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Estimation of Construction Projects: Prof. K. C. Iyer Civil Engineering Dept. IIT Delhi

This document discusses the process of estimating construction project costs. It explains that estimates are made at different stages of a project, from initial feasibility estimates to detailed definitive estimates once a project is well defined. It describes various categories and types of estimates, from order-of-magnitude to budget to definitive, and how their accuracy improves as more project information becomes available over time. The document also outlines different approximate estimating methods and provides steps for preparing a detailed definitive estimate.

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Ankit Srivastava
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
173 views

Estimation of Construction Projects: Prof. K. C. Iyer Civil Engineering Dept. IIT Delhi

This document discusses the process of estimating construction project costs. It explains that estimates are made at different stages of a project, from initial feasibility estimates to detailed definitive estimates once a project is well defined. It describes various categories and types of estimates, from order-of-magnitude to budget to definitive, and how their accuracy improves as more project information becomes available over time. The document also outlines different approximate estimating methods and provides steps for preparing a detailed definitive estimate.

Uploaded by

Ankit Srivastava
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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ESTIMATION OF

CONSTRUCTION PROJECTS

Prof. K. C. Iyer
Civil Engineering Dept.
IIT Delhi

PROJECT ESTIMATES
Estimating Fundamental part of construction industry
It is an approximation of the expected cost of the
project.
Financial commitments of project based on estimates.
Initially owner commits to the project based on
feasibility estimates.
Later designers develop scope of project within target
cost restraints.
Finally contractors commit their resources to the
project with profit being their motive.

Contd
Accurate estimates optimize good contracting.
Inaccurate estimates provide improper guidelines fro
project management.
Unrealistic targets produce unrealistic expectations.
Inaccurate estimates contribute to the squandering of
valuable resources.
Estimates an aid to decision making.

Contd

Different types of estimates made at various stages


of project.
Capital costs, operating costs, the combination of
inventory and work in progress costs variables that
affect the economic feasibility of a project.
Capital costs categorized in three categories
feasibility, implementation and commissioning of
start up costs.

ESTIMATE CATEGORIES

As per American Association of Cost Engineers


(AACE), classification of estimates is as follows:
1. Order of Magnitude Estimate
2. Budget Estimate
3. Definitive Estimate

Order of Magnitude Estimates


Based on very preliminary information
Have a wide range of accuracy
Used for feasibility studies, choosing between
alternatives, determining the early economics of
project.

Contd

Budget Estimates
Used for budgeting and authorization of funds
Provide an early basis for cost control
Definitive Estimates
Most accurate category
Available information consists of working drawings,
detailed specifications, and supplier and subcontractor price quotations.
Estimates include direct and indirect cost estimates
of materials, labor, equipment, engineering, support
staff, insurance, bonds, taxes, allowances,
contingencies and profit.

ESTMATE ACCURACY VERSUS TIME


PRE- FUND AUTHORIZATION
CONCIEVE

POST - FUND AUTHORIZATION

DEVELOP

EXECUTE

50%

20%
MOST PROBABLE COST
EXPECTED PERCENT
VARIANCE W/O
CONTINGENCY

0%

15%
10 - 15 %

-15 %
-30 %

ORDER OF
MAGNITUDE

BUDGET

80 % +

-5 %

AMOUNT OF
INFORMATION
AVAILABLE

DEFINITIVE
(DETAILED)

Estimate Accuracy Ranges (ACCE Estimate Categories)

Contd
Information available is time dependent.
Estimates are updated continually as better information
becomes available.
Semi-detailed estimate is produced when engineering
is 30-50% complete.
Prefund appropriation phases(C & D) 10-15% of total
project information.
Implementation or execution phase(E) produces most
of procurement documentation.
Before construction begins, 80-90% information
available.

APPROXIMATE ESTIMATE METHODS

Various types of methods used for carrying out


approximate estimates are as follows:

1.
2.
3.
4.
5.

