Project Budget

and Estimating
WHY ESTIMATE?
 Accurate estimating is essential if you want to
remain in business and prosper. Contractors
who bid too high cannot maintain a steady
workload. Contractors who bid too low fail to
make the profit they need to remain in
business. There is a big difference between
an estimate and a “guesstimate”. Too many
contractors bid on the basis of a guess or a
SWAG. A SWAG is a Scientific Wild-Aimed
Guess. Sooner or later these Swag
contractors find themselves working on a
project where most of the items cost more
money than they can possibly recover from
their client.
Basis of Financial
Control
 The purpose of estimating is not just to
prepare a successful tender. It should also
be the basis of financial control and planning
and procurement of resources throughout the
project. So an accurate estimate can help the
contractor in four key areas of activity :
 - TENDERING
 - PLANNING
 - FINANCING
 - CONSTRUCTING
Tendering
 Prepare a tender which is as low
as possible to be executed with a
reasonable profit margin in order to
be awarded the contract.
Planning
 Prepare project progress schedule
and schedule of needs for labor,
materials, equipment and cash.
This will enable timely ordering of
project resources, enable project
control prepare cash flow analysis.
 Financing
 Go to a finance institution and
present financial needs for
executing the project in order to
establish a source of finance to
provide continuity of cash
throughout the project.
Constructing
 To provide a control of project
progress and expenditures and
prevent time and cost over runs.
Tendering
 At the tendering stage there is a competition
between contractors and the contract is
usually awarded to the lowest bidder,
although the lowest tenders are sometimes
eliminated if they seem unrealistically low.
The tender sum is made up of the following
five components:
 - LABOR COST
 - COST OF MATERIALS
 - COST OF PLANT, TOOLS AND EQUIPMT
 - OVERHEADS, PROFIT
 - PERMITS AND TAXES
Estimating to Win
 If the contractor is to arrive at a realistic
tender, the first step is to estimate how much
the project will cost him.
 What is more, in the competition for the
contract, the chances of winning the contract
and later, of executing it successfully, are
higher if an accurate estimate has been made.
The more accurate the estimate, the better the
contractor’s chances of :
 - winning the contract
 - executing it successfully
Resource and Overhead
Costs
 For every project, there is an actual minimum
sum at which any particular contractor can
complete the building or construction work. It
is not the same for every contractor, since
some firms have lower or higher resource and
overhead costs depending on their
equipment, experience and skills.
 So each contractor in the competition is likely
to have a different basic cost, and one
contractor may make a profit at a bid price
where another would make a loss. The more
accurate the estimate, the closer it is to this
actual construction cost.. Large inaccuracies
in the estimating lead to cost estimates which
are too high or too low.
PROJECT MANAGER
TRAINING PROGRAM
 TRAINING MODULE ON:
PROJECT / COST
ESTIMATING
COURSE OUTLINE
 REVIEW, CHECKING AND ORIENTATION OF
BID DOCUMENTS ( CONTRACTS,
SPECIFICATIONS, DRAWINGS )
 PREPARATION OF COST ESTIMATES
MATERIAL TAKE - OFF
LABOR MANHOURS COSTING
CONSTRUCTION EQUIPMENT RENTAL COSTING
PREPARATION OF BAR CHART / PERT CPM AND
MANPOWER LINE - UP
SUB - CON PACKAGE GENERAL REQUIREMENT /
PRELIMIINARIES

 CHECKING AND APPROVAL OF COST

ESTIMATES
SEMINAR OBJECTIVES
 THE RE-STUDY OF THE SUBJECT WILL
ENABLE THE PROJECT MANAGERS / PIC’s
BE FAMILIAR WITH THE STANDARD COST
ESTIMATING FORMS AND PARAMETERS

BE FAMILIAR WITH THE STANDARD ESTIMATING

COST CODES ( COST CENTERS ) DEFINITIONS.

