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Cost EstimateCost Estimate
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IntroductionIntroductionCost EstimatingCost EstimatingCost Estimating may be defined as:
Estimating is the compilation of all the costs of the elements of a project within an agreed upon project scope
it is the production of a statement of the approximate quantity of materials, time and costs to perform construction decisions
The basic challenges the construction contractor faces are to estimate the cost of constructing a project
The objective of cost estimate is to produce an accurate, cost effective prediction of what a project will most likely cost and it needs to be done in different manners at different stages
Cost Estimating may be defined as:
Estimating is the compilation of all the costs of the elements of a project within an agreed upon project scope
it is the production of a statement of the approximate quantity of materials, time and costs to perform construction decisions
The basic challenges the construction contractor faces are to estimate the cost of constructing a project
The objective of cost estimate is to produce an accurate, cost effective prediction of what a project will most likely cost and it needs to be done in different manners at different stages
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IntroductionIntroductionEstimating PurposeEstimating Purpose
The purpose of estimating is to forecast the cost required to complete a project in accordance with the contract plans and specifications
There are two distinct tasks in estimating:
To determine the probable real cost of the project
To determine the probable real time to build the project
Because estimates are prepared before a project is constructed, an estimate is, at best, a close approximation of the actual costs
The purpose of estimating is to forecast the cost required to complete a project in accordance with the contract plans and specifications
There are two distinct tasks in estimating:
To determine the probable real cost of the project
To determine the probable real time to build the project
Because estimates are prepared before a project is constructed, an estimate is, at best, a close approximation of the actual costs
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IntroductionIntroductionProject CostsProject Costs
The principal components of a contractor's costs result from the use of labors, materials, equipment, and subcontractors
The costs that spent on a specific activity or project can be classified as:
Fixed cost
Time-related cost
Quantity-proportional cost
Project direct costs
Project indirect costs
The principal components of a contractor's costs result from the use of labors, materials, equipment, and subcontractors
The costs that spent on a specific activity or project can be classified as:
Fixed cost
Time-related cost
Quantity-proportional cost
Project direct costs
Project indirect costs
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IntroductionIntroductionCost Estimating: Indirect costCost Estimating: Indirect costIndirect costs comprises project (site); and General (head-office)
overheads
Project overheads The cost of items that cannot be directly charged to a specific
work element It includes site utilities, supervisors, parking, offices,
workshops, stores, first aid facility, et. A detailed analysis of site-related costs is required to arrive at
an accurate estimate of these costs Companies use their own forms and checklists for estimating
these costs. Site overhead costs are estimated to be between 5% - 15% of project total direct cost
Indirect costs comprises project (site); and General (head-office)
overheads
Project overheads The cost of items that cannot be directly charged to a specific
work element It includes site utilities, supervisors, parking, offices,
workshops, stores, first aid facility, et. A detailed analysis of site-related costs is required to arrive at
an accurate estimate of these costs Companies use their own forms and checklists for estimating
these costs. Site overhead costs are estimated to be between 5% - 15% of project total direct cost
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IntroductionIntroductionCost Estimating: Indirect costCost Estimating: Indirect cost
General overheads
The costs that cannot be directly attributed to a specific project
They represent the cost of the head-office expenses, mangers, directors, design engineers, schedulers, etc.
Continuous observations of the company expenses help estimating reasonable values for the general overhead
For a given project, it can be estimated between 2% - 5% of
the contract direct cost
General overheads
The costs that cannot be directly attributed to a specific project
They represent the cost of the head-office expenses, mangers, directors, design engineers, schedulers, etc.
