Cost Estimation in a Construction Company

1. Department of Humanities and Social Science Indian Institute of Technology, Bombay Cost Estimation in a Construction Company Under the guidance of Prof. K. Narayanan • Submitted by :- • Deepak Garg (05329015) Priyesh Wadhwa (05329011) Saurabh P. Singh (05329037) Mukesh S. Rawat (05329020)

2. Road Map • Introduction • Types of Construction Cost Estimates • Approaches to Cost Estimation • Unit Cost Method of Estimation • Other Methods

3. Introduction • Cost Estimation • Cost estimation is one of the most important steps in project management. • Why • Feasibility study. • Profit measures. • How • Advanced software packages are available.

4. Costs in Construction Firm • Initial Capital cost • Land acquisition • Planning and feasibility studies • Architectural and engineering design • Construction, including materials, equipment and labor • Insurance and taxes during construction • Operation and maintenance cost • Operating staff • Labor and material for maintenance and repairs • Utilities • Periodic renovations • Insurance and taxes • Unexpected cost during construction • Design development changes • Schedule adjustments • General administration changes

5. Types of Construction Cost Estimates • Design Estimates • Screening estimates (or order of magnitude estimates) • Preliminary estimates (or conceptual estimates) • Detailed estimates (or definitive estimates) • Engineer's estimates based on plans and specifications • Bid Estimates • As a contractor, a bid estimate is submitted to the owner either for competitive bidding or negotiation. • Control Estimates • Budget estimate for financing • Budgeted cost after contracting but prior to construction • Estimated cost to completion during the progress of construction.

6. Approaches to Cost Estimation • Production function Q = P(I1,I2,….. In) • Empirical cost inference • Unit costs for bill of quantities • Allocation of joint costs

7. Unit Cost Method of Estimation Simple Unit Cost Formula Formula Based on Labor, Material and Equipment

8. Example • Cost estimate using labor, material and equipment rates.

9. Other Methods • Allocation of joint costs -Difficult causal relationship b/w element and associated costs - Joint costs are prorated in proportion of basic costs of elements For example : F being overhead associated with different elements Fi = F * yi/y Then total cost can be written as :- Li = yi + Fi • Historical cost data -Widely used for forecasting / estimation future costs - Collected and organized for future use - Continuous updates - May effect cost substantially if relative prices change

10. Other Methods contd. • Cost indices - Reflect price level changes for inputs and outputs - Weighted aggregate average of different components of selected element - Can be used for cost forecasting with historic data - General price indices are provided by govt. - Construction specific price indices are collected from industry sources - Screening estimates are generally made on single factor like constructed area, no. of rooms etc - Adjustments are made to these using - Inflation indices - Construction specific indices of detailed factors

11. Other Methods contd. • Based on Engineer's List of Quantities -based on a list of items and the associated quantities - list is provided to contractor - costs for winning bidder is taken as starting estimates - progress payments are made to contractor depending upon the units of work done and unit prices listed - each unit defined the level of detail of measure - ex. Sample entries in bid table for engineer’s list-

12. Computer Aided Cost Estimation • Types: • Simple spreadsheet calculation software. • Integrated systems. • Features: • Databases for unit cost items. • Databases of expected productivity for different components types, equipments, and process. • Version control, Flexible reporting formats, import and export utilities, archive of past projects. • Advantages: Rapid cost estimation and with less efforts. • Example : as will be shown

13. Estimation of Operating Costs • Depends upon: maintenance policies and facility use. • Minimized by: periodic repairs and rehabilitation at periodic intervals. • Example: Maintenance cost on a roadway • C = 596 + 0.0019 V + 21.7 A • Where, C is the annual cost of routine maintenance per lane-mile. • V is the volume of traffic on the roadway measured in ESAL (equivalent standard axle loads) • A is the age of the roadway in years since the last resurfacing.

14. Case study • Raheja builders • Estd. in 1952 • Uses simple unit cost estimation method • Uses simple accounting tools • In process of configuring ERP

15. Thanks Questions?

16. Allocation of Construction Cost over time • Rate of work done during various time periods expressed in percentage of project cost per unit time. • The value of work completed at a given time expressed as a cumulative percentage of project cost

17. Example • Decomposition of a building foundation into design and construction elements.

18. Price indices in subsequent years show a proportionate changes due to price changes. Percent change in price indices for year t+1- jt+1=((It+1-It) / It )* (100%) - Measure price level changes