1.040/1.

401
Project Management
Spring 2007

Lecture 6
Estimating

Dr. SangHyun Lee

[email protected]

Department of Civil and Environmental Engineering

Massachusetts Institute of Technology
 Project Management Phase

FEASIBILITY DESIGN DEVELOPMENT CLOSEOUT OPERATIONS

PLANNING

Fin.&Eval. Organization
Risk
Estimating

Planning
 Estimation Levels - Introduction

 Different types of estimates are required as a project evolves

 Conceptual & Preliminary Estimates
 Prepared early in the project prior to engineering design completion (e.g., to
tell Owner whether the contemplated project scope is feasible)
 Incorporate new information from design to obtain an updated estimate of
the project
 Detailed Estimates
 Prepared from completed plans and specifications
 Definitive Estimates
 Forecast the project cost within allowable limits from a combination of
conceptual and detailed information often including partial contract and
other procurement awards

Source: Barrie & Paulson, 1992

 Design & Estimating Process

Conceptual Detailed
Feasibility Pre-bid Construction
design design

Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates
 Outline

Conceptual & Preliminary Estimates

 Cost indices
 Cost capacity factor
 Parameter Cost
 Detailed Estimates
 Estimates
 Cost classification
 Calculation
Conceptual and Preliminary Estimates

 Decide Feasibility

 Great Variability According to Type

 Categories:
Time-referenced Cost Indices
Complexity


Accuracy

 Cost-capacity Factors

 Parameter Costs
 Outline

 Conceptual & Preliminary Estimates

Cost indices
 Cost capacity factor
 Parameter Cost
 Detailed Estimates
 Estimates
 Cost classification
 Calculation
 Cost Indices
 Show changes of costs over time by upgrading the cost of similar
facilities from the past to the present

Cost indices show the changes of a certain facility’s costs over time
Year 1913 = 100, …Year 2007 = 4432

If Facility A is similar to my ‘wish’ facility and I know the value of Facility A at 1913,
I can assume my ‘wish’ facility’s value at 2007.

Source: http://www.enr.com/features/conEco/
 Cost Indices
 Show changes of costs over time by upgrading the cost of similar
facilities from the past to the present

 Used to determine the general construction costs of structures

 Published periodically by Engineering News Record (ENR) and other

publications

 ENR’s Building Cost Index (BCI): Changes of facility’s costs over time
 Facility’s components are:
 1,088 Board Feet of Lumber (2x4, 20-city Average)
 1 Board Feet = 1’ x 1’ x 1” = 144 in3
(e.g., 2×4 - 10 ft long contains [(2×4)×10] × 12] = 960 in3 → 6.67 board feet)
 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996,
Fabricated after 1996)
 1.128 Tons of Portland Cement (Bulk, 20-city Average)
 66.38 Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural
Ironworkers)

Source: http://www.enr.com/features/conEco/
Building Cost Index Data (1990–Date)
ANNUAL
JAN. FEB. MARCH APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
AVG.

1990 2664 2668 2673 2676 2691 2715 2716 2716 2730 2728 2730 2720 2702

1991 2720 2716 2715 2709 2723 2733 2757 2792 2785 2786 2791 2784 2751

1992 2784 2775 2799 2809 2828 2838 2845 2854 2857 2867 2873 2875 2834

1993 2886 2886 2915 2976 3071 3066 3038 3014 3009 3016 3029 3046 2996

1994 3071 3106 3116 3127 3125 3115 3107 3109 3116 3116 3109 3110 3111

1995 3112 3111 3103 3100 3096 3095 3114 3121 3109 3117 3131 3128 3111

1996 3127 3131 3135 3148 3161 3178 3190 3223 3246 3284 3304 3311 3203

1997 3332 3333 3323 3364 3377 3396 3392 3385 3378 3372 3350 3370 3364

1998 3363 3372 3368 3375 3374 3379 3382 3391 3414 3423 3424 3419 3391

1999 3425 3417 3411 3421 3422 3433 3460 3474 3504 3505 3498 3497 3456

ANNUAL
JAN. FEB. MARCH APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
AVG.