Continuous observations of the company expenses help estimating reasonable values for the general overhead
For a given project, it can be estimated between 2% - 5% of
the contract direct cost
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IntroductionIntroductionTypes of cost estimateTypes of cost estimate When beginning to prepare an estimate, it is important to
understand its intended use
An estimate can be prepared at any point through the project life
Depending on the information available and the time spent preparing the estimate, the accuracy it provides will vary
here are four different stages at which estimates take place:
Conceptual phase
Schematic phase
Design development phase
Procurement phase
When beginning to prepare an estimate, it is important to understand its intended use
An estimate can be prepared at any point through the project life
Depending on the information available and the time spent preparing the estimate, the accuracy it provides will vary
here are four different stages at which estimates take place:
Conceptual phase
Schematic phase
Design development phase
Procurement phase
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IntroductionIntroductionTypes of cost estimate: Conceptual estimateTypes of cost estimate: Conceptual estimate The owner needs cost information very early on in a project so that
decisions as to the location and scope can be made before money is spent on design or property purchase
Prepared with very little information, relying on historical data
This type of estimate is called a Conceptual , Rough Order
of Magnitude, top-down or parametric estimate and is generally prepared long before the construction starts
Sketch or a brief written description of the project
The owner needs cost information very early on in a project so that decisions as to the location and scope can be made before money is spent on design or property purchase
Prepared with very little information, relying on historical data
This type of estimate is called a Conceptual , Rough Order
of Magnitude, top-down or parametric estimate and is generally prepared long before the construction starts
Sketch or a brief written description of the project
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IntroductionIntroductionTypes of cost estimate: Schematic Design PhaseTypes of cost estimate: Schematic Design Phase This estimate include some area take-off, for major project elements
At this stage, some of the key sub-contractors might be asked for input for complicated systems
At the end of this stage, the presentation of the design to the owner is accompanied by an estimate of the cost of the project
Any design alternatives will also be accompanied by an estimate of the cost of the project
Before the project team moves on to the next phase of design, the owner will decide on basic design parameters and on project budget
Any cost reduction ideas are presented and priced
This estimate include some area take-off, for major project elements
At this stage, some of the key sub-contractors might be asked for input for complicated systems
At the end of this stage, the presentation of the design to the owner is accompanied by an estimate of the cost of the project
Any design alternatives will also be accompanied by an estimate of the cost of the project
Before the project team moves on to the next phase of design, the owner will decide on basic design parameters and on project budget
Any cost reduction ideas are presented and priced
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IntroductionIntroductionTypes of cost estimate: Design PhaseTypes of cost estimate: Design Phase In this phase, much more defined information
Because of this, the time taken to prepare this type of estimates is longer, but the accuracy is greater
The estimate in this stage will be based on a design that is 60% complete
Most of the major project items will be quantifiable, and the more important unit prices should be known at this point
With the presentation of this estimate, the costs of the materials and methods will be known and should be compared to past similar projects
In this phase, much more defined information
Because of this, the time taken to prepare this type of estimates is longer, but the accuracy is greater
The estimate in this stage will be based on a design that is 60% complete
Most of the major project items will be quantifiable, and the more important unit prices should be known at this point
With the presentation of this estimate, the costs of the materials and methods will be known and should be compared to past similar projects
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IntroductionIntroductionCost Estimating: detailed (Procurement) estimateCost Estimating: detailed (Procurement) estimate
It is also known as a bottom-up, fair-cost, or bid estimate
Prepared once the design has been completed and all construction documents prepared
the estimator must make a complete and thorough job analysis
For a detailed estimate, a thorough knowledge of labor, material, equipment, crews, and methods of construction should be collected
It is also known as a bottom-up, fair-cost, or bid estimate
Prepared once the design has been completed and all construction documents prepared
the estimator must make a complete and thorough job analysis
For a detailed estimate, a thorough knowledge of labor, material, equipment, crews, and methods of construction should be collected
