CONSTRUCTION COST ESTIMATE AND

THE FACTORS INFLUENCING

ITS ACCURACY
AIMS AND OBJECTIVES

To provide the trainees with some common sources of errors

that generally occurs in preparing a cost estimate. It begins with
a sample cost estimate of a project followed by the various
sources that causes errors in the Cost Estimate.
CONSTRUCTION COST ESTIMATE?

Luke 14:28
Suppose one of you wants to build a tower, will he
not first sit down and estimate the cost to see if he
has enough money to complete it?
 CONSTRUCTION COST ESTIMATE

According to RICS it is:

a full appraisal of costs involved in previously constructed
buildingsaimed at providing reliable information which will
assist in accurately estimating (the) cost of future buildings. It
provides a product-based cost model, providing data on which
initial elemental estimates and elemental cost plans can be
based. (NRM, 2009,p10).
MAKE OR BREAK

Contractors are the risk

takers, which is where they
can make their profits, but it
can backfire
-Richard Steer
chairman of Gleeds
MAKE OR BREAK

Contractors are the risk

takers, which is where they
can make their profits, but it
can backfire
-Richard Steer
chairman of Gleeds
telegraph.co.uk/business/2017/07/25/
 CASE STUDY

Let us take an example of estimating the cost of earthwork filling 10 million cu.m.
earthwork filling to bid a project tender.

Based on the site conditions and productivity of different resources, quantity of

each equipment & labour required to fill 12,000 cubic meters of earth is found out.
Earth material required for the job is assumed to be sub-contracted.
Equipment were assumed to be hired & not owned.
Costs per unit for all resources are assumed.
 CASE STUDY

Table 1 - Material Cost Estimate

Rate
Cost Code Material Unit Quantity Total Cost Remarks
($/Unit)
Fuel for all
M1201 Ltr 6,400 0.77 4,928
equipment

Total Material Cost for this task (A) = $ 4,928

 CASE STUDY
Table 2 - Equipment Cost Estimate

Rate Total
Cost Code Material Unit Quantity Remarks
($/Unit) Cost

P4101 Grader Hr 80 27 2160

P4102 Bull Dozer Hr 60 16 960
P4103 Wheel Loader Hr 60 16 960
P4104 Skid Loader Hr 40 5 200
P4105 10 Ton Roller Hr 80 11 880
P4106 Walk behind roller Hr 60 3 180

P4107 Plate Compactor Hr 60 1 60

P4108 Water Tanker Hr 60 39 2340

Total Equipment Cost for this task (B) = $ 7,740

CASE STUDY

Table 3 - Labor Cost Estimate

Rate Total
Cost Code Material Unit Quantity Remarks
($/Unit) Cost

L3001 Unskilled Laborers Hr 100 2.70 270

L3005 Tradesmen Hr 20 3.00 60
L3008 Charge hand Hr 10 3.50 35

Total Labor Cost for this task (C) = $ 365

CASE STUDY

Total Material Cost for this task (A) = $ 4,928

Total Equipment Cost for this task (B) = $ 7,740
Total Labor Cost for this task (C) = $ 365
Total Direct Cost for this Task (D) = (A) + (B) + (C) = $ 13,033

Total cost for filling 12,000 cum of earth = $ 13,033

Cost of filling 1 cum of earth = $ 1.09

Total cost of filling 10 million cum of earth = $ 10,900,000

Total value of Sub-contract for supplying earth material (assumed) = $ 35,000,000
Total Direct Cost of the job = $ 45,900,000
Total Indirect Cost of the job (assumed) = $ 6,885,000
Total Cost of doing the job = $ 52,785,000
Profit @ 10% = $ 5,278,500

Total cost of bidding = $ 58,063,500

FACTORS INFLUENCING ACCURACY

1. PRICING WITHOUT VISITING THE PROJECT SITE

Visiting the proposed site of the project enables the cost estimator to inspect
topography, check the soil conditions, determine if protection of adjacent
properties will be needed, check distances to nearby roads and infrastructure,
existing service crossings, and the proximity to sources of labors, determine
method of logistics etc Estimate prepared without visiting and getting familiar
with the site conditions can never give accurate results.
FACTORS INFLUENCING ACCURACY

2. TAKING SHORTCUTS
Taking shortcuts when making an estimate can be risky. Often there is a
temptation to take shortcuts when under pressure because of time-limit in which
to complete the cost estimate or because of a heavy backlog of work. Shortcuts
take the form of guesstimating, using square meter or cubic meter costs in place
of details, and using lump sum figures picked out of the air, all of which have
inherent risks.
FACTORS INFLUENCING ACCURACY

3. INCORRECT QUANTITY TAKEOFF

The foundation for a successful cost estimate depends upon reliable
identification (takeoff) of the quantities of the various materials involved in the
project. The quantity of materials and the labor required to complete the firms
part of the project needs to be estimated to price an item.
A marginal error in the takeoff could lead to a huge difference in the total cost of
the work.
FACTORS INFLUENCING ACCURACY

In the sample estimate done in table-2 if actual quantity of one of the equipment,
say wheel loader increases by 10 hrs,
Additional cost of equipment = 10 hrs x $ 16 = $ 160
Fuel for additional 10 hrs = $ 0.77 x 150 = $ 115
Adding overheads & profit, total cost = $ 252,083
FACTORS INFLUENCING ACCURACY

