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Hundreds of construction projects are initiated every year. Usually, these projects need resources like labor, machinery, and technology. But the most important resource for a construction project is money.
Cost estimation in a construction project refers to predicting how much money will be required for the project’s completion. According to a survey, a single-story office building costs $313 per sq. ft. on average in the US.
Many companies use different tools like Bridgit to manage various construction activities. If you want to know how companies estimate construction costs, click here to find out.
Let’s have a deeper look at construction cost estimation and how it works.
What Is Cost Estimation in A Construction Project?
You already know that forecasting how costly a construction project can be is cost estimation. But why is it important?
First, companies are well aware of their constructional and financial capabilities. Sometimes a company has all the expertise available in the team but doesn’t have enough money to carry out a construction project smoothly.
So, the first aspect is companies determine the cost before showing the green signal to the client.
Secondly, the cost estimation document also includes the following:
- Activities – Construction activities from the project planning to the closeout phase.
- Schedule – Construction schedule, which includes a timeline of the project activities.
- Resources – Labor, equipment, and computer systems required for the project.
The above three features of a construction cost estimation document help you predict the cost and time of the project. That way, you easily accept or reject the project offer.
Sometimes companies don’t accept the complete project but only a part of it. For example, an authority wants to build a healthcare unit on a plot. Unfortunately, your company lacks the financial strength to bear the construction cost. However, your expertise lies in the excavation and erection.
Therefore, you can offer only two services and wait for the client’s response. The client might check your portfolio and accept you as a construction partner for the two services.
That’s also a better option because now you can collaborate with the other construction team. They will provide you with the conceptual design and other visual documents.
Components of Cost Estimation
There are two types of costs included in the construction cost estimation document:
- Direct Costs – Costs that originate directly from the project itself. The direct costs are usually fixed. For example, labor, equipment, and material.
- Indirect Costs – These costs vary and don’t originate from other project activities like quality control, utility, and risk.
You should write both costs separately in the cost estimation document and clearly explain the reason for each. Since the construction manager and contractor might want that document, they should not face any ambiguity while reading it.
Method of Construction Cost Estimation
You will undoubtedly find different methods to estimate the construction project’s cost. Here are the five common methods:
1. Expert Judgment Method
As its name suggests, construction experts devise a cost estimation document with their experience. These experts might be:
- Construction Manager – A construction manager supervises the whole project and is involved in all the key activities.
- Contractor – A contractor deals with the procurement phase.
- Scheduler – A scheduler prepares the construction schedule and creates a master schedule to finalize the project milestones’ timeline.
Domain experts have spent years in the construction industry since they have been previously involved in small, medium, and large-scale construction projects. They also know the risks associated with the project onboard.
So, the expert judgment method uses the knowledge of the domain experts and estimates the construction project’s cost.
These experts might also bring historical documents of previous projects to estimate costs. Although every construction project differs from the others, those documents help predict the major details. You can also refer to those documents in case of a conflict.
2. Parametric Estimating Method
This estimating method uses parameters to predict the project’s cost. There are two ways in which the parametric estimation works:
- Algorithm-Based – Setting parameters into an algorithm like working time or machine’s load capacity and calculating the output.
- Statistics-Based – Using statistical relationships to estimate the project cost. For example, increasing workers might finish the task early but will increase the cost.
To execute this cost estimation method, you need other construction data, such as activities and resources. Without that data, you can’t apply this method.
3. Analogous Estimating Method
This comparable estimating method is useful when you don’t have highly experienced professionals on your team. Although your team has the skills, you may lack the recorded data to estimate the construction cost.
But worry no more because you only need one project instead of thick records. That project must be similar in appearance and facts. The facts include the project’s scope, budget, schedule, and measurement.
The factual document of that project could be complex, so you need to invest time with engineers and architects to comprehend every detail. That will help you estimate the construction cost without hiring an industry specialist.
4. Data Analysis Method
In this method, you specify the construction activities and set the constraints. The input you give in this method must be specific rather than setting variables. That way, you will get an exact estimate of the construction cost.
For example, you want to estimate the procurement cost. The first constraint that pops up is how long to rent the equipment. You must specify the duration of a specific machine by looking at the master schedule.
5. Project Mis Method
You can use different MIS (Management System Information) software to organize the construction activities, resources, and budget. After that, you can estimate the construction cost by giving suitable input to the system.
However, you must check the viability of the software before committing. Check the software reviews first and its specifications and then decide.
Cost estimation in construction project management is a critical phase. It helps you plan the entire project timeline with the allocated resources. Therefore, follow a cost estimation method and make your construction project planning flawless