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IntroductionIntroductionTypes of cost estimateTypes of cost estimate
Type of Estimate Construction Document Development ExpectedPercent Error*
Conceptual (Parametric)Schematic Design0-30% Construction Documents
± 10-25 %
Semi-DetailedDesign Development30-90% Construction Documents
± 5-15 %
Detailed 90-100% Plans and Specifications ± 2-5%
* Percent error means the expected variation between cost estimate and actual cost
Conceptual cost estimates; incomplete project documentation Semi-detailed estimates are prepared when parts of the project
have been completed Detailed cost estimates are prepared based on fully developed
construction drawings and specifications
Conceptual cost estimates; incomplete project documentation Semi-detailed estimates are prepared when parts of the project
have been completed Detailed cost estimates are prepared based on fully developed
construction drawings and specifications
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Conceptual Cost Estimating
Conceptual Cost Estimating
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DefinitionDefinition A “conceptual estimate” is an estimate prepared by using
engineering concepts and avoiding the counting of individual pieces
The forecast of project costs that is performed before any significant amount of information is available from detailed design and with incomplete work scope definition
It is used as the basis for important project decisions like go/no-go and the appropriation of funds decisions
A conceptual estimate is also used to set a preliminary construction budget
All pre-construction estimates start with a database of past projects
A “conceptual estimate” is an estimate prepared by using engineering concepts and avoiding the counting of individual pieces
The forecast of project costs that is performed before any significant amount of information is available from detailed design and with incomplete work scope definition
It is used as the basis for important project decisions like go/no-go and the appropriation of funds decisions
A conceptual estimate is also used to set a preliminary construction budget
All pre-construction estimates start with a database of past projects
Conceptual Cost EstimatingConceptual Cost Estimating
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CharacteristicsCharacteristics Early project stages
Accuracy ± 25 %
The availability of a good, complete scope definition is considered the most crucial factor for conceptual estimating
Conceptual estimating is a resource restricted activity where the time and cost available for making the estimate is restricted
Therefore, the estimate, although important, cannot be given much time and resources
Early project stages
Accuracy ± 25 %
The availability of a good, complete scope definition is considered the most crucial factor for conceptual estimating
Conceptual estimating is a resource restricted activity where the time and cost available for making the estimate is restricted
Therefore, the estimate, although important, cannot be given much time and resources
Conceptual Cost EstimatingConceptual Cost Estimating
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Unit methodUnit method Depends on the cost per functional unit of the building, a
functional unit being, for example, a hotel bedroom
It is suitable for clients who specialize in one type of project; for example, hotel or supermarket chains
Schools – cost per pupil
Hospitals – cost per bed
Note that, all other adjustments must be also made (time, location and unit)
Depends on the cost per functional unit of the building, a functional unit being, for example, a hotel bedroom
It is suitable for clients who specialize in one type of project; for example, hotel or supermarket chains
Schools – cost per pupil
Hospitals – cost per bed
Note that, all other adjustments must be also made (time, location and unit)
Conceptual Estimating MethodsConceptual Estimating Methods
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Square foot (meter) methodSquare foot (meter) method The square meter method is a single price rate method
based on the cost per square meter of the building
The most frequently used method of approximate estimating
Quick and simple to use
Similar to the unit rate method with more accuracy
Quantities of materials and labor required to build a project ar also reported per square meter
With the quantities held constant, each year the unit prices are adjusted to reflect current costs for labor and materials
The square meter method is a single price rate method based on the cost per square meter of the building
The most frequently used method of approximate estimating
Quick and simple to use
Similar to the unit rate method with more accuracy
Quantities of materials and labor required to build a project ar also reported per square meter
With the quantities held constant, each year the unit prices are adjusted to reflect current costs for labor and materials
Conceptual Estimating MethodsConceptual Estimating Methods
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Square Meter method: ExampleSquare Meter method: Example
Gross floor area for office block = 10.0 x 25.0 - 2 x 3.0 x 7.50 = 205.0 m2
Area of 5 floors 205.0 x 5 = 1025.0 m2 x LE1100 /m2 = LE1,127,500.0
