Construction Cost Estimating -- Bottom-up, Top-down or...Sideways?
By Doina Dobre
Construction cost estimating can take many forms and shapes. This article is for those unfamiliar with the conceptual cost estimating field — a field worth exploring, as it gives a cost estimator more career options and increases his chances of finding employment during economic and construction slowdowns.
Most cost estimators I know are in the field of detail cost estimating. In other words, they do cost estimating on firm costs. They work for either general contractors or trade/specialty contractors. Their “top of the list” challenge on each project is to produce a cost estimate that is feasible and yet competitive. In order to accomplish this, they need to know all the details of the project: scope, constructability, timeline, labor productivity, crew sizes, equipment productivity, temporary requirements, general conditions, understanding of the competition, etc.
In other words, over time, a cost estimator who specializes in detail cost estimating develops a good sense of how much “things cost” in construction.
Until a few years back, my career background as a cost estimator was entirely based on work done on projects issued for tender. So “detail” was the word of the day, every day. That was until I started working for my first engineering design client. I never knew what was happening on the other side of the fence. I was always on the contractor’s side of the business, where the predominant cost estimating methodology is bottom-up, first principles, detail-based cost estimates.
Enter the conceptual cost estimating space! For a cost estimator with an extensive background in detail cost estimating, I found this specialty of cost estimating fascinating. For those unfamiliar with conceptual cost estimating, this is the field of developing cost estimates based on various levels of design development. It can be based on as little as 1% to 5% design, going all the way up to 100%. The lower the design definition, the more conceptual cost estimating is used to develop the cost estimates. As the design definition increases, a combination of conceptual and detailed cost estimating is used, ending with pure detail cost estimating methodology for design definition 65% and higher, depending on the type of the project.
To make the move from detail cost estimating to conceptual cost estimating, you will most likely go through a learning curve. I know I did. The problem was in learning new methodologies and terminology, and finding appropriate resources. What you will find very interesting is that your own estimating knowledge will be your most valuable resource.
On the many projects I worked on, from order of magnitude to detailed cost estimate, I had the ability to develop costs which were within 5% of market validation prices. What helped me achieve such a great result? My own experience in developing detailed cost estimating for contractors. Here’s an example: A while back, one of my clients asked me if I could determine the duration of a project based on a cost estimate. The project was in pre-feasibility phase, and the client had a cost estimate developed by another party. The design definition at the basis of the cost estimate was 50%, at the most. The cost estimate was developed using unit prices applied to item quantity in a work breakdown structure (WBS), for the most part to the complex activity level. What I needed was to determine the probable duration of the project, which was not something I’d ever done before. But, having a background in detail cost estimating helped. Understanding crew make-up, production rates, indirect costs, and project mark-up based on an assumed project delivery method helped a lot. This is how I did it (remember this was a pre-feasibility study; therefore, the target accuracy was -30%/+40%):
I found the total all-inclusive labor cost, as follows:
Confused? Try doing it on a cost estimate you have and see how your results measure up!
- Determined the percentage for each cost type in each specific activity. For example, reinforced concrete: percentage of permanent material, construction material, labor, and equipment. I did this based on previous project data for the particular part of the structure, as an average. I continued this methodology for all WBS items where a quantity was available. For items where a quantity was not available (which was a very small number), I used estimator’s judgment and assigned percentages.
- Determined the average indirect costs and mark-up percentages based on similar projects, and applied it to the direct labor rate.
- Calculated the total labor cost for the project by adding up the individual items.
I determined the total number of man-hours, as follows:
- Determined the average direct labor unit rate, based on similar projects.
- Calculated the all-inclusive labor rate (at the total project level) by applying the indirect cost and project mark-up total percentage to the direct labor rate.
- Calculated the number of man-hours by dividing the total labor cost by all-inclusive labor rate.
- Determined average daily man-hours based on similar projects and estimator’s expertise.
- Assumed a project work schedule, including seasonal restrictions.
- Determined the duration of the project in months, based on assumed project work schedule and average daily man-hours.
Using a little common sense, a cost estimator with extensive experience in detailed cost estimating can usually solve a conceptual cost estimating question.
My advice to all cost estimators is to develop a habit of extracting as much data as you can from all projects that you are estimating. You never know when you’ll need this data. If you are looking for a great, up-to-date source of international cost data, in all industries, check out Compass International Inc. This resource has been a life-saving reference for me.
About the author: Doina Dobre is a senior cost estimator and co-founder of Emerald Cost Consulting, a cost consulting firm serving clients in the infrastructure, industrial, and commercial construction markets. You can visit her website at http://www.emeraldgroup.ca.
Find more articles like this at: www.learncostestimating.com/blog
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