2000 3503 3523 3536 3534 3558 3553 3545 3546 3539 3547 3541 3548 3539

2001 3545 3536 3541 3541 3547 3572 3625 3605 3597 3602 3596 3577 3574

2002 3581 3581 3597 3583 3612 3624 3652 3648 3655 3651 3654 3640 3623

2003 3648 3655 3649 3652 3660 3677 3684 3712 3717 3745 3766 3758 3694

2004 3767 3802 3859 3908 3955 3996 4013 4027 4103 4129 4128 4123 3984

2005 4112 4116 4127 4167 4188 4194 4196 4209 4218 4265 4312 4329 4203

2006 4333 4338 4330 4335 4332 4340

2007 4432 Base: 1913=100

Source: http://www.enr.com/features/conEco/
Building Cost Index Data (Prior to 1990)

Source: http://www.enr.com/features/conEco/
 Cost Indices Time Conversion

 Example:
 Warehouse Estimate: Assume you have an estimate to a similar warehouse
located nearby and completed in 1993 for a cost of $4,200,000. We are
planning to build a new warehouse in Feb. of 2007. The Building Cost
Index from ENR for 1993, relative to the base date of 1913, was 2996%
and Building Cost Index from ENR for Feb. 2007 is 4432%. What is the
estimated project cost if you establish the estimate using Building Cost
Index from ENR?

Adapted from: Barrie & Paulson, 1992

 Cost Indices Time Conversion

 What Information Do We Need?

 Current Building Cost Index (Feb. 2007) = 4432

 Building Cost Index for Year 1993 = 2996

 Similar Facility’s Cost at Year 1993 = $4,200,000

 We Convert From One Base Period to Another

 2996 : $4,200,000 = 4432 : $X

 $X = (4432/2996) * $4,200,000 = $6,213,084

Adapted from: Barrie & Paulson, 1992

Cost Indices Component Calculations

 ENR’s Construction Cost Index:

 Used when labor costs are a high proportion of total cost

 Components:

 1,088 Board Feet of Lumber (2x4, 20-city Average)

 1 Board Feet = 1’ x 1’ x 1” = 144 in3

 2,500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price Before
1996, Fabricated after 1996)

 1.128 Tons of Portland Cement (Bulk, 20-city Average)

 200 Hours of Common Labor (20-city Average)

Source: http://www.enr.com/features/conEco/
costIndexes/constIndexHist.asp
 Cost Indices Use and Accuracy

 Accuracies Within 20% to 30% of Actual Costs

 Negligible Time and Effort

 Valuable for Preliminary Planning

 Cost Indices - Limitations

 Problems could arise if the proportions of the input components (e.g.,

lumber) in a building type cost index do not reflect the resources used on the
project in question
 E.g., about 40 % of the costs in a petrochemical project is in piping (pipe and pipe
fitters)

 Problems could arise if the project on which the Index is based has very little
in common with the project under consideration
 Some types of indices do not consider factors such as: productivity, changes
in technology, and competitiveness of contractors

Adapted from: Barrie & Paulson, 1992

 Outline

 Conceptual & Preliminary Estimates

Cost indices
Cost capacity factor
 Parameter Cost
 Detailed Estimates
 Estimates
 Cost classification
 Calculation
 Cost-Capacity Factor

 Apply to changes in size, scope, or capacity of projects of

similar types
 Reflect the nonlinear increase in cost with size (economies
of scale, learning curves)
 C2 = C1 (Q2/Q1) x
 Where
 C2 = estimated cost of the new facility w/capacity Q2
 C1 = known cost of facility of capacity Q1
 x = the cost-capacity factor for this type of work
 Cost-Capacity Factor

 Q is a parameter that reasonably reflects the size of the facility

(e.g., barrels per day produced by a refinery, tons of steel per day
produced by a steel mill, gross floor area for a warehouse)

 X is an empirically derived factor based on well-documented

historical records for a variety of different types of projects

Source: Barrie & Paulson, 1992

 Cost-Capacity Factor Example

 Example Revisit:
 Warehouse Estimate: Assume you have an estimate to a similar warehouse
located nearby and completed in 1993 for a cost of $4,200,000. We are
planning to build a new warehouse in Feb. of 2007. The ENR index for
1993, relative to the base date of 1913, was 2996% and the ENR index for
2007 is 4432%.