Basement 7.00 x 25.0 = 175.0 m2 x LE1300 /m2 = LE227,500.0
Estimate for block = LE1,355,000.0
Gross floor area for office block = 10.0 x 25.0 - 2 x 3.0 x 7.50 = 205.0 m2
Area of 5 floors 205.0 x 5 = 1025.0 m2 x LE1100 /m2 = LE1,127,500.0
Basement 7.00 x 25.0 = 175.0 m2 x LE1300 /m2 = LE227,500.0
Estimate for block = LE1,355,000.0
Conceptual Estimating MethodsConceptual Estimating Methods
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Assembly Estimate (Approximate quantities)Assembly Estimate (Approximate quantities) Assemblies estimating – also called Systems Estimating –
is best accomplished concurrently with the design phase of a project
Most accurate preliminary method of estimating, provided that there is sufficient information to work on
group items corresponding to a given operations and relating them to a common unit of measurement
This estimate is prepared by working with the system or assembly unit of a project
Assemblies estimating – also called Systems Estimating –is best accomplished concurrently with the design phase of a project
Most accurate preliminary method of estimating, provided that there is sufficient information to work on
group items corresponding to a given operations and relating them to a common unit of measurement
This estimate is prepared by working with the system or assembly unit of a project
Conceptual Estimating MethodsConceptual Estimating Methods
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Assembly Estimate (Approximate quantities)Assembly Estimate (Approximate quantities) Rates are built up for these items
All measurements are taken as gross
In units estimate, a gross unit is established, for example the number of hospital beds required
In square foot estimating the estimator works with the project area
In assemblies estimating the estimator will use more detailed units such as: (square feet of partition wall, number of plumbing fixtures, or square feet of carpet)
Rates are built up for these items
All measurements are taken as gross
In units estimate, a gross unit is established, for example the number of hospital beds required
In square foot estimating the estimator works with the project area
In assemblies estimating the estimator will use more detailed units such as: (square feet of partition wall, number of plumbing fixtures, or square feet of carpet)
Conceptual Estimating MethodsConceptual Estimating Methods
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Estimate BasicsEstimate Basics Unit cost should be determined as an average of previous projects
data not depending on one project
UC = (A + 4B + C) / 6
UC = forecast unit cost
A = minimum unit cost of previous projects
B = average unit cost of previous project
C = maximum unit cost of previous projects
Total cost =Number of units × unit cost
Unit cost should be determined as an average of previous projects data not depending on one project
UC = (A + 4B + C) / 6
UC = forecast unit cost
A = minimum unit cost of previous projects
B = average unit cost of previous project
C = maximum unit cost of previous projects
Total cost =Number of units × unit cost
Conceptual Cost EstimatingConceptual Cost Estimating
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Estimate BasicsEstimate Basics Example
Use the weighted unit cost to determine the conceptual cost estimate for a proposed parking that is to contain 135 parked cars
Example
Use the weighted unit cost to determine the conceptual cost estimate for a proposed parking that is to contain 135 parked cars
Conceptual Cost EstimatingConceptual Cost Estimating
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ExampleExample Unit cost per car
Then, the average unit cost = 30,431.5 / 8 = LE3,803.94 / car
The forecast unit cost = (2,987.3 + 4 × 3,803.94 + 4,375.8) / 6 = 3,763.14.
The cost estimate for 135-cars parking = 135 × 3,763.14 = LE508,023
Unit cost per car
Then, the average unit cost = 30,431.5 / 8 = LE3,803.94 / car
The forecast unit cost = (2,987.3 + 4 × 3,803.94 + 4,375.8) / 6 = 3,763.14.
The cost estimate for 135-cars parking = 135 × 3,763.14 = LE508,023
Conceptual Cost EstimatingConceptual Cost Estimating
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Time adjustmentTime adjustment The adjustment should represent the relative inflation or
deflation of costs with respect to time due to factors such as labor rates, material costs, interest rates
Time value of money
Index numbers are used to reflect changes in money values
Various organizations publish indices that show the economic trends of the construction industry with respect to time
New project cost = Past project cost (New year index/past year index)
The adjustment should represent the relative inflation or deflation of costs with respect to time due to factors such as labor rates, material costs, interest rates
Time value of money
Index numbers are used to reflect changes in money values
Various organizations publish indices that show the economic trends of the construction industry with respect to time
New project cost = Past project cost (New year index/past year index)
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Time adjustment: ExampleTime adjustment: Example The economic indices for building projects are shown below. It is
required to use the cost of a LE843,500 project completed last year to prepare a conceptual estimate for a project proposed for construction 3 years from now.
