Construction Management Resource June 10, 2013

The task of estimating construction costs requires prudent judgment. Estimating project cost is a complex process of predicting the cost through quantitative analysis. The construction cost is estimated after detailed analysis of cost of labor and materials. This analysis differs from the preliminary estimate in construction bids which takes into account volume and area.

Issues with Cost Estimation

Estimating construction costs is critical to construction bids because it shows if the estimated cost is really the actual cost. Ideally, an estimate that is conceptually developed should be closer to the actual cost. When different parties prepare a detailed estimate, it is important that their estimates are reconciled before assessing them. The task of reconciliation needs to be done consistently from one phase of a project to the next.

It is important to focus on minor details while estimating construction costs, while the estimator needs to be aware of the larger picture. More specifically, the way materials are used in construction is critical to construction bids. It helps to relate to details including specifications especially the ones not drawn and documented in the actual construction process. Some of these include formwork, excavation, and false work among others. It helps to understand construction disciplines such as trenches and plenum spaces.

Construction Costs – Break down

Estimating construction costs is not a one-time affair but varies with the life cycle of construction bids and projects. The first item to take into account is the capital cost associated with the initial facility. It includes land acquisition, architectural or engineering design, planning and feasibility studies, tax or insurance while construction is on, field supervision, construction financing, inspection, testing, as well as furnishings and equipment.

In addition to the cost heads identified above, the maintenance and operation costs during the life cycle of a project needs to be taken into account in estimating construction costs. So, the construction bids must account for applicable land rent, if any, apart from other costs like utilities, financing costs, taxes and insurance, regular renovations, material and labor costs in repairs, maintenance, as well as operating staff.

Each of the cost components identified above depend on a number of factors including size, location, and the nature of the project.

Approaches to Cost Estimation

Estimating construction costs uses several approaches in combination or standalone. These approaches are identified as empirical cost inference, production function, bill of quantities bases on unit costs, and joint costs.

Production Function in construction bids represents a relationship between output and resources such as volume on one hand, and labor as well as capital on the other. So, we may want to find the values of input for the output specified with the aim to minimize the production cost.

Empirical cost inference uses the method of regression analysis so as to obtain best values of parameters. In the approach that identifies unit costs for bill of quantities, a unit cost is assigned to each task or component within the facility. This method is quite laborious as it requires the process to be broken down to a number of tasks and a unit cost assigned to each of them. Finally, the basic idea in allocation of joint costs method is to proportionally allocate basic costs to different tasks.

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