 Consider the cost-capacity factor x = 0.8 for a warehouse.

 The above warehouse has a usable area of 120,000 square feet
 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
 Cost-Capacity Factor Example

 What Information Do We Need?

 Q2/Q1 = 150,000/120,000 = 1.25

 Cost-capacity factor x = 0.8

 Known cost = $4,200,000

 C2 = $4,200,000 * (1.25)0.8 = $5,020,851

 A 25% more capacity implies only 20% more costs

 Combining Cost Indices & Cost-
Capacity Factor

 Combine Cost Indices & Cost Capacity Factors to take into

account changes in both time & capacity
 C2 = C1 (Ib / Ia) (Q2 / Q1)x
 Where
 Ib = Index number “Now” or present time.
 Ia = Index number at that time

Source: Barrie & Paulson, 1992

Cost Indices & Cost-Capacity Factor
Example
 Example Revisit:
 Warehouse Estimate: Assume you have an estimate to a similar warehouse
located nearby and completed in 1993 for a cost of $4,200,000. We are
planning to build a new warehouse in Feb. of 2007. The ENR index for
1993, relative to the base date of 1913, was 2996% and the ENR index for
2007 is 4432%.

 Consider the cost-capacity factor x = 0.8 for a warehouse.

 The above warehouse has a usable area of 120,000 square feet
 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
Cost Indices & Cost-Capacity Factor
Example

 C2 = 4,200,000 * (4432/2996) * (150,000/120,000)0.8 = $7,188,731

 Outline

 Conceptual Estimates
Cost indices
Cost capacity factor
Parameter Cost
 Detailed Estimates
 Estimates
 Cost classification
 Calculation
 Parameter Costs Source Data

 Commonly used in building construction

 ENR “Quarterly Cost Roundup”
 R.S. Means “Means Square Foot Costs”

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Costs Characteristics

 Relates all costs of a project to just a few physical measures,

or “Parameters”, that reflect the size or scope of the project
 E.g., warehouse - the “Parameter” would be “Gross Enclosed Floor
Area”
 all costs represented by X ($/S.F) → total cost = X ($/S.F.) × the
project’s gross enclosed floor area (S.F.)

 With good historical records on comparable structures,

parameter costing can give reasonable levels of accuracy for
preliminary estimates

Source: Barrie & Paulson, 1992

 Means Square Foot Cost
 Costs per Square Foot
 Type of Facility (total 23,000 S.F apartment with 3 stories)

Story Height = 10’ and No Basement

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

23,000 S.F

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

23,000 S.F

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Exterior
wall
variation

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Exterior Base Cost =

wall 129.65 $/S.F
variation

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Perimeter
&
Height
Adjustment

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Perimeter
&
Height
Adjustment

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Basement

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Additives

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Costs per S.F. of Floor Area

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Information: Detail Specs for the Cost

Source: RS Means, Square Foot Costs Data, 2006

 Means Square Foot Cost
 Information: Sub-total, Fees, and Total

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 What is the Cost for an apartment building (7 Story) if the

perimeter of the building is 502 L.F. and the story height is
11’-4”? Assume that the apartment building has decorative
concrete block on the east, west & south walls. The north
walls external finish is brick with concrete block backup.
The area of each floor of the apartment building 11,460 S.F.
The basement floor area s 4,200 S.F. Please use the Means
Square Foot Cost to obtain an estimate. The building frame
is steel. The apartment building is located in Atlantic City,
New Jersey, Zip Code 07410.

