance • Contractors should have their business assets insured. • Gaps in insurance coverage can cause serious financial losses • Insurance vs bond: • Insurance involves two parties whereas a bond involves three. • Types: • Worker’s compensation: Provides benefits to family members of employees in event of their death or injury on site or while working. Rates depend upon: location, claim history ( deaths on site), type of work (risky or not). Covers medical expenses, economic loss, lost wages and other benefits. • Builder’s risk fire: Compensation for damage caused by fires or other incidents such as explosions, riots , vandalism.
  14. 14. Project Manual • It is a set of documents that accompanies drawings. • It contains specifications regarding bidding, contractual obligations, materials to be used. • It must be thoroughly read before bidding and estimating costs.
  15. 15. PM:Format • Construction Specifications institute (CSI) has set a standard format for PM and Technical specs included in PM. • 2004 Masterformat is commonly adopted, has 50 divisions.
  16. 16. PM: contents • Invitation to bid: Advertisments inviting bids by contractors. Can be found in trade journals (ENR), on the internet and in Newspapers. The invitation describes location, extent and nature of work, Project owner details, where to obtain bid documents, bid date and time and bid bond requirements • Instr. To bidders: Procedures to be followed by bidders. Where and when to submit bid docs. Location of PM and other docs. How to submit bid. Project start & end date. Responsibilities of bidders e.g. visit to project site. Award and rejection of bid based on particular criteria is owner’s right. • Bid forms: Standard proposal form to be submitted. Bidders must acknowledge all addenda received, provide bid security. Price is specified by bidder via this form. Last date for bid submission also listed. • Form of owner or Contractor agreement: This document specifies the type of agreement that will be made between the bidder and owner. • General Conditions: The terms and conditions to which the involved parties must adhere to along with their rights and responsibilities. • Supple. GCs: These amend or supplement the GCs according the project requirements. • Specs: Technical characteristics of the materials, construction methods to be used and quality of work needed. • Alternates: Owner requests prices for alternate materials or methods of construction via this document and specifies whether the prices must be added or deducted from bid cost. • Addenda: Issued after invitation and before bidding to modify documents. Should be acknowledged in an entry list by bidders as being received. • Errors in specs: Must be highlighted to project architect or engineer. Clarification requests must be submitted to engineer and must be sent by engineer to all bidders. Keep a list of all errors.
  17. 17. Spreadsheets software • Advantages: • Cheap • Easy to adapt to
  18. 18. Specialized softwares Advantages: Can take off assemblies Easily viewed in different formats Prepares standard and custom reports Can quickly make changes Disadvantages: Expensive Time consuming to set up and maintain
  19. 19. Takeoff Software Advantages Track where quantities come from Calculate areas and volumes Inexpensive to reproduce drawings; Can be emailed
  20. 20. Overhead • Home office, indirect or general overhead: Operating costs of construction company • Job, Indirect field, Project, direct overhead: Overhead costs pertaining to a specific project being worked on by construction company. • Indirect includes home office rent, taxes, employee salaries and benefits, Equipment cost and depreciation, utilities cost, travel costs etc. • Direct includes temporary office design, rent, utilities, site security, employee salaries, surveys etc. • Direct overhead is determined through project schedule.
  21. 21. Scheduling 1. List all activities 2. Assign Durations to each activity 3. Sequence Activities 4. Determine start and finish dates for each activity 5. Use precedence diagram to determine duration of project 6. Express duration in calendar days
  22. 22. Contingencies • Are items overlooked during the estimation process or unforeseen costs • A sum or percentage of total cost is reserved • Used to mask bad estimation practices • Use rationalized only for price escalation
  23. 23. Checklist Estimate of Labor Number of weeks on the project x Weekly rate Persons to be relocated x cost per person Quantity required x productivity rate Estimate of Material Quantity required x unit cost Estimate of Equipment Duration required x Monthly cost
  24. 24. Labor • Productivity rate = Labor hours / Quantity • Labor hours = Quantity takeoff x Productivity rate • Adjusted labor hour = Labor hours x Productivity factor • PF ; = 1 for average conditions, < 1 for good , > 1 for bad
  25. 25. Factors affecting productivity • Availability of materials and equipment • Availability of skilled labour • Site conditions; maneuverability, climatic, storage facilities • Allowed breaks
  26. 26. Cycle time • Productivity rate = Average cycle time × Productivity factor × Crew size System Efficiency × Quantity per cycle • Cyclic tasks such as excavation and hauling from pit to job site
  27. 27. Unions and open shop • Unions set wage rules • Also have rules regarding holidays and fringe benefits • Prefer to talk or strike • Rules may be restrictive • Union workers are trained through apprentice programs • Open shop contractors are more flexible and do not encounter restrictive union rules • Personnel hired by open shop contractors may not trained or highly skilled at their craft.
  28. 28. Burdened wage rate
  29. 29. Labour burden • Besides wages, contractors incur other costs associated with employing labor that must be included in the bare wages. • Cash allowances : Allowances provided to employees to use their own tools and vehicles (not based on actual costs of usage). • Cash equivalents: Funds paid to employee in lieu of benefits such as insurance or vacation pay. • Taxes: Medicare and social security taxes • Worker’s insurance: covers medical for injuries, benefits to family members in event of death on site, lost wages due to injuries. • Unemployment insurance • General Liability insurance: Coverage against negligence lawsuits • Insurance benefits: health insurance, life insurance, disability insurance • Union payments: payments to union wrt union contract for provision of laborers. Funds used for training of laborers and providing other benefits to laborers • Retirement contributions: employer contributes to the retirement program of an employee • Paid leaves and vacations
  30. 30. Labor Pricing
  31. 31. Operating costs • Fuel cost = hp rating × Power utilization × Use factor × Consumption rate × Fuel cost • Lubrication: • Oil cost = 𝑛𝑜. 𝑜𝑓 𝑞𝑢𝑎𝑟𝑡𝑠 ∗ 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑞𝑢𝑎𝑟𝑡 • Labor cost = time for lubr. ∗ 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 • Lubr./mwh = 𝑂𝑖𝑙 𝑐𝑜𝑠𝑡 + 𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡 𝑐𝑦𝑐𝑙𝑒 ℎ𝑜𝑢𝑟𝑠 • Tire: • Depreciation = 𝐶𝑜𝑠𝑡 𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 • Repair = % of depr. • Total / mwh = Repair + depr.
  32. 32. Ownership costs or fixed costs • Depr.= depreciable cost /useful life = Orig. – Salvage / useful life • Interest= CIL/2*H • Repair , overhaul • Insurance • Storage charges • taxes
  33. 33. • Renting vs buying: • Depends upon characteristics of usage of equipment • If usage only occurs throughout the duration of a project and not after that then renting is the way to go. • Mobilization • Costs of transporting to and from job site • Cost of setting up equipment at job site is also included with this cost.
  34. 34. Excavation • Go through PM for specs • Factors affecting cost: • Type of soil • Slope adjustment • Sheet piling or bracing requirement • Groundwater encountered and pumping requirement • Storage of topsoil for future use • Removal of soil from site or storage on site • Measured in cy or cf • Bank (undisturbed state)  Loose ( excavated soil) Compacted fill
  35. 35. Swell and shrink • Swell : Volume increase b/w bank and loose, expressed as % increase in bank volume • Shrinkage: Volume decrease between bank and compacted condition, expressed as % age of bank volume • Units: bank (bcy) , Loose (lcy) , Compacted (ccy) • 1 cy = 27 cf
  36. 36. Grid method
  37. 37. Average end area • ((Area at station 1 + Area at station 2)/2) * distance between stations
  38. 38. Piles