Estimating

Types of Construction Estimates

Types of construction estimates

Construction cost estimating is an extremely crucial part of any construction project’s planning and designing process. To precisely understand and master the types of construction estimates, we need to know what cost estimates are.

Types of Construction Cost Estimation

Types of Construction Estimates refer to the thorough analysis of building costs, which are then prepared in a cost scheduling template similar to how any corporate company would design its financial statements. These cost estimates are a backbone for the construction projects, budgets, and bids. Any construction estimating company, before starting and sliding into its construction and building phase, would first sit with its team to review its bid estimates and costs based on the available cost data.

The construction managers and contractors would discuss the total project costs and create a template. Firstly, a historical estimate is performed based on the contractor’s expertise, data availability from previous projects, and budget estimate information from the competitor’s projects.

We will evaluate the actual project costs after making a provisional estimate of the available costs. These actual costs include an amalgamation of equipment, building, unit, and overhead costs. We must also do a deep calculative assessment of our future costs to record any prospective negative contingencies.

The biggest and most important step before evaluating the main costs of the project comes when the cost estimators have to figure out the types of construction estimates and then choose which one is the most appropriate.

Once we have chosen our desired cost estimation method, we can work on the project scope and design a cost estimate based on the resources, material costs, labor productivity and their hours designation, along with other tentative proposals by the client.

Essentially, what we get by doing a construction cost estimate is an idea of how much resources we have to allocate, how much material will be needed and most importantly, what bid we have to give our clients. Hence, budget planning becomes a very relevant outcome of cost estimation.

Moreover, there will be times when the budget may fall beyond our capacity, which may not be convenient for us. Hence, construction estimates also help with getting a feasibility estimate. If the particular project does not turn out to be feasible enough for the construction company, we can maybe delay with the execution of that project or nor proceed with it at all. However, if we think it will yield favorable returns, we may raise funding through venture capitalists or take a loan from the bank.

Types of Construction Cost Estimation Methods

As discussed above, any contractor or estimator must navigate the project’s current financial position and the availability of resources to figure out the types of construction cost estimates that would be used. No ‘one rule fits all’ policy regarding cost engineering for any construction project exists. This is why various construction cost estimation methods are used to design a project budget.

We cannot follow a single cost method for every type of project, that we will prepare a bid estimate for. Since the time of proposal and the current economic landscape can differ for every construction assignment, we ought to tailor the project’s outline more closely to the set circumstances at that given time.

Besides these two things, other crucial factors greatly help in determining the appropriate cost estimate that will be used throughout the process of executing our construction project. One factor that primarily ascertains the type of construction method to be used is the production stage. The production stage is crucial in helping us decide the measures we must take in our construction project’s planning and design process. If we are at a very nascent stage of of our project lifecycle, we may only be interested in knowing and having a rough estimate about the costs of our project. This is because we may not have enough cost data to structure a detailed estimate.

Monitoring the project’s cost status and determining the cost to complete the project are essential to managing the estimated cost-effectively.

Similarly, if we are at a much later or advanced stage of executing our estimating process, we will now consider doing a detailed cost estimate. Hence, the production stage and the amount of cost information available greatly helps us in determining an estimation type.

The construction type also varies. We must know that the construction industry is an amalgamation of many different types of projects. There main ones are residential projects and commercial projects. The residential projects are made in much smaller capacities, but on a large scale, devised so that an entire housing community is set up. Hence, many small blocks of construction projects are built together. Since they are made for the end customer [our client] to be habituated to, they are made with great attention to detail, as a it will be a home for someone.

On the other hand, the project development of a commercial project is quite the opposite to the former. They are intended for a value rising and yielding project opportunity and hence comes with many commercially relevant decisions taking into play. For this reason, it will become essential for contractors to choose the most appropriate estimation type to draw the most accurate estimate for any given project.