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

60’ × 191’

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 Characteristics of the Apartment Building
 60’ x 191’ = 11,460 S.F./Floor
 2 * [191’ + 60’] = 502 L.F. Perimeter
 7 Floors
 Exterior Walls:
 North wall: Face brick w/ concrete block backup
 East, West & South walls: Decorative Concrete Block
 Story Height: 11’-4”
 Basement Area: 4,200 S.F
 Steel Frame
 Located in Atlantic City, New Jersey, Zip Code 07410
 Coefficients are determined from Model Number M.020 for Apartment,
4-7 Story type (Refer to RS Means (2006) - Square Foot Costs, page 80)

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
Choose
RS Means (2006) – Square
type
Foot Costs, Page 80

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
RS Means (2006) – Square
Foot Costs, Page 80

S.F. Area = 11,460 * 7 = 80220

L.F. Perimeter = 502

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 What should be adjusted when the cost is to be established
by using the Means Square Foot Cost Method?

 Exterior Wall Variation

 Perimeter Adjustment

 Story Height Adjustment

 Basement Addition

 Location Modifier

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
Basic SF Costs for 80,000 S.F
apartment building with Face Brick
w/ Concrete Block Backup

Basic SF Costs for 80,000 S.F

apartment building with Decorative
Concrete Block

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story
Height = 10’ & No Basement
 $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)
 $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south)

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story
Height = 10’ & No Basement
 $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)
 $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south)

 North wall makes up:

 [191’/502’] x 100 = 38.04 % of total building perimeter

 East, West & South walls make up:

 [(191’+2x60’)/502’] x 100 = 61.96 % of total building perimeter

 Exterior Wall Variation

 [$128.35 * 38.04%] + [$122.25 * 61.96%] = $124.6/S.F.

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 What should be adjusted when the cost is to be established
by using the Means Square Foot Cost Method?

 Exterior Wall Variation

 Perimeter Adjustment

 Story Height Adjustment

 Basement Addition

 Location Modifier

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
RS Means (2006) – Square
Foot Costs, Page 80

Perimeter & Height

Adjustment Factors

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 Exterior Wall Variation :

 [$128.35 * 38.04%] + [$122.25 * 61.96%] = $124.6/S.F.

 Perimeter Adjustment:
 Apartment building perimeter is 28 L.F (530 -502) less than the M.020 model building in RS Means
 Perimeter adjustment factor: $2.65 per 100 L.F
 $124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F

 Height Adjustment:
 Apartment building story height is 1’ 4” (11’ 4’’-10’) more than the M.020 model building in RS Means
 Height adjustment factor: $1.20 per ft
 $123.9 + $1.20 * 1.3 = $125.5/S.F.
 Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 What should be adjusted when the cost is to be established
by using the Means Square Foot Cost Method?

 Exterior Wall Variation

 Perimeter Adjustment

 Story Height Adjustment

 Basement Addition

 Location Modifier

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
RS Means (2006) – Square
Foot Costs, Page 80

Basement Addition Factor

Source: RS Means, Square Foot Costs Data, 2006
 Parameter Cost Example

 Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610

 Basement Addition:
 Apartment building has 4,200 S.F basement
 Basement Addition Factor: $27.30 per S.F of basement area
 Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = $10,182,270

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 What should be adjusted when the cost is to be established
by using the Means Square Foot Cost Method?

 Exterior Wall Variation

 Perimeter Adjustment

 Story Height Adjustment

 Basement Addition

 Location Modifier

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
RS Means (2006) – Square Foot Costs, Page 455

Location Modifier

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 Basement Addition:
 $10,182,270

 Location Modifier for Residential Bldg: 1.13 (Refer to RS Means (2006) -

Square Foot Costs, page 455)
 Apartment building modified total cost: $10,182,270 * 1.13 = $ 11,505,965

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 What is the Cost for an apartment building (7 Story) if the

perimeter of the building is 502 L.F. and the story height is
11’-4”? Assume that the apartment building has decorative
concrete block on the east, west & south walls. The north
walls external finish is brick with concrete block backup.
The area of each floor of the apartment building 11,460 S.F.
The basement floor area s 4,200 S.F. Please use the Means
Square Foot Cost to obtain an estimate. The building frame
is steel with an observed age of 20 years. The apartment
building is located in Atlantic City, New Jersey, Zip Code
07410.

