Cost Estimation Fundamentals

1. Cost Estimation Fundamentals Dr David Chew

2. Why estimate? • An estimate is an educated guess, an appraisal, an opinion, or an approximation as to the cost of a project prior to its actual construction. • Estimate can be prepared at many points during the life of a project.

3. Owner’s Perspective • From an owner’s perspective, an early estimate serves to answer important questions such as: • Is the project affordable? • How large a project can be constructed for the money available? • What level of quality can be included in a project? • Which project options make the most sense?

4. Designer’s Perspective • Estimates also provide guidelines to the designer. As a project is being designed, it is important that the designer select materials and size the project within the budget of the owner. • Estimating and designing are highly related, as a change in either forces a change in the other. • Advancement in computer modeling improves such integration.

5. Contractor’s Perspective • Estimates must also be prepared by the individual trade contractors to figure their bid price. • These estimates are done with design documents complete or nearly complete and are the most time consuming and most accurate of the estimates.

6. Types of Estimates (Estimate times required for a $2 million building, and accuracy level of each.)

7. Conceptual Phase • Prepared with little information, relying mostly on historic data and descriptions available. • Rough order of magnitude; may be prepared several years before construction. • E.g. based on number of beds for a hospital, of students for a school, or megawatts for a power plant. • Time required to prepare is short. • Often prepared for many program options so the best alternative(s) can be selected.

8. Schematic Phase • Program provided by owner, and project team incorporate alternatives into basic design • Generally based on a design that is approximately 30% completed and includes the following: • Floor plans, elevations, and sections • Outline specifications for most trade sections • One-line drawings for mech. & elec. Systems

9. Schematic Phase (cont’d) • Includes area takeoff, calculating of major elements such as GFA of building, exterior wall area, gross volume of earth excavated. • Key subcontractors might be asked for input. • May take 1-2 weeks and carry 10% contingency – added to allow for unknown design and engineering details that will be developed during the next design stage.

10. Design Development Phase • Similar to schematic, but much more defined • Generally based on a design 60% complete • Elevations, sections, and details at larger scale • All relevant specifications sections • M&E systems well defined • Depending on delivery method, either key trade subcontractors or key consultants will be involved in pricing of complicated systems

11. Design Development Phase (cont’d) • In the case of D&B, a network schedule will have been begun, allowing a better understanding of duration of project • Take 2~3 weeks; within 5~10% of final cost • With this estimate, the costs of materials and methods will be known and should be compared to past similar projects.

12. Procurement Phase – Traditional DBB • Estimate prepared by all bidding contractors • Owner team prepares estimate to negotiate fair price/verify accuracy of contractors’ prices • Contractors break the job down into work packages and request bids from prequalified subcontractors for each package • Require a complete understanding of material quantities and unit prices, usually involving input from local suppliers. • Bids would be submitted on a standard form • Format differs for lump sum vs. unit rate

13. Direct vs. Indirect Costs; Total Costs vs. Bid Price • Direct: materials, labor, equipment, subcons • Occur in the field. Once the work is stopped, incurring of direct costs also stop. • Indirect: site overhead • Salaries of site staff, cost of services at site • Total Costs = Direct + Indirect • Mark-up: Corporate expenses, home office overhead and Profit • Bid Price = Total Costs + Mark-up

14. Estimation Considerations • Size: economy of scale, learning effects etc. • Quality: higher quality higher cost • Location • Material delivery, method of transportation • Availability of skilled labor • Time • Use of indices to adjust for cost variation due to inflation, location etc. • Other market conditions

15. Quantity Takeoff • Purpose is to accurately determine the quantity of work needs to be performed • Every work item needs to be measured and quantified using same units as pricing guides • Most prices are separated into units of labor, material, and equipment

16. Some Practical Hints on Measuring Quantities • Think ahead of the scheduling process as the two are interrelated • Preprinted forms may serve as useful tool • Mark on drawings what have (not) been estimated; avoid rounding off till final quantity • Quantities must be adjusted for waste • Concrete spillage • Soil swelling

17. Preprinted Estimate Form

18. Quantity adjustments for Wastage

19. Adjustment for soil swelling/shrinkage

20. Unit Pricing • With the quantity takeoff complete, all typical components that go into project and how many of each type are determined • Next task is to estimate how much each unit will cost to produce, deliver to site, accept and store at site, install in the correct position and maintain till project is accepted • Produce and deliver – material unit price • Installation of material at site – labor and equipment • Project overhead covers acceptance and storage at site

21. Material Costs • Generally the easiest to determine • Most reliable source is the supplier • Published prices in catalogs • Some key questions: • Is quoted price valid until scheduled time of delivery? • What is the lead time to delivery? • Does the supplier maintain adequate stock? • What are the payment terms? • How reputable is the supplier?