The economic indices for building projects are shown below. It is required to use the cost of a LE843,500 project completed last year to prepare a conceptual estimate for a project proposed for construction 3 years from now.
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Time adjustment: ExampleTime adjustment: Example
The equivalent interest rate can be calculated based on the change in the cost index during the 3-year period as follow:
(378/358) = (1 + i)3
Then i = 1.83%
Accordingly, the cost of the project should be adjusted for time as follows:
Cost = LE843,500 × (1 + 0.0183)4 = LE906,960
The equivalent interest rate can be calculated based on the change in the cost index during the 3-year period as follow:
(378/358) = (1 + i)3
Then i = 1.83%
Accordingly, the cost of the project should be adjusted for time as follows:
Cost = LE843,500 × (1 + 0.0183)4 = LE906,960
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Location adjustmentLocation adjustment Tender price levels vary according to the region of the country
where the work is carried out
the use of cost information from a previous project should be adjusted to represent the difference in cost between the locations of the two projects
The adjustment should represent the relative difference in costs of material, equipment and labor of the two locations
Indices that show the relative difference in construction costs with respect to location is published by many organizations
Tender price levels vary according to the region of the country where the work is carried out
the use of cost information from a previous project should be adjusted to represent the difference in cost between the locations of the two projects
The adjustment should represent the relative difference in costs of material, equipment and labor of the two locations
Indices that show the relative difference in construction costs with respect to location is published by many organizations
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Location adjustment: ExampleLocation adjustment: Example The indices for different location of construction costs are shown
below. The construction cost of a project completed at city A is LE387,200, it is required to prepare a conceptual estimate for a similar project proposed in city D
The cost of the proposed project
Cost =
LE387,200 × (1.105 / 1.025)
= LE417,420
The indices for different location of construction costs are shown below. The construction cost of a project completed at city A is LE387,200, it is required to prepare a conceptual estimate for a similar project proposed in city D
The cost of the proposed project
Cost =
LE387,200 × (1.105 / 1.025)
= LE417,420
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Size adjustmentSize adjustment In general, the cost of a project is directly proportional to its
size
The use of cost information from a previous project to forecast the cost of a future project will not be reliable unless an adjustment is made that represents the difference in size of the two projects
The adjustment is generally a simple ratio of the size of the proposed project to the size of the previous project from which the cost data are obtained
In general, the cost of a project is directly proportional to its size
The use of cost information from a previous project to forecast the cost of a future project will not be reliable unless an adjustment is made that represents the difference in size of the two projects
The adjustment is generally a simple ratio of the size of the proposed project to the size of the previous project from which the cost data are obtained
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Size adjustmentSize adjustment Knowing the Typical Building area, the cost multiplier for the
size adjustment can be calculated as follows:
Size factor = Proposed building area/Typical building area
Using the size factor, a cost multiplier could be identified from recorded data.
Size adjusted cost = Base cost x Cost multiplier
Knowing the Typical Building area, the cost multiplier for the size adjustment can be calculated as follows:
Size factor = Proposed building area/Typical building area
Using the size factor, a cost multiplier could be identified from recorded data.