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example
 What should be adjusted when the cost is to be established by using the
Means Square Foot Cost Method?

 Exterior Wall Variation

 Perimeter Adjustment

 Story Height Adjustment

 Basement Addition

 Location Modifier

 Depreciation Adjustment

Source: RS Means, Square Foot Costs Data, 2006

Parameter Cost Example
RS Means (2006) – Square Foot Costs, Page 228

Depreciation
Adjustment Factor

Source: RS Means, Square Foot Costs Data, 2006

 Parameter Cost Example

 Location Modifier for Residential Building

 $ 11,505,965

 Depreciation Adjustment for steel frame building with 20 year observed

age: 20 % (Refer to RS Means (2006) - Square Foot Costs, page 228)
 Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193

 Total Existing Building Cost: $ 11,505,965 - $ 2,301,193 = $9,204,772

Source: RS Means, Square Foot Costs Data, 2006

 Outline
Conceptual Estimates
Cost indices
Cost capacity factor
Parameter Cost
Detailed Estimates
Estimates
 Cost classification
 Calculation
 Estimation Levels - Revisit

 Different types of estimates are required as a project evolves

 Conceptual & Preliminary Estimates
 Prepared early in the project prior to engineering design completion (to tell
Owner whether the contemplated project scope is feasible)
 Incorporate new information from design to obtain an updated estimate of
the project
 Detailed Estimates
 Prepared from completed plans and specifications
 Definitive Estimates
 Forecast the project cost within allowable limits from a combination of
conceptual and detailed information often including partial contract and
other procurement awards

Source: Barrie & Paulson, 1992

 Design & Estimating Process

Conceptual Detailed
Feasibility Pre-bid Construction
design design

Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates
 Important General Lesson
 Precision in detailed estimates does not mean accuracy!
 More an art than a science
 Detailed quantitative estimates possible – but ignore important qualitative factors
 Have differing ranges of uncertainties
 Actual costs depend on systemic complexity
 Two types of complexity at issue
 Detail complexity (myriad components required)
 System complexity (dynamic interactions, etc.)

 Always consider:
 What are assumptions behind the estimate?
 What factors are being ignored?
 How might these factors change the estimate?
 Detailed Estimates

 After most or all of the detail design work is complete,

approximate estimates are refined using detailed estimates
 Engineer’s Detailed Estimates

 Bid Detailed Estimates

 Design & Estimating Process

Conceptual Detailed
Feasibility Pre-bid Construction
design design

Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates

Engineer’s
 Engineer’s Detailed Estimates

 Part of actual bid documents

 Who? - owner, consultant, CM, or design-build team
 Use unit prices databases
 Estimate = Σ [Quantity] × [Unit Prices]
 RS Means or other sources
 Unit prices as result of average industry standards
Engineer’s Detailed Estimates
RS Means (2006) – Building Construction Cost Data, Page 84

Unit price (RS Means) = Mat. + Lab. + Equip. + Overhead + Profit

Source: RS Means, Building Construction Cost Data, 2006
 Engineer’s Detailed Estimates

 Part of actual bid documents

 Who? – owner, consultant, or CM
 Use unit prices databases
 Estimate = Σ[Quantity] × [Unit Prices]
 RS Means or other sources
 Unit prices as result of average industry standards

 No lump-sum subcontract quotations

 May be simplified number of line items (e.g., mark-up: not detailed)
Engineer’s Breakdown - Example

 Building
 Foundations
 Piles
 Concrete foundations

 Steel erection
 Structural steel
 Columns
 Beams

 Detail steel
 Concrete decks
 Stairs
 Design & Estimating Process

Conceptual Detailed
Feasibility Pre-bid Construction
design design

Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates

Engineer’s Bid
 Bid Detailed Estimates

 Contractor’s estimate low enough to obtain the work, yet high enough to make
profit
 Who? – contractor
 More detail depending upon the contractor’s own procedures
 Overall unit prices (past) → detailed categories (present)
 Often relies on
 Historical productivity data for company
 Intuition on speed of movement
 Quantity takeoff for most important items
 Subcontractor bids
 Sometimes less detailed than engineer’s estimates - subcontractors from 30% to 80% of
the project
 Bid Breakdown – Example

