How to Estimate Accurate Construction Costs

Estimating building costs is the process of calculating the cost of a physical building, facility, or infrastructure. A reliable cost estimate helps project owners save on money and mitigate overruns. The financial impact of a cost overrun can cause significant project delays and bottlenecks. These challenges motivate cost estimators to spend more effort and time to derive an accurate cost estimate. Complex construction projects require numerous cost estimates i.e. cost estimates prepared by independent estimators, contractors, etc.

There’s a myriad of reasons wherein owners need accurate project estimates such as feasibility, project scope, budget allocation, financial feasibility, etc. Building an accurate and reliable cost estimate is an excellent practice to understand the budget limits. For mega or public-funded projects, accurate cost estimation is key for greater accountability, transparency, and trust.

Accurate estimates win jobs. The precision of cost estimates depends on the following factors i.e.

• Quality of the project plan
• Level of the definition of the project by an estimator
• Skill-set of an estimator
• Completeness or accuracy of cost information
• Quality of the software or processes used

A case study on the Marble Hill Nuclear Power Plant reveals cost overruns of $2.5 billion halfway through the project. The construction was abandoned in 1984 due to these cost overruns.

Making good project estimates requires a strong understanding of the construction process. Listed below are key phases of the project that require a core understanding.

• Project commissioning – this phase makes sure project stakeholders design, build, and manage projects based on the needs of the owner.
• Discover project requirements – plan every requirement in the preconstruction phase
• Build a good design team – owners contract architects, who then contacts other specialized teams to meet design scope. Architects are responsible to coordinate and oversee the entire building process.
• Forming the structure – build a feasible structure design based on a series of designs produced by the Architect. Schematic design progresses to design-development, wherein the Architect coordinates with the design consultants to fix construction design specifics. Estimators in this phase prepare & revise cost estimates as the architect works on the design part.
• Place bids based on work scope – contractors can begin bidding on the project once the documents are finalized. Contractors are allowed to submit bids based on specific instructions, and the documents define the scope of work. The scope of work is primarily responsible to garner accurate cost estimates.
• Contract signing – after contractors are selected, a contract is signed between the owner and contractor based on various models viz. lump sum, unit price, cost-plus, etc.
• Onsite construction – in this phase, contractors oversee the complete construction process in compliance with the construction documents. Specialized sub-contractors are hired by contractors to allocate various construction activities. The contractor tracks actual expenditure, cost control, and forecasts expenditure.
• Handover or close-out – architects are contacted by contractors to perform a complete inspection to verify project completion.
• Finalization – after the contractor accomplishes any incomplete work on the punch—list document, the architect again performs the final inspection. A completion certificate will be issued by the Architect if the contractor has concluded all the tasks based on specifications and drawings. When the design and construction align with the actual requirements, it helps save time and enhances efficiency.

Estimators use various parameters to run cost estimates. These can be illustrated as –

• Labor hour and rate
• Quantity Takeoff
• Building Material Pricing
• Cost of onsite equipment
• Indirect costs
• Capital costs
• Costs of Subcontractors
• Operations and Maintenance
• Construction variances

Cost estimators rely on various Construction Cost Estimation Techniques. These can be stated as;

• Unit costs
• Empirical cost interference
• Stick estimation
• Production function
• Joint costs

This is all about estimation building construction costs.