We will now forge ahead, and discuss in great detail, the main types of construction estimates that prevail in the construction industry and are prevalent for any general contractor or project management. Even though there is a great variety of construction cost estimation methods, we will talk about the main 5 that will align with our objectives and tailor our needs.

The main 5 types of construction estimates are :

  • Preliminary cost estimate
  • Detailed cost estimate
  • Quantity cost estimate
  • Bid cost estimate
  • Cost control estimate

Preliminary Cost Estimate

What is a preliminary estimate, and what are its key features?

When we start to roll on with the work of our project, we always work on approximate values. This is because we have very limited data and market information. The limited cost available to us initially is the building costs at most or a budget estimate that we will have from the competitors’ projects or our own previously garnered expertise.

As a result, we make a rough estimate or measurement at a nascent stage of our execution process (as discussed above) called a preliminary cost estimate. It is almost like we screen the limited information and costs in hand and do a screening estimate. Hence, a screening estimate is one of the components of a preliminary estimate and first cost estimate we perform in the project planning, which gives us a rough idea. However, the rough idea is often adequate to help the contractors make important decisions and take crucial steps before we begin with the pace of the project, as it gives us a direct construction cost without detailed data changes.

Project designers will use preliminary estimates because it gives them a comprehensive grip on the different factors of production associated with the project, like the materials to used, time constraints, and other resources. Since a preliminary estimate draws as an outline of what to expect, we can do a framework of the tasks we will be required to perform throughout the course of our project.

However, one thing we must bear in mind is, that as we get exposed to more necessary information about our project, we can perform a revised estimate because, obviously, this estimate is not the ultimate point of consideration in project planning for the estimators. It is just a source of guidance and a mechanism to do the project’s groundwork based on the limited data and create an estimate of its magnitude. A magnitude estimate helps an estimator plan and evaluate the total effort and cost to complete a project. This is also a crucial component in a preliminary estimate practice.

This groundwork can be extremely instrumental for the project management and many stakeholders linked to the project especially seeking a monetary return. Also, preliminary estimates gives us a feasibility estimate, highlighting the strengths and weaknesses of the project. This helps indicate to the project managers, whether or not they should proceed with the project or not.

Besides, it comes in handy in helping the estimators draft a raw cost estimate to understand the project lifecycle, and the preliminary estimates also come with their potential and fair share of drawbacks. These drawbacks will usually result from inaccuracy in drafting the rough estimate. To begin with, we have very clearly established that preliminary estimates are made at the very beginning or initial stage of execution. No data is used to sketch the graphically projected project drawings and budget layout. This explains how a preliminary estimate is largely based on assumptions. Assumptions have the propensity to be incorrect. These inaccuracies can prove very detrimental if gone ahead at the very start of the project lifecycle.

Another drawback can result after the preliminary estimate is performed. When more information and cost data about the project are gradually extracted, we will start digging into a more equipment-factored estimate and detailing. However, suppose the actual costs do not sync with the budgeted costs during the magnitude estimate process. In that case, it will unfold many added project costs and negate the entire purpose of doing the preliminary estimate. Hence, even though the decision-making aspect of this estimation method is extremely crucial in the planning and design process, it can also have some unfavorable and unavoidable outcomes.

A preliminary estimate can be used in various kinds of construction projects, residential or commercial, to help us get an approximate project cost. These approximate preliminary estimates can help the contractors gauge some pivotal information about the project’s scope. Some examples of relevant projects can be: building, road construction, renovation or redesigning and site development, to name a few.

Detailed Estimate

What is a detailed estimate, and what are its key features?

Quite the opposite of the preliminary estimate, and as the name suggests, the detailed estimate is when the whole project management team, including the general contractor, estimators and other important and concerned stakeholders, sit and extensively evaluate the total project’s cost. In the whole project planning process doing a detailed estimate is extremely crucial step and significant component.