 Building (Engineer’s estimates)

 Foundations
 Building (Bid estimates)  Piles

 Piles (material take-off)  Concrete foundations

 Steel erection
 Concrete subcontract (lump-sum)
 Structural steel
 Steel erection subcontract (lump-sum)
 Columns
 Beams

 Detail steel
 Concrete decks
 Stairs
 Bid Detailed Estimates

 Is estimating a streamlined process?

A look at bids received for a typical project in a competitive area will
sometimes show more than 50% difference between the low and the high
bidders
 Estimation Levels - Revisit

 Different types of estimates are required as a project evolves

 Conceptual & Preliminary Estimates
 Prepared early in the project prior to engineering design completion (to tell
Owner whether the contemplated project scope is feasible)
 Incorporate new information from design to obtain an updated estimate of
the project
 Detailed Estimates
 Prepared from completed plans and specifications
 Definitive Estimates
 Forecast the project cost within allowable limits from a combination
of conceptual and detailed information often including partial
contract and other procurement awards

Source: Barrie & Paulson, 1992

 Design & Estimating Process

Conceptual Detailed
Feasibility Pre-bid Construction
design design

Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates
 Definitive Estimates

 There comes a time when a definitive estimate can be prepared that will forecast
the final project cost with little margin for error…
 This error can be minimized through the proper addition of an evaluated
contingency
 Engineer’s estimates can complete this process
 The proper time to classify an estimate as ‘definitive’ will vary according to the
characteristics of the project. For example:
 Traditional
 Unit-price
 Professional CM
 Design-Build
 Definitive Estimates:
Traditional & Unit Price
 DBB definitive estimate

Preliminary design Detailed design

Start Contract

 Unit Price definitive estimate

Preliminary design Detailed design

Start Contract
 Definitive Estimates:
CM & Design-Build
 CM definitive estimate

Preliminary design Detailed design

Start Contract

 Design-Build definitive estimate

Preliminary design Detailed design

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 Outline
Conceptual Estimates
Cost indices
Cost capacity factor
Parameter Cost
 Detailed Estimates
Estimates
Cost classification
 Calculation
 Cost Classification
 Direct Cost
 Labor Cost
 Direct Labor

 Indirect Labor
 Material Cost
 Equipment Cost
 Subcontractor Price
 Indirect Cost (i.e., Job Overhead)
 Project Overhead
 Markup
 General Overhead
 Profit
 Contingency

Source: Shtub et al., 1994

 Cost Classification - Direct Cost
 Labor Cost
 Direct Labor Cost
 Difficult to evaluate precisely but all effort is done to get an accurate estimate as possible
 Greatest amount of uncertainty in project estimation
 Indirect Labor Cost
 Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe benefits)
 Substantial in amount: add 25 to 50 percent to direct labor costs
 Commonly used approach adds indirect labor costs as a percentage to the total direct labor costs or for
each major work category

 Material Cost
 All materials that are utilized in the finished structure.
 Equipment Cost
 Costs Includes: ownership, lease or rental expenses, and operating costs

 Subcontractor Price
 Includes quotations from all subcontractors working on the project
 Quotations submitted by the subcontractor usually require extensive review by the general
contractor’s estimator to determine what they include & do not include
Source: Clough et al., 2005; Barrie & Paulson, 1992
 Cost Classification – Indirect Cost

 Project Overhead (i.e., Job Overhead)

 Costs that do not pertain directly to any given construction work
 Generally constitutes 5-15 percent of the total project cost
 Costs computed by listing & evaluating each item of overhead individually
 Examples of typical items included:
 Job Mobilization, Project Manager, General Superintendent, Nonworking Foremen, Heat,
Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer Equipment &
Software, Computer Networking & Internet Connectivity, Small Tools, Permits & Fees,
Special Insurance, Builder’s Risk Insurance, Security Clearances, Material & Load Tests,
Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Areas, Legal
Expenses, Surveys, Engineering Services.