Size adjusted cost = Base cost x Cost multiplier
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Combined adjustment: ExampleCombined adjustment: Example Prepare the conceptual cost estimate for a building with 62,700
m2 of floor area. The building is to be constructed 3 years from now in city B. A similar type of building that cost LE2,197,540 and contained 38,500 m2 completed 2 years ago in city E. Estimate the probable cost of the proposed building The
Prepare the conceptual cost estimate for a building with 62,700 m2 of floor area. The building is to be constructed 3 years from now in city B. A similar type of building that cost LE2,197,540 and contained 38,500 m2 completed 2 years ago in city E. Estimate the probable cost of the proposed building The
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Combined adjustment: ExampleCombined adjustment: Example Original building:
Area: 38500
Year: 2 years ago
City: E (1.24)
Proposed building:
Area: 62700
Year: 3 years from now
City: B (index 1.17)
Inflation: 1.83%
Original building:
Area: 38500
Year: 2 years ago
City: E (1.24)
Proposed building:
Area: 62700
Year: 3 years from now
City: B (index 1.17)
Inflation: 1.83%
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Combined adjustment: ExampleCombined adjustment: Example Proposed cost
= Previous cost × Time adjustment × Location adjustment × Size adjustment
= LE2,179,540 × (1 + 0.0183)5 × (1.17 / 1.24)
× (62,700 / 38,500)
= LE3,700,360
Without time and location adjustment
= Previous cost × Size adjustment
= LE2,179,540 × (62,700 / 38,500) = LE3,549,537
Proposed cost
= Previous cost × Time adjustment × Location adjustment × Size adjustment
= LE2,179,540 × (1 + 0.0183)5 × (1.17 / 1.24)
× (62,700 / 38,500)
= LE3,700,360
Without time and location adjustment
= Previous cost × Size adjustment
= LE2,179,540 × (62,700 / 38,500) = LE3,549,537
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Unit cost adjustmentUnit cost adjustment Although the total cost of a project will increase with size, the
cost per unit may decrease
For example, the cost of an 1800-m2 house may be LE535/ m2
where as the cost of a 2200 m2 house of comparable construction maybe only LE487/ m2
certain items such as furniture, garage, etc., are independent of the size of the project
The estimator must obtain cost records from previous projects to develop appropriate adjustments for new projects
Although the total cost of a project will increase with size, the cost per unit may decrease
For example, the cost of an 1800-m2 house may be LE535/ m2
where as the cost of a 2200 m2 house of comparable construction maybe only LE487/ m2
certain items such as furniture, garage, etc., are independent of the size of the project
The estimator must obtain cost records from previous projects to develop appropriate adjustments for new projects
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Unit cost adjustment: ExampleUnit cost adjustment: Example Cost records from previous projects are shown below. Find the
adjusted unit cost Cost records from previous projects are shown below. Find the
adjusted unit cost
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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Unit cost adjustment: ExampleUnit cost adjustment: Example Plot these points and find the linear equation Plot these points and find the linear equation
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
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17
19
21
23
25
27
0 50 100 150 200
Unit cost = [(17.9 – 24.75) / (190 – 60)] x + 24.75 = - 0.0526 x + 24.75
where 60 < x < 190, then y = 24.75 – 0.0526 (S – 60)
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Unit cost adjustment: ExampleUnit cost adjustment: Example Using Excel curve fitting
Add trend line
Write the equation
Using Excel curve fitting
Add trend line
Write the equation
Conceptual Estimate AdjustmentConceptual Estimate Adjustment
Unit cost = - 0.056 x + 27.81
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Estimating the cost of work items include estimating the cost of labor, equipment and material.
The analysis of a given job requires a thorough review of the plans and specifications of the bid documents
Evaluation of the soil investigation reports and a visit to the jobsite where the project is to be constructed.
Consider swell and compaction factors Consider waste factors
Estimating the cost of work items include estimating the cost of labor, equipment and material.
The analysis of a given job requires a thorough review of the plans and specifications of the bid documents
Evaluation of the soil investigation reports and a visit to the jobsite where the project is to be constructed.