To gather the project’s total construction costs and broadly evaluate them marks the most key level of the project lifecycle. And this is a detailed estimate all. Unlike the case of the preliminary estimate, with detailed estimates, we do not just carry out a rough estimate and go ahead with. We have to dig deeply and research on all internal and external costs of the project. The whole construction cost template has been prepared because we now have a broad range of information and data. These stats and figures can be further used to do more relevant market research which can leverage more useful information for us.

So basically, the influx of information largely helps us successfully execute a detailed estimate and get the project’s actual cost. We will break down our construction costs into smaller unit costs such that they can easily be interpreted and scheduled in a cost template.

Note, how we could not do all this in a preliminary estimate mainly due to the lack of adequate information. However, in a detailed estimate, because there is so much information, we can easily prepare cost estimates that can give immense clarity throughout the planning process.

Once we have achieved the research and sampling stage by doing an overarching detailed estimate, we now have to do a quantity takeoff, which means to count all the quantities of labor and materials to get a clearly streamed analysis of all the construction costs.

Just for a quick review again, the total construction cost template that we will work on with this estimation method will not only include costs related to the resources, also referred to as internally influencing costs, but also predict future costs by accounting for contingencies and any provisional losses. With extensive credit information available, we will also be able to work on out externally influencing costs.

To work on the costs, we will begin by allocating resources to their respective cost departments and discontinuing any resource or operational measure that can pose low yields, hence helping to mitigate any risks. Next, we will designate the final line of tasks and the project’s objective for the laborers proportional to their level of productivity to get started with the construction project. Moreover, using the cost templates and budget estimate from our research we can also graphically design project drawings that will not just give clarity to us but also to the client to whom we will bid the project.

We can then move ahead and prepare an abstract cost estimate, which will be a brief summary or a numerical report on all the construction costs like overhead costs, legal regulatory costs, quality insurance costs, material costs, labor costs and any unforeseen. This estimate will just be like the scheduling template we usually prepare but much briefer.

Thus far, we have understood the parameters of a cost estimate through a detailed method. We can ascertain the main advantages of following a detailed estimate, including a high tendency to accuracy and transparency because of having the privilege of having substantial information relating to the construction costs and splitting down those costs and thoroughly working on each of them. This greatly reduces the threats posed by inaccuracies.

However, there are some disadvantages associated to performing a detailed estimate, too just like a preliminary estimate. Firstly, there is no lie in grasping that this cost estimation method is an extremely detailed and lengthy one.

This makes the project planning not only incessantly time-consuming but also extremely costly as the project management would have to recruit and hire a team of so many skilled workers including business consultants. The fees and expenditures spent on all of them would be humungous.

Secondly, the length of the work does not only contribute in increasing overhead costs, but also making the project lifecycle extremely complicated to understand for the estimators. The reason being, so many different headings of costs are involved and every other heading requires a separate evaluation and cost estimate.

Furthermore, accounting reports also have to be prepared, including an abstract cost estimate. These complexities can not only make the data management process tedious but also potentially give rise to inaccuracies because there will always be a room for human error. So extra attention to detail needs to be given to ensure accurate estimates.

Quantity Cost Estimate

What is a quantity estimate, and what are its key features?

The quantity cost estimate is one of the simplest cost estimation methods to understand. Using this cost estimate, we should do a quantity takeoff. A quantity takeoff is when we do a comprehensive measure and count of the materials and resources required in the construction process.

We perform a detailed equipment factored estimate wherein we count all the machinery or equipment currently available with us, the labor capacity we have and the material inventory we hold. The material estimate will include inventory as little as a cement block, a brick piece, a measurement tape etc. After getting the quantity takeoff, we will gauge the rate of every unit of the resources to get the unit costs.

After getting and calculating the per unit cost, we will multiply the number of units by their respective unit costs to get the total construction cost estimate or the total project cost. That is it! That is exactly what performing a quantity estimate is. This makes this estimation method the most accurate and efficient because we work directly with resources and our factors or production.

However, like many other cost estimation methods, the quantity cost estimate also has its drawbacks. Firstly, it is extremely time-consuming, even more so than the detailed estimate method. This is because we have to count and measure every single unit of resource, which is supposed to be counted and measured separately.

