The Art & Science of Forecasting Construction Cost: Part 1

 

THE ART & SCIENCE OF FORECASTING CONSTRUCTION COST –

TYPES OF CONSTRUCTION COST ESTIMATES

By Joe Parton
Cabbage Software

sage 300 construction estimating

 

There are three types of construction cost estimates.  Construction costs constitute only a fraction of a project’s total cost and typically fall under the control of the construction project manager.  Cost estimate accuracy varies during the different project stages, ranging from estimated figures in early stages to more reliable numbers before actual construction; changes occur because of design alterations and other contributing factors.

Despite the many types of cost estimates calculated during the lifespan of a project, cost estimates often fall into one of three major categories, based on function: design, bid and control.

Design Estimates

For the owner and/or design professionals, the cost estimates focus on planning and design functions, including:

  • Screening estimates – created before the facility is designed, with cost estimates based on similar facilities built in the past.
  • Preliminary estimates – based on the conceptual design of the facility when the basic technologies for the design are identified.
  • Detailed estimates – created when the scope of work is clearly defined, and the detailed design is in progress.
  • Engineer’s estimates – based on completed plans and specifications and used by the owner to request bids from contractors.

When preparing these estimates, the design professional often includes the anticipated overhead costs and potential profit.

Bid Estimates

For contractors, a bid estimate presented to the owner, (either for competitive bidding or negotiation), consists of direct construction costs and a markup to cover overhead and profits.  The direct cost of construction for bid estimates is usually driven by the following approaches:

  • Subcontractor quotations
  • Quantity takeoffs
  • Construction procedures

The bid estimate often reflects the contractor’s desire to secure the job as well as the estimating tools available to estimating team.

Control Estimates

To monitor project costs during construction, a control estimate is created based on available information to establish:

  • Budget estimates for financing purposes
  • Budgeted costs after contracting but before construction
  • Estimated cost of construction during construction

For contractors, the bid estimate is usually regarded as the budget estimate that will be used for control purposes and for planning construction financing.  However, both the owner and the contractor must adopt a baseline for cost control during the project.  As the work progresses, budgeted costs must also be revised periodically to reflect the estimated cost to completion.