Source: Clough et al., 2005

 Cost Classification – Markup

 Markup
 Added at the close of the estimating process
 Varies between 5 to 20 percent of the job cost
 Reflects the contractor’s appraisal of the probability of being the lowest
bidder for the project & the chances of making a reasonable profit
 Factors considered when deciding on a job markup include: project size &
complexity, provisions of the contract documents, difficulties inherent in
the work, identities of the owner & architect/engineer
 Include allowance for:
 General Overhead or Office Overhead
 Includes costs that are incurred to support the overall company construction program
 Normally included in the bid as a percentage of the total estimated job cost
 Examples of general business expenses include: office rent, office insurance, heat, electricity,
office supplies, furniture, telephone & internet, legal expenses, donations, advertising, travel,
association dues, and the salaries of executives & office employees
 Profit
 Contingency

Source: Clough et al., 2005

 Cost Classification (Example)

Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

Source: Clough et al., 2005
 Cost Classification (Example)

× 1.24

Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

Source: Clough et al., 2005
 Outline
Conceptual Estimates
Cost indices
Cost capacity factor
Parameter Cost
 Detailed Estimates
Estimates
Cost classification
Calculation
 Detailed Estimates - Methodology
 Stage 1: Quantity takeoff
 Decomposition into items, measurement of quantities
 Challenges: tremendous detail complexity

 Stage 2: Direct Cost contribution

 Σ[Quantity] × [Unit Price]
 Challenge: determination unit price (based on historical data)

 Example:

Item unit quantity Unit price price

Reinforced steel lb 6,300 0.60 $ 3,780
 Labor Costs

 Categorized Bid Estimate (not overall unit prices)

 Basic Unit Labor Cost = P / LP ($/unit)
 P = Price of all money elements ($/hours)
 LP = Labor Productivity (units/hour)

 Total Labor Cost = Q * P/LP

 Q = Total quantity of work

 Estimation of labor costs particularly tricky

 Prices: In United States, highly detail intensive
 Productivity: Many qualitative components
 Labor Cost - Prices Related

 Components
 Wages (varies by area, seniority, …)
 Insurance (varies w/contractor record, work type)
 Social security benefits
 Fringe benefits (health…)
 Wage premiums (e.g., overtime, shift-work differentials, hazardous work)
 Labor Cost - Productivity

 Difficult but critical

 High importance of qualitative factors (environment, morale, fatigue,
learning, etc)
 The primary means by which to control labor costs = P / LP ($/unit)

 Historical data available

 Firm updated database
 Department of Labor, professional organizations, state governments
 Productivity Considerations

 Considerations
 Location of jobsite (local skill base, jurisdiction rules – hiring & firing)
 Learning curves
 Work schedule (overtime, shift work)
 Weather
 Environment
 Location on jobsite, noise, proximity to materials
 Management style (e.g., incentive)
 Worksite rules
 Learning Curves

Particularly useful for repetitive works

Productivity Effects of Overtime
 Concluding Remarks

 Functions of Estimating
 Could Assess cost of construction from the conceptual design phase
(Owner, Designer & Sometimes Contractor ). Feedback to
 Conceptual Design for Alternative Architecture
 Feasibility of the Project
 Project / Company Alignment of Objectives, Constraints, Strategic
Goals and Policies

 Provide the basis for bidding & contracting (Contractor)

 Provide a baseline for cost control and post project evaluation
(Owner & Contractor)
 Concluding Remarks

 In Converting an Estimate to a Control Budget, Consider:

 The organization and categorization of costs suitable for preparing an
estimate are often not compatible with realistic field cost control (e.g.,
might be convenient for the owner)
 Estimates necessarily deal in averages, whereas tighter standards are
sometimes desirable for control purposes