Base Unit Estimate


Cost Indices Estimate
Cost Capacity factor Estimates(Proration)
Equipment Factored Estimate
Parameter Estimating (Elemental)

BASE UNIT ESTIMATES


At early stage of planning, cost estimation is done by
using data from similar types of projects which are
expressed in terms of cost per unit base.
Typical base units are:

Buildings: ft2 or m2 of floor area (or ft3 or m3 of volume)


Process plants: Unit of output such as ml of sewage treated
Production plants: MW of electrical capacity or MT steel
Highways: Mile/Kilometre

Base unit costs are available from various sources like


contractors specializing in certain works, engineering
sections of industries etc.

COST INDICES METHOD


There

are numerous cost indices and intend to reflect


the rate of inflation as:

C2 = C1*

I1
I2

Where,
C1 = known cost, time period 1
C2 = estimated cost, time period 2
I1 = index, time period 1
I2 = index, time period 2

LIMITATIONS OF INDICES

Index must be relevant to type of facility or


construction.
An index is a weighted average and is insensitive to
short-term swings in the economy.
Most indices dont reflect productivity changes,
technological improvements or the competitiveness
of the market.
Special site conditions and foundations, environmental
requirements weather conditions etc, must be
considered as separate adjustments to the indexed
cost of a facility.

COST CAPACITY FACTOR ESTIMATE


Cost

capacity factors apply to changes in size of


projects of similar types.
Cost for a proposed facility:
CB = CA * (QB / QA )x
Where,
CA = cost of existing plant producing same product
CB = cost of proposed plant (to be determined)
QA = capacity of the existing plant
QB = capacity of the proposed plant
x = is an exponent (usually 0.65 or less)

EQUIPMENT FACTORED ESTIMATE


Cost

of each equipment is determined and multiplied


by an appropriate module factor developed from
historical data.
Total estimated cost is summation of factored cost of
all pieces of equipment.
EFC = ni Ci fi
Where,
i = a particular type of equipment
n = number of pieces
C = current cost of equipment type i
f = equipment factor

PARAMETER (ELEMENTAL) ESTIMATE


Cost

of project are related to some parameters such


as gross enclosed area, roof area, area of face brick and
others.
As the design progresses through the preliminary
design phase, project's key features (foundation,
framework, architectural features and general
dimensions etc.) are generally defined.
At this point, an approximate estimate can be made
using parameters derived from similar projects.

CONTD
Some

sources of data are: means Square Foot Cost


Data or Yard-sticks for Costing by Hanscombe and
Associates.
Parameter estimating requires schematic drawings in
order to permit parameter quantity estimates.
Considered to be one of the greatest significance cost
wise with respect to the trade being measured.

Inflationary Consideration in Estimation

In preparing an estimate, the estimator first costs the


project as if it were to be built entirely today.
He then projects current costs of each of the activities to
the time that they occur on the schedule using an
inflationary rate based on his/her best judgment. The cost
of this activity then becomes the inflated cost and will be
used in the estimate.
This is repeated for all activities or group of activities at a
particular time.
The sum of all these costs becomes the bid.

Example of Activity Schedule


YEAR
1

A Rs 2 Million
B Rs10 Million
C Rs 8 Million
D Rs 3 Million
E Rs 20 Million

Example of Activity Schedule


Rs Million
Activity

Year 1

Year 2

0.5

1.5

4.0

Year 3

Year 4

Year 5

Year 6

Year 7

6.0

3.0

5.0

0.5

1.0

1.0

0.5

3.0

7.0

7.0

3.0

9.0

8.0

7.5

3.0

E
Total

0.5

5.5

9.5

Calculation of Bid Price


Say rate inflation = 9%

Year 1: (Rs 0.5M)(1.09)1/2


Year 2: (Rs 5.5M)(1.09)3/2
Year 3: (Rs 9.5M)(1.09)5/2
Year 4: (Rs 9.0M)(1.09)7/2
Year 5: (Rs 8.0M)(1.09)9/2
Year 6: (Rs 7.5M)(1.09)11/2
Year 7: (Rs 3.0M)(1.09)13/2