22. Labor Costs • Generally most difficult factor to determine • Two components: Wage rates & Productivity • Wages are widely published by local construction authority • L/Cost of activity = Labor Rate x Act Duration • Duration is related to Productivity • Past project experience helps in determining this

23. Equipment Costs • Two general types: the equipment itself and the cost of operating it • Equipment: cost of ownership, lease, or rental; cover interest, storage, insurance, taxes and license • Operating: cost of gasoline, oil, periodic maintenance, transportation, mobilization • Can be figured on an item-by-item basis (e.g. formwork use of small power tools); or a project basis (e.g. tower crane)

24. Cross-relating to CV4201 • Lectures on “Construction Measurement & Quantities” discuss the Bill of Quantities • Unit rate contract rather than lump sum • Follows certain standards such as CESMM (3rd ed) • For estimation sake, the quantity takeoff procedure is the same; systems usually differ only in the ways of categorizing items • You may use whichever ways in your project assignment to arrive at your estimate

25. Scheduling Fundamentals

26. Definition of Scheduling • The process of listing a number of duties or events in the sequence that they will occur • Not unique to construction • Preconstruction • Plan of execution; expected date of completion • Construction • Coordination + monitoring of day-to-day activities • Schedule should be represented in different forms for different people/usages

27. Scheduling Methods • Bar Chart Schedules • Graphically the most simple • Frequently used in the planning stage by owners, designers, construction professionals to quickly examine the overall timing on a project • However, because of inherent graphic limitations, it cannot define individual activity dependencies

28. Sample Bar Chart

29. Problem with Bar Charts

30. Scheduling Methods • Line of Balance • Used to efficiently plan out repetitive operations • Slope indicates the activity’s work rate • Time-scaled Bar Chart • Logic based; identifies activity relationships, project’s critical path; sorted by activity codes • Matrix Schedules • Used where work is accomplished in a repetitive manner, such as on a high-rise building

31. Line of Balance

32. Time-scaled Bar Chart

33. Matrix Schedule Typical cell matrix schedule

34. Network Schedules • Most sophisticated and detailed • Each item of work is called an activity, and each is given a duration, and they are connected in the so-called network diagram • Defines not just activity interrelationships and durations but also resources available • Also called the Critical Path Method (CPM) • Network schedules can take two forms • Activity on Arrow notation • Activity on Node or Precedence notation

35. The Network Diagram • A pictorial representation of activities and order • Some FAQs: • What activity must occur before this activity can be done? • What activity must follow this activity? • What activity can be accomplished at the same time that this activity is occurring? • All networks have a single start and finish point • Arrow notation vs. precedent notation

36. Activity on Arrow Notation

37. Arrow notation vs. Precedent notation • Precedent notation allows overlapping of activities – “leads and lags” • Arrow notation requires creation of add. Activities • Precedent notation is more flexible, requires fewer activities to model the job sequence • More software packages are geared towards this • Arrow notation is easier to calculate by hand, hence good technique to learn the basics

38. Activity Duration • Can be determined by: • Subcontractor’s/vendor’s schedule • Contractual requirements • Market conditions and Job factors • Approval timeframe by authority • Otherwise, it is basic mathematics (provided that you have all the information required): Quantity / Crew output = Duration (in days)

39. Time Scheduling (following the Arrow notation) • Looking at the activities (on arrow), we have: • Earliest Start time (ES) • Earliest Finish time (EF) = ES + Duration (D) • Latest Finish time (LF) • Latest Start time (LS) = LF - D • Looking at the nodes, we have • Earliest Event Time (EET): earliest possible at which the event can occur • Latest Event Time (LET)

40. Time Scheduling (following the Arrow notation) • An activity can be done either early or late, and the difference between the late start time and early start time is equal to the difference between late finish time and early finish time • Float • = LS – ES • = LF – EF • = LF – (ES+D)

41. Activity Times in Perspective

42. Critical Activities and Critical Path • Activities with same ES & LS, or EF & LF • i.e. the float is zero, no slack is available • Critical activities form a continuous chain, which is known as the Critical Path • It is usually the longest path through the network (in terms of total duration) • There can be more than one critical path in the network

43. Some Common Scheduling Softwares • Primavera (P3) • Microsoft Project • SureTrak Project Manager • Computers Associates SuperProject

44. References • Gould, F.E. (1997) Managing the Construction Process. [TH438.G696] • Hinze, J.W. (1998) Construction Planning and Scheduling. [TH438.4.H666] • Feigenbaum, L. (1998) Construction Scheduling with Primavera Project Planner. [TH438.4.F297]