UNITY

CHAPTER 4
Project Cost Estimation
EYOB E. (MSc.)
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5.1.Project cost estimation
 Project Cost estimation is the process of
valuing on monetary expression, including
the cost of all possible entrants necessary for
the planning, implementing and monitoring
stages of the proposed project under
consideration.
 Project Cost includes:

◦ Preliminary investigation (project appraisal costs)

◦ Design and supervision (consultancy cost )
◦ Construction works (contractor’s cost )
◦ Land owning cost, and
◦ Monitoring costs

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 Cost due to construction is the focus of this
chapter. Which includes:
◦ cost due to material,
◦ cost due to labor,
◦ cost due to equipment,
◦ overhead costs and contractor’s profit.

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Material Break Down -In order to facilitate
estimation of cost due to material, it is
important to know the quantities of various
elements involved in construction of various
parts of the building work
Example: Material Break Down for 1m3 C-25
concrete (1:2:3 mix)

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Wet (fresh) concrete mix = 1m3
◦ Quantity for dry base analysis= 1.55m3
Note:-1.5 to 1.6 times dry volume of the materials is
required to get 1m3 of compact dense fresh
concrete mix.
◦ Volume of cement = 1/6*1.55 = 0.258m3
= 0.258m3/0.035m3 per bag
= 7.4 bags of cement
◦ Sand= 2/6* 1.55 = 0.517m3
◦ Coarse aggregate= 3/6 *1.55 = 0.775m3
◦ water=0.62*0.258=0.1599m3 =0.16m3(assuming
w/c 0.62)

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Purposes of Cost Estimation
◦ determine actual cost per unit of item
◦ identifying engineering estimate of the work for
bidding purpose
◦ work out economical use of materials, labor and
equipments
◦ in cases of variations to determine the extra cost to
be incurred
◦ when changes in cost due to legislation happens,
to work out the escalation in cost

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The following information is required to define
cost per unit of work
Correct information of the market price of the
materials at the time of need to be used as a basic
price
eg. 1qntl cement=200-240 birr; 1m3 sand =550birr
1m3 aggregate = 490 birr, I kg of reinforcement bar = 23birr

 Correct information of the rates of various

categories of skilled and unskilled laborers as wage
rates to be used for daily work rate.
eg. Forman: 9000birr/month; daily laborer: 80 birr/ day

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 Output of laborers per day for various types of
items (productivity)
Eg. Productivity=0.5 m3/hr

 Correct information of the rates of various

categories of equipment and tools as rental rates to
be used for major items of rates
Eg. mixer= 500 birr/day; loader= 450 birr/hr; vibrator= 100
birr/day

 Up-to-date knowledge of the construction

methods.

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Factors affecting cost estimation
 Type and documentation of the project
 Construction scheduling
 Bidding environment
 Quality and availability of material and labor (given
in specification)
 Construction facilities /tools and method of
construction
 Location of the site: Transportation charges
 Proper management
 Land charges (lease)
 Nature of subsurface condition

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Types of cost estimation
Estimation can be broadly classified as preliminary
(approximate) and detailed.
Preliminary /approximate costing: This type of cost
estimation is required to know the financial
position of the client before costly detailed designs
are carried out.
 Such estimates are based on practical

knowledge and cost of similar previous works.

Examples of approximate cost estimations are

as follows: cost per functional unit, Plinth area
method -cost per m2, Cubical Content method –
cost per m3

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A. Cost per functional unit
 Hospital =cost per bed, Dormitory = cost per
student, Cinema or theatre = cost per seat,
residential buildings =cost per area, road works =
cost per kilometer length, culverts or bridges =
cost per meter span, water supply sewerage
projects = cost per head of population.
B. Plinth area method cost per m2
 Based on PLINTH AREA -roof area or external
dimensions at the plinth level (Courtyard & open
area shall not be included)
 The rate per meter square is deduced from the cost

of similar building projects in the locality.

Eg: 1m2=7500 birr (construction cost estimate)

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C. Cubical Content method –cost per m3

 Based on cubical contents of various buildings, i.e.

Plinth area of the building x height x cubic content
rate.
 Height should be taken from the top of flat roof (or
halfway of the sloped roof) to the top of concrete in
foundation.

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Detailed cost estimate( based on item rate)

 This is the most reliable and accurate type of

estimate.
 The quantities of items are carefully prepared

from the drawings and the total cost worked

out from up to date market rates.
 A detail cost estimate thus requires:

◦ Quantity surveying and

◦ Analysis of the different rates for the quantities
prepared.

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Basic Cost Components of a Construction Project

 Basically the cost of any construction project comprises

 Direct costs, which include the direct cost of materials,
labor as well as equipments and
 Indirect costs, which include but not limited to head office
and site overhead costs.

A. Direct Construction Cost

 Direct construction costs are all costs that can be specifically
booked with an activity in a project.
 The direct costs mainly include material, labor, equipment and

subcontract costs

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 Direct material costs – These costs referring to the cost of
materials, consumables and components used for executing
an activity including the allowances for scrap and wastages.

 Direct labor costs – All costs related to the workers working

on a specific activity such as carpenters, masons, erectors,
painters, plumbers and so on.

 Direct equipment costs – These costs referring to the costs of

machineries and plants used in executing a specific activity.