4. ERRORS IN TAKING MEASUREMENTS

Errors in taking the measurements and dimensions from the drawings could
result in corresponding mistakes in the cost of those construction items. It only
takes one small error in the measurements and the whole material prices will be
out of the whack, resulting in estimates that are either too high or too low. It is
always better to check all the measurements a few times to be sure they are all
correct.
FACTORS INFLUENCING ACCURACY

5. ARITHMETIC ERRORS
Estimates made on construction projects are arithmetical calculations of
quantities and cost of materials, labors, equipment and other resources to
perform various operations. This means the majority of mistakes could be
avoided if the numbers were calculated correctly. This could be avoided to the
maximum possible extent by using any of the latest tools / software for
estimating.
FACTORS INFLUENCING ACCURACY

6. INCORRECT UNIT OF MEASUREMENT

Using an incorrect unit of measurement could result in substantial cost
increases or decreases. For example, unit of measurement of casting a 200mm
thick concrete slab could be in square meters in the bill of quantities. But if the
rate applied is per cubic meter of the concreting, then it would result in an
incorrect value of final amount.
FACTORS INFLUENCING ACCURACY

7. FAILING TO CHECK THE RELATED CODES AND

STANDARDS
Every region has got its own building codes, standard specifications, permits and
inspection procedures. For a particular work, sometimes the local code could
recommend meeting specific criteria which is unusual in other regions. This
would definitely cost something more than that of doing in other regions.
Hence, cost estimates need to be prepared in conjunction with the local / state /
federal code books.
FACTORS INFLUENCING ACCURACY

8. OMITTING ITEMS CONSIDERING IT TO BE MINOR

Sometimes, items such as scaffolding, ramp, and guardrails are left out of an
estimate on the assumption that their cost is relatively minor and can be
absorbed in the overall bid. On a small project contractor may gamble on his
workers handling such items routinely. This can be a costly error.
FACTORS INFLUENCING ACCURACY

9. NOT CHECKING CONTRACTUAL CONDITIONS

All the contracts should be executed as per the terms and conditions stated in its
Contractual documents. This could contain inherent costs associated with some
of the items. If such conditions are not found out and included in the pricing
strategy, it would prove costly. Most of the conflicts and arbitrations could be
avoided if both the client and the contractor get into a mutual understanding on
the contractual conditions and its implications on the overall cost of the project.
FACTORS INFLUENCING ACCURACY

10. MATERIALS COST PRICED INCORRECTLY

Always be sure that building materials and supplies are correctly described as to
type, quality, size and dimensions. Also confirm that they are priced
competitively. Contact actual sources of supply for materials for quotes.
Approaching more than 2 material suppliers could help in getting a competitive
price. But, comparisons between two prices can be done only when all of them
meet the required qualitative specifications.
 FACTORS INFLUENCING ACCURACY

11. NO ALLOWANCE FOR PRICE INCREASES

If the job we are quoting for is for a longer duration, it is better to factor in
potential price rises on materials. Every time you are forming an important quote,
double check your records on rates. Never think enough is good enough or you
could lose your entire profit, so regularly update the price lists.
Material prices, especially in todays market, fluctuate up and down. The
estimator must both understand and anticipate the frequency and extent of the
price variations and the timing of the buying cycle. Material prices may be
affected by many factors including availability, size of order, delivery timeframe,
payment terms, etc
FACTORS INFLUENCING ACCURACY

12. MISSING HAULAGE COSTS

In some projects the cost of hauling materials, supplies, machinery and
equipment to a project can be a very expensive item in an estimate. Access to
the job site may be difficult because of poor roads or no roads, heavy traffic to
and from supply sources, or the requirement to obtain permits and so forth.
FACTORS INFLUENCING ACCURACY

13. UNACCOUNTED MATERIAL WASTAGES

Materials used in a construction site always have a bit of wastage. If the total
area of road surface that needs a geo-textile membrane is 1,000 square meters,
the actual quantity of geo-textile used could be 1,030 square meters at the
completion of the project. This means that there is a wastage in the form of
cutting, placing, overlapping, etc Material wastages generally range from 3% to
15%.
FACTORS INFLUENCING ACCURACY

14. NOT GETTING FEEDBACK FROM SITE

Frequent feedback from the site should be obtained and compared with the
estimate. If any of the factors are found to be different, it needs to be noted and
changed in future estimates. For the current estimates, feedbacks from previous
projects should be referred.
Estimators should base the estimate on the most dependable information
available. The most reliable source is the data actually collected and experienced
from the project. Time studies, periodic field visits, and log records can provide
this data.
FACTORS INFLUENCING ACCURACY

15. MISSING AN ITEM OF WORK

The worst type of error in construction cost estimating is leaving out an item of
work. Ensuring that all items have been included in the takeoff portion of the
estimate is perhaps the most difficult part of the estimate thus it requires careful
attention. Any items that may be difficult or unusual in any way should be
underlined, checked or circled. But, some contractors dont focus on ensuring
that all the works as the scope of the contract are listed and priced. On a lump
sum bid and contract, the contractor is obligated to do all of the work, even if
costs for part of the project are omitted in the estimate bid and contract to build.
CONCLUSION

Cost Estimate is a prediction of future expenditures. Hence, it is impossible to

predict the future 100% accurately. Moreover there are several complex factors
which influence the accuracy of a Cost Estimate. But still, it is important to have
a fairly accurate and reasonable cost estimate.
Too many errors on the plus side can be a major reason for a bid not being
competitive. Too many errors on the minus side can cause the contractor to lose
money if awarded the contract.
END OF SESSION

THANKS!