Defining Construction Cost Estimating
Rory M. Woolsey, MBA, CEP
The dictionary defines estimating as a “judgement or opinion about something.” A “judgment” about future costs is necessary so that decisions can be made through the construction process. We call this construction cost estimating. Budgetary estimates are generally qualified as “opinions” of probable cost. Of course, the true cost is not known until the project is complete: Until then, an estimate is just a judgement or opinion.
A better definition of construction cost estimating can be explained by the estimating process itself. Second to actually building the project to arrive at a real cost is to mentally build it before it is built. Estimating a project price is not calculator and unit price cost data (these are tools) but much more — the process. The process can be explained in several steps. First the scope of work must be discovered and defined. The scope is then quantified so that, next, costs can be applied to arrive at a project price. A final step in the process is to always validate or double check the result.
Scope of Work: There are three categories of scope associated with any construction project. The first is defined by the architect/ engineer in the construction project manual. The second is the means and methods that the contractor will use to complete the work. The third is the context in which the project will be built. The context and its impact on cost is often underestimated, and just an additional place for cost estimators to fail in their prediction of cost.
Context Matters: The architect’s and engineer’s definitions of a project are typically meticulously defined and organized in a standard format. This two-dimensional definition of the project is only the beginning of defining and quantifying scope of construction. Accuracy in estimating goes beyond the AE “package” (things always fit nicely on plans), and must include the accounting of the realities of the environment where the project is constructed. Project context matters!
Facility renovation projects are particularly challenging, and include site-specific issues such as ongoing operations, aging buildings, environmental issues, matching existing construction, noise limitations, the weather, access and egress to the site, time constraints, the customer’s unrealistic demands, the availability of labor, and phased construction. Whew!
In most facilities, the reality of the context of where a project is built has a considerable impact on the budgetary estimate. Context issues have an impact on all costs in constructing. Context scope matters!
Successful “hard bid” contractors know very well that scoping construction goes well beyond the AE scope and must include field-specific scope. The realities of the site — such as soils conditions, security, safety, site lay-out, environmental protections, and other context scope — must be considered, as well as the means and methods on how the work will be executed. These all impact the overall cost of the project.
Means and Methods: Beyond the context scope, the estimator needs to account for the means and methods used in the execution of the work. How will the work go together in the environment in which the contractor will work? What equipment and labor power will be used to complete the tasks? The answers to these questions will influence the overall cost of the project.
The best estimators will think like a contractor and mentally build the project in their head many times before the project is actually built. The informed budgetary estimator knows construction well, and is able to identify and capture the AE, context, and execution scope in the process of estimating the projected construction cost of a project. Scoping defines the project while quantity take-off assigns quantities to the scope so that everything can be priced. Organization and math skills are key here.
Quantifying Scope: Quantifying the project is the next step in the estimating process. The take-off is just another opportunity to go wrong … and many have! Converting scope to quantities requires a solid understanding of math, drawing scales, swell and waste factors, plan reading, common construction practices, and conversion factors. Indeed, an accurate quantity take-off representing the complete scope of work is then the solid foundation to which unit prices are applied.
Application of costs: The next step in the estimating process is the application of unit costs to the quantified scope of work. Competitive bidding contractors will get their unit costs from subcontractors, vendors, suppliers, and their own cost records. These are excellent resources for pricing, but typically they are not readily available to budgetary estimators such as architects and engineers.
Budgetary estimators get their unit costs from some of the above sources, but also from published national average cost data. Just “knowing” a construction cost database does NOT an estimator make: Pricing a project goes well beyond cost data books. In pricing a project, the aggregate project total is more than just the sum of unit material, labor, and equipment — but must also include labor burden requirements such as social security contributions by the contractor, unemployment taxes, insurances, subcontractor costs (including their overhead and profit), sales taxes, bonds, and, finally, the general contractor’s overhead and profit.
Typically, the published unit costs do not include all the above. Each reference construction cost database handles these components differently. Pricing must be comprehensive and include all the direct and indirect costs associated with the project AND the overhead cost of being in business as a contractor.
Validate and Check the Result: The final step in the cost estimating process is to double check and validate your results. It is good practice to set the cost estimate up against historical project costs, another estimator’s review, or comparable costs per unit floor area or assemblies’ costs. It is very easy to go through a project scoping, quantifying, and pricing and still miss a costly component. In a rush to meet a deadline, details can be missed or misstated. It is easy to get lost in the details and miss pieces of scope, quantities and prices.
The estimating process is the definition of construction cost estimating. For project owners, designers, and contractors, important and key decisions are made based on judgments of probable cost. Following the process of scoping, quantifying, and costing will lead to a better judgment or opinion about the actual future cost of a construction project.
About the Author: Rory M. Woolsey, MBA, CEP, has worked in management and engineering in the construction industry for 46 years, starting as a construction laborer and superintendent. He has been employed as a draftsman, testing laboratory manager, field engineer, project manager, MIS manager, estimator, senior editor, designer, structural engineer, adjunct professor, general contractor, and a senior owner’s representative for many large public agencies. Mr. Woolsey has also held positions with some of the leaders in the construction industry, such as Bechtel, H.J. Kaiser Constructors, RS Means Company, and The Gordian Group. He is a Certified Estimating Professional (CEP) through AACE International. Mr. Woolsey has earned a Bachelor of Science degree in Civil/Structural Engineering and a Masters in Business Administration, with an emphasis in construction project management.
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