Consider swell and compaction factors Consider waste factors
Estimating Work Items CostsEstimating Work Items Costs
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Unit rate estimatingUnit rate estimating This type of estimating is used in building work and
for civil work where the nature of work is repetitive
It is based on the resources required and their output rates for each category of work
It can also be used for determining certain detailed costs in conceptual budgets or during design development
This type of estimating is used in building work and for civil work where the nature of work is repetitive
It is based on the resources required and their output rates for each category of work
It can also be used for determining certain detailed costs in conceptual budgets or during design development
Estimating Direct CostEstimating Direct Cost
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Unit rate estimatingUnit rate estimating There are some disadvantages of using the unit-rate
method for estimating major works:
It does not demand the examination of the program (schedule) or the method statement or the risks costs in undertaking the work
Also, the precision and level of detail in pricing an item can give a false sense of confidence in the resulting estimate
There are some disadvantages of using the unit-rate method for estimating major works:
It does not demand the examination of the program (schedule) or the method statement or the risks costs in undertaking the work
Also, the precision and level of detail in pricing an item can give a false sense of confidence in the resulting estimate
Estimating Direct CostEstimating Direct Cost
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Operational estimatingOperational estimating It is recommended method for estimating civil
engineering work
It requires the estimator to build up the cost of the operation based on its principles including the total cost of construction equipment, labor and permanent/temporary materials
This method links well with the planning and scheduling process
It is recommended method for estimating civil engineering work
It requires the estimator to build up the cost of the operation based on its principles including the total cost of construction equipment, labor and permanent/temporary materials
This method links well with the planning and scheduling process
Estimating Direct CostEstimating Direct Cost
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Operational estimatingOperational estimating It embraces the total anticipated time that the
construction equipment and labor crew are involved in the operation including all idle time
The operational estimating involves the following:
Prepare the method statement showing the sequence, resources, timing, etc.
Prepare the work schedule
Smooth or level the resources
It embraces the total anticipated time that the construction equipment and labor crew are involved in the operation including all idle time
The operational estimating involves the following:
Prepare the method statement showing the sequence, resources, timing, etc.
Prepare the work schedule
Smooth or level the resources
Estimating Direct CostEstimating Direct Cost
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Site OverheadsSite Overheads Develop comprehensive checklists for general jobsite
requirements, for example:
Cost of temporary site utilities
Jobsite production facilities (concrete batching plants, quarry, various shops
Jobsite personnel wages
Field buildings, etc.
It is assumed between 5 -15 % of total direct cost
Develop comprehensive checklists for general jobsite requirements, for example:
Cost of temporary site utilities
Jobsite production facilities (concrete batching plants, quarry, various shops
Jobsite personnel wages
Field buildings, etc.
It is assumed between 5 -15 % of total direct cost
Estimating Indirect CostEstimating Indirect Cost
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Head Office (General) OverheadsHead Office (General) Overheads The company home office expenses cannot be
charged to a single project, for example:
Office supplies, Office utilities and communication
President, estimators, human resources staff, all personnel working at the head office
Accounting and legal services, travel, etc.
It is assumed between 2 -5 % of total direct cost
The company home office expenses cannot be charged to a single project, for example:
Office supplies, Office utilities and communication
President, estimators, human resources staff, all personnel working at the head office
Accounting and legal services, travel, etc.
It is assumed between 2 -5 % of total direct cost
Estimating Indirect CostEstimating Indirect Cost
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Construction contingencesConstruction contingences The amount of money added to cover the unforeseen
conditions, difficulties, or estimating accuracy:
Unpredictable price escalation for materials, labor, and installed equipment for projects
Unforeseen safety and environmental requirements
Weather changes; construction difficulties; economic and financial problems; etc.
The amount of money added to cover the unforeseen conditions, difficulties, or estimating accuracy:
Unpredictable price escalation for materials, labor, and installed equipment for projects
Unforeseen safety and environmental requirements
Weather changes; construction difficulties; economic and financial problems; etc.
