Chapter 1 Introduction to Cost Estimates

1. Chapter 1Introduction to Cost Estimates

2. What is an Estimate? • An estimate is an evaluation of a future cost. • A building cost estimate is an attempt to determine the likely cost of some building work before the work is done. • To compile an estimate, you have to answer two basic questions: • How much work is to be done? • What will it cost to do this work? • The process of measuring work is called taking off. • The takeoff is processed and priced in a number of different ways, depending upon the type of builder and the contract involved.

3. Residential Builders • There are basically three distinct groups of residential builders: • Those that build new homes for sale to home buyers • Those that work under contract to the property owner to build a custom home or renovate an existing property for the owner • Those that construct multi-unit residential buildings for owner/developers • Each group has different estimating needs.

4. Types of Contract • Lump sum contract - The builder agrees to complete the project as described in the plans and specifications for a fixed sum. • Cost plus contract - The builder is paid for all the costs of constructing the project, plus an agreed fee. • Unit price contract - The builder does not bid a sum for the whole job; instead, he quotes a set of unit prices for the work involved.

5. What is the Purpose of Estimates? • To determine the feasibility of projects • To calculate an approximate price of a project • To prepare a value analysis • To set the sales prices • To calculate a bid price • To determine project budgets in cost control

6. Estimates for the Spec Builder • Spec builders use two methods of setting prices: • With cost-based pricing, the builder begins with the price of the lot, and then adds the estimated cost of construction together with markup to arrive at the sales price. • Using the value-based approach, the builder first investigates the current market prices of the types of home it intends to construct. Then, the cost of a certain design of home is estimated to determine if it can be built for the market price.

7. Estimates for Calculating Bid Prices • Custom home and multi-unit builders use estimates to determine their bid prices. • On larger projects, owners and developers often hire architects to prepare the plans and specifications used by estimators to determine the bid price. • The type of estimating used here is very similar to that used in commercial construction.

8. Cost Control Estimates • Budgets are established from the project estimate to show the amounts available to build the project. • As the work progresses, further estimates are needed each month to determine: • How much work has been done • What it has cost to do that work • What it will cost to complete the project

9. Methods of Estimating • There are two main estimating methods: • Preliminary estimating - price per unit, price per unit area, price per unit volume, and assembly methods; used mostly at the feasibility stage • Detailed estimating – far more accurate; used by most builders when complete drawings and specifications are available • A detailed estimate is prepared in six steps: • Takeoff quantities • Recap quantities • Price the recap • Price subcontractor's work • Price general expenses • Summarize

10. Materials Estimates • A bill of materials can be prepared from the estimator’s takeoff of the work for a detailed estimate. • Bills of material are usually divided into categories that correspond to materials suppliers such as: • Gravel materials • Concrete materials • Carpentry materials

11. Architects and Designers • Architects and designers create designs for new homes and renovation projects. • They are seldom appointed on custom homes these days, except perhaps for some lager and expensive undertakings, because the expense is usually beyond the means of homeowners. • Architects are, however, employed as prime consultants on most large multi-unit developments where the project size justifies the expense.

12. Drawings and Specifications • On single-home residential jobs, all the information necessary to build the project is usually contained in a set of working drawings comprising: • A plot plan • Plan views of each level • Building elevations • Cross-sections • Additional sketches and information • On larger projects, drawings and separately bound specifications are usually provided. • On bid jobs, information about contracts and bid procedures should also be found in the specifications.