=
=
=
=
=
=
=

0.52 million
6.26 million
11.78 million
12.17 million
11.79 million
12.05 million
5.25 million

Bid Price = Rs 59.82 million

DEFINITIVE ESTIMATES (DETAILED)


Detailed

estimates are made when the engineering is


at least approximately 80% complete and the project is
well defined.
Lump sum bidding requires a complete scope
definition, or else the propensity for claims for extras
and disputes is high.
Unit price bidding also requires detailed estimates
although payment is based on measured quantities.

STEPS TO PREPARE DETAILED


ESTIMATE
1.

2.

3.

Break the project into cost centers which can be


physical elements such as direct costs for
foundations, excavation and structure or non physical
elements such as indirect cost for insurance and
bonding.
From the drawings, estimate the quantities of
materials for each cost center. Theses are direct
materials such as concrete, lumber, structural steel,
doors, windows etc.
Price the quantities of materials using vendor
quotations, suppliers catalogues or historical data.
Include wastage.

CONTD
4.

5.

6.

The estimate rolls off the quantities, i.e. the labour


cost is determined by multiplying the quantities by
the appropriate productivity factor (production rate)
for labour.
Price the labour by multiplying each class of labour
by the prevailing wage rate which includes a mix of
craftsmen and apprentices. These calculations
produce the estimated direct cost for labour.
Determine equipment requirements and price this
account according to available rental rates or
historical data.

CONTD
Summarize the direct costs for materials, labour and
equipment.
8. Obtain specialty contractor's bids.
9. Calculate the indirect costs which includes overhead,
payroll burdens, supervision, bonds, taxes, insurances,
materials other than direct materials, small tools,
rental of site facilities, site utility costs etc.
10. Add allowances to include those known items which
are not adequately defined.
7.

CONTD
Add contingency, which is an unknown but expected
cost.
12. Summarize the bid on a form.
13. Management will add profit to complete the bid.

Both lump sum and unit price contracts require


detailed estimates.

In unit price contracts approximate quantities are


calculated and payment is based on actual measured
quantities.

A unit price bid is essentially a lump sum bid and


requires a detailed estimate in order to accurately
calculate unit prices.
11.

RANGE ESTIMATING

Range estimating a probabilistic method & can be


applied to any category of estimates.
An optimistic, pessimistic and expected value for
each item is assumed.
A high, low and expected value is established for each
item.
The formulation requires the generation of a random
number and an assumed probability density
distribution.

CONTD

The estimated values generated by numerous


computers are stored into 100 increments in
ascending order of values.

The proability (n%) that a cost will be equal to or


less than a certain value is the nth value.

FACTORS THAT AFFECT ESTIMATING


ACCURACY

Factors affecting estimating accuracy are:


Method of gathering the historical data
Variability in price of materials delivered to site
Labour productivity (labour skills, training, pay,
quality of supervision, quality of communication
etc.)
State of economy
Specific job conditions

CONTD

Job panning and schedule related factors (work


sequence, craft availability and mix, overtime etc.)
Job size and complexity
Changes and rework
Site conditions
Climatic conditions
Work methods

CONTINGENCY
Contingency is a legitimate and anticipated cost
for unknowns to account for unforeseen elements
of cost.
Contingency is the amount of overrun that is
incurred if the job is bid with only what can be
seen from bidding documents.
Contingency is directly related to estimating
accuracy.
National and local factors to be considered
degree of industrialization, national political
objectives, infrastructure, legal and regulatory
systems.
Important Consideration : who assumes how
much risk.

ALLOWANCES
Bidder is asked to include a specified sum of
money for known items which have not been
adequately defined so that an accurate estimate is
made.
Cost adjustments are usually required to reflect
actual costs or bid revisions.
Allowances are included so that a total bid cost is
available for financing, bonding, and insurance
reasons.

THANK YOU

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