PREPARE MATERIAL TAKE - OFF AND BILL OF

MATERIALS FROM GIVEN PLANS / DRAWINGS

PREPARE CONSTRUCTION SCHEDULE AND

DETERMINE REQUIRED MANPOWER AND
EQUIPMENT

PREPARE COMPLETE PROJECT BUDGET / COST

ESTIMATE INCLUDING ALL DIRECT JOB
EXPENSES.
GENERAL GUIDELINES IN
PROJECT BUDGET / COST
ESTIMATING
SCOPE OF WORK it is essential that we
be able to identify everything on the project
scope of work. This is normally discussed by
Marketing / engineering during the Project De
- briefing which includes scope of supply (
EEI and Client ), key milestone dates, and
project duration.
BID DOCUMENTS
Bid Drawings there are times when we do
estimating works without the documents. The
Project Manager / PIC will have to do the
screening before distribution of estimating
works to the PMT members.
BID DRAWINGS ( cont.d)

 However, each PMT member , on his own

initiative, must make a careful review / study
of the parts given to him. Questions or inquiry
must be written down and addressed to PM /
PIC and to be discussed with Marketing /
Engineering.
TECHNICAL SPECIFICATIONS

 There are also times when the bid drawings

do not jive with the specifications or vice -
versa. In this case, specific questions have to
be written down and addressed to the
Marketing / Engineering.
BID BULLETINS / CLARIFICATIONS
 Bid bulletins are issued when there are
changes on the bid specifications and
drawings that customer wants effected.
PREPARATION OF PROJECT BUDGET / COST
ESTIMATES
COST REQUEST
REQUEST FOR SUBCONTRACTED ITEMS -
After reviewing the bid documents, the PMT
must identify the work items to be
subcontracted. Also, get the list of subcon
items by Engineering in the bidding stage
including the names of sub-contractors. The
PMT must now prepare the subcon packages
to include all documents related to the work
items and call at least (3) three qualified
subcontractors in coordination with the
Purchasing Group. The Project Manager / PIC
takes the lead in presiding the conference to
discuss the nature of works with the qualified
subcontractors.
PREPARATION OF PROJECT BUDGET / COST
ESTIMATES

MATERIAL COST REQUEST

The PMT must also start listing the materials to be used
in the project for price canvassing by Purchasing
Group.
MATERIAL TAKE - OFF
The material take-off sequence must follow the format
of ABC cost codes for easy, systematic and proper
grouping.
BILL OF MATERIALS
Bill of materials can now be prepared while doing the
take - offs also in their proper grouping in accordance
with ABC cost code format.
PREPARATION OF PROJECT BUDGET / COST
ESTIMATES
LABOR MANHOUR COSTING
Unit Manhour refer to EEI Blue Book Parameter as a
guide in labor manhours computation. However,
unit manhours varies for different conditions. Ex:
Rebar takes less manhours to install the lower
floor level compared to the higher floor level. What
we normally do in estimating is AVERAGING.
Cost per Manhour - always refer to the latest list of
manpower for computation of cost per manhour.
Make sure that all rates adjustments are
incorporated approximately. See Table of Labor
Cost per Manhour on a per work description. On
extreme conditions, where overtime or a two shift
work is required, computation of cost per manhour
is adjusted depending on the number of overtime
hours or shift hours.
TABLE OF LABOR COST PER MHR ON A PER WORK DESCRIPTION BASIS ( as of March 2001 )
ITEM
No. WORK DESCRIPTION COST ( PHP / MHR )

CIVIL WORKS
1 Building 34.50
1 2 Civil / Concreting Works 35.00
3 Earthworks 33.50
AVERAGE COST / MHR 34.50
STRUCTURAL WORKS
11 1
Structural Steel Erection 36.00
MECHANICAL WORKS
1 37.00
Rotating Equipment Installation
2 35.50
Vessel / Drum / Column / Exchanger Installation
3 38.50
Carbon Steel Piping Installation
4 39.00
111 Stainless Steel / Alloy / Piping Installation
5 34.50
Insulation Works
6 34.00
Industrial Painting Works
7 38.50
Knockdown Tank Erection / Ductworks
8 54.00
Mechanical Shutdown Works

IV 1 FABRICATION WORKS 37.00

1
Instrumentation Works 38.50
2
V Electrical Works 36.50
The composite cost/mhr rate is calculated base on 8 working hours/day
and minimum wage of P250.00/day
EQUIPMENT / TOOLS RENTAL AND FUEL COST
The PMT must be able to identify work items
which will utilize construction equipment and
special tools. The equipment must satisfy and
capable of accomplishing the desired work
execution based on agreed construction
methodology. Where and when there are no
available EEI equipment, ACEL rate will be
adopted for the computation of equipment
rental. See sample table of Equipment Cost
Computation