Estimating Mark upEstimating Mark up
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ProfitProfit The contractor should balance between the profit and
the competition, profit is governed by:
The number of competitors
The need for the work
The project size
Project complexity
Working with a certain type of projects or agency
The contractor should balance between the profit and the competition, profit is governed by:
The number of competitors
The need for the work
The project size
Project complexity
Working with a certain type of projects or agency
Estimating Mark upEstimating Mark up
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Finalizing a Tender PriceFinalizing a Tender Price
Price
CostMarkup
Direct costIndirect costProfitRisk allowance Financial charge
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The indirect costs and mark up will be distributed over the different work items
There are three ways to price work items:
Balanced pricing (bidding)
Un-balanced pricing (bidding)
Method-related charge
The indirect costs and mark up will be distributed over the different work items
There are three ways to price work items:
Balanced pricing (bidding)
Un-balanced pricing (bidding)
Method-related charge
Finalizing a Tender PriceFinalizing a Tender Price
25
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Balanced Bid (straight-forward method)Balanced Bid (straight-forward method) The share of each item = (direct cost of this item /
total direct cost) x (total indirect cost + mark up)
Example:
Assume that the direct cost for an item (a) is LE 400,000 and that item is included in a contract whose price is LE 3,500,000 and its total direct cost is LE 2,800,000. Calculate the price for item (a) considering a balanced bid
The share of each item = (direct cost of this item / total direct cost) x (total indirect cost + mark up)
Example:
Assume that the direct cost for an item (a) is LE 400,000 and that item is included in a contract whose price is LE 3,500,000 and its total direct cost is LE 2,800,000. Calculate the price for item (a) considering a balanced bid
Finalizing a Tender PriceFinalizing a Tender Price
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Balanced Bid (straight-forward method)Balanced Bid (straight-forward method) Bid price = direct cost + indirect cost + markup
Indirect cost + markup (for the whole contract) = Bid price - direct cost = 3,500,000 - 2,800,000 = LE 700,000
Indirect cost + markup for activity (a) = (400000/2800000) x 700000 = 100000
Price of activity a = its direct cost + indirect cost = 400,000 + 100,000 = LE 500,000
Bid price = direct cost + indirect cost + markup
Indirect cost + markup (for the whole contract) = Bid price - direct cost = 3,500,000 - 2,800,000 = LE 700,000
Indirect cost + markup for activity (a) = (400000/2800000) x 700000 = 100000
Price of activity a = its direct cost + indirect cost = 400,000 + 100,000 = LE 500,000
Finalizing a Tender PriceFinalizing a Tender Price
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Un-Balanced Bid (Loading of rates)Un-Balanced Bid (Loading of rates) The contract price is said to be unbalanced if the
contractor raises the prices on certain bid items (usually the early items on the bill of quantities) and decreases the prices on other items so that the tender price remain the same
This process is also called the loading of rates
Loading of rates may be risky to both the contractor and the owner
The contract price is said to be unbalanced if the contractor raises the prices on certain bid items (usually the early items on the bill of quantities) and decreases the prices on other items so that the tender price remain the same
This process is also called the loading of rates
Loading of rates may be risky to both the contractor and the owner
Finalizing a Tender PriceFinalizing a Tender Price
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Un-Balanced Bid (Loading of rates)Un-Balanced Bid (Loading of rates) If the contractor raised the price for an item and the
quantity of this item increased then, this situation is risky to the owner as it will cost the owner more money
On the other hand, if the contractor reduced the price of an item and the quantity of that item increased, thus situation will be risky to the contractor
If the contractor raised the price for an item and the quantity of this item increased then, this situation is risky to the owner as it will cost the owner more money
On the other hand, if the contractor reduced the price of an item and the quantity of that item increased, thus situation will be risky to the contractor
Finalizing a Tender PriceFinalizing a Tender Price
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Un-Balanced Bid (Loading of rates)Un-Balanced Bid (Loading of rates)
Finalizing a Tender PriceFinalizing a Tender Price
Activity QuantityDirect
cost rate
Balanced bid Unbalanced bid
Rate Price Rate Price
ABCDE
100100100100100
48
16168
510202010
5001000200020001000
61418189
600140018001800900
Tender price 6500 6500