 Subcontract costs – In case some specific activities are

subcontracted, the subcontract price will be considered as the
direct cost of the activities to be executed by the
subcontractor.
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B. Indirect Construction Cost
 Indirect construction costs are all costs, which can not be
directly booked under a specific activity in a construction
project but required to keep the whole project operational.
 These costs are also called overhead costs, which mainly

include the head office and site overhead costs.

i. Head office overhead costs

 Head office overhead costs are all costs required to run the

whole operation of the construction company, which usually

administers different projects at a time.
 These costs are not usually associated with specific project but

rather shared proportionally by all projects under the company.

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 Some of the head office overhead costs are
 Senior management costs and Indirect labor costs – salaries

and benefit package for senior Management, technical,

administrative, marketing, finance and supply staffs.
 Head office building costs – Rental or depreciation cost

 Bidding Expenses

 Expertise service costs – external auditors, lawyers,

management consultants and external trainings.
 Office furniture and equipment

 Office running expenses – expenses such as telephones, fax,

internet services, stationery, mail services and so many others.

 Transportation and travel expenses - costs related to

transportation, per diem and living expenses.

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ii. Site overhead costs
 Site overhead costs are all costs required to run the whole
operation of a specific construction project at site level.

Some of the site overhead costs are

 Site management costs and Indirect labor costs – salaries and

benefit packages of the site management members, general

formans, site engineers, office engineers, administrative and
finance staffs, data collectors in the project site.
 Mobilization and demobilization costs

 Site offices

 Office furniture and equipments

 Office running expenses - expenses such as telephones, fax,

internet service, mail service and stationery for the site office
 Water and power supply; Access roads etc…

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C. Risk Allowance
 Usually contractors incorporate risk allowances in their tender
prices to compensate the negative impacts of different risks
such as contractual, technical, political and economic risks.

D. Profit and Income Tax

 construction projects are executed by contractors

whereby these contractors will commit to invest their

capital to get maximum possible profit from the
contracts to be performed.
 A profit margin entirely depends on the market

competitiveness and company strategies.

Income tax=30% of gross profit
VAT= 15% of the construction cost
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Rate analysis
 Rate Analysis is the process of fixing cost per
unit of measurement for the different item of
works.
 Total cost per unit of work (TC): Direct cost

(DC) + Indirect cost (IC)

DC includes cost due to material (MC), cost due to

labor (LC), cost due to equipment (EC), IC covers
overhead costs, and contractors profit.
In order to facilitate estimation, Cost break
down is essential.

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Example: -Calculate the Unit price for C -25 concrete
per m3 of work (formwork and reinforcement rated
separately). Assume 15% overhead and 20 % profit.
Solution: -
 Total cost (TC) = Direct Cost (DC) + Indirect Cost(IC)
 IC = (15% + 20%) of DC = 35 % of DC
 Direct Cost (DC) = Material Cost (MC) + Labour Cost(LC) +
Equipment Cost (EC)

Material cost (MC)

Cement 7.4 bags * 100birr/ bag 740 birr/m3

Sand 0.517m3 * 550 birr/m3 284.35 birr/m3
Aggregate 0.775m3 * 490 birr/m3 379.75 birr/m3
Water 0.16m3 * 3 birr/m3 0.48 birr/m3
Total = 1404.58 Birr/m3

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  Labour cost (LC)
Assuming the crew consists of a foreman, mason,
four daily laborers, mixer operator and Vibrator
operator and assuming a Crew productivity of 0.50
m3 per hr:
Personnel Salary per hr Indexed hr Utilization factor Lc/hr
rate
(120%)

Forman 9000birr/month/ 51.92 =1/4 =0.25 12.98

(26days/month* (assuming 4 crew
8hrs/day) = 43.27 under him)
birr/hr

Mason 100birr/day / ( 15 1 15
8hrs/day) = 12.5
birr/hr

Daily laborers (4) 4* 80birr/day / 48 1 48

(8hrs/day) = 40 birr/hr

Mixer operator 75 birr/day /(8hrs/day) 11.25 1 11.25

= 9.375birr/hr

Vibrator operator 75 birr/day / 11.25 1 11.25

25
(8hrs/day) = 9.375
 Equipment Cost (EC)
Assuming a mixer with a daily rental rate of 500Birr/hr
and a vibrator with a daily rental rate of 100 birr/hr and
equipment productivity of 0.5 m3 per hour:

equipment Hourly rental rate Utilization EC/hr

factor
mixer 500birr/day/ 1 62.5 birr/hr
(8hrs/day)= 62.5
birr/hr
vibrator 100 birr/day 1 25 birr/hr
/(8hrs/day)= 25
birr/hr
Total= 87.5 birr/hr/(0.5 m3/hr)
= 175 birr/m3

DC = MC + LC +EC
DC = 1404.58+ 196.96+ 175 = 1776.54 Birr/m3
IC = 35/100 * 1776.54 = 621.789 Birr/m3
TC = (1776.54 + 621.789) Birr/m3 = 2398.325
≅ 2400 Birr/m3 26
 The unit rate of C25 concrete = 2400 birr/m3

Example: If the quantity of C25 concrete was

found to be 110 m3 from the takeoff; the total
cost of concrete would be

=> 2400birr/m3 * 110 m3 = 264,000 birr

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THANK YOU!

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