So typically, even if one small piece of material is ignored, it can reduce chances of accuracy and negatively impact the company’s total cost estimates by either undervaluing or overvaluing them. This can affect our profit margins to a great extent.

Bid Cost Estimate

What is a bid cost estimate, and what are its key features?

The bid estimate, as the name suggests, is again a very detailed and extensive summary calculation of the project’s total cost but keeping in mind the bid. The contractor estimates the costs in a way, such that they can present a competitive bid estimate and ensure their profitability prospects at the same time. A full bid estimate is the price or proposal you give to the client. In a competitive market, many bids are being proposed in the construction industry, which is why every contractor aims for their bid to win.

The whole cost estimate in this type of estimation is designed to fulfill the bid requirement. The general contractor first gauges information about the project’s quotes and current market pricing. Then, the bid cost estimate template and structure is curated and allocated to suit the bidding price. This also in a way, helps in making a feasibility estimate because if at any point the cost estimates start to turn out beyond capacity, the contractor may choose to discontinue the project.

Hence, in a crux, a bid estimate generally aims to cover all associated costs with the construction project. So all kinds of costs are considered, from overhead to external costs. And then a markup is unanimously decided based on market trends to conclude the whole estimation process.

The disadvantages with the bid estimate are mainly about market trends and performance structures. The market prices are prone to constant changes and would not wait any kind of cost estimates. There may be a huge drop in prices after we have performed a thorough budget estimate. This can significantly cause financial and operational losses the construction company.

Hence, it is the company’s best favor to work on the costs first and then proceed with working on the bid and quote. After performing the whole estimation process, it is easier to set up a profit markup than to set it initially and incur losses later.

Control Cost Estimate

What is a control cost estimate and what are its key features?

The control cost estimate is pretty similar to the concept of basic cost budgeting. The construction company performs a detailed cost estimate and then does cost-cutting wherever necessary to suit their financing needs. Any low-yielding cost departments will be immediately discontinued and high-yielding departments will be allocated the highest budget.

This is just a cost-cutting initiative so that the company can invest in more lucrative losses. If it cites itself in a sinking position financially, it can upmarket itself. Moreover, cost control also gives the companies a competitive edge in the market because a systematic resource allocation will make the company’s output more efficient.

Besides all this, there could be piled up recurring liabilities in a company’s statement of financial position. If the debts are too high, it becomes essential to cut down on irrelevant expenses and costs to be able to repay the loans along with the cost of borrowing conveniently.

More accuracy in construction cost estimation: How to ensure it?

The primary reason different types of construction estimates are used is to ensure absolute accuracy and error-free results. However, what are other ways to guarantee the project’s accuracy, given there is more room for improvement? One effective method is to generate cost estimates using historical data and specific formulas to determine the project’s estimated cost. Moving forward, we will discuss some essential ways to ensure a more accurate estimate for our project.

Performing Detailed Estimates

When doing a detailed estimate, there is a thorough an extensive procedure that we perform, from researching and collecting cost sampling data, to performing a quantity estimate. Then we use our cost estimates to structure those costs and designate them in different cost departments.

It is essential to understand that the estimating process is an extremely lengthy and detailed procedure that requires attention to detail. If we skip or pass over any given step because we assume it is frivolous, we inflict our project inaccurately. Hence, following every step is important and writing a scope of tasks can be for our own good only.

Using SaaS Tools and Construction Management Software

It is no big-brainer that technology can make any project and business operational activity extremely seamless. Such will be the case with the construction industry. There are so many construction software like cloud-based software, that we can incorporate and integrate in the estimating process of our projects.

Software like BuilderTrend and PlanSwift can substantially assist an estimator in organizing complex data and documents. There are amazing storage plans in built-in some estimation tools, which can be great source of data management.

Moreover, other technicalities that or labor-driven work can conveniently be discarded and replaced with technology, cutting down the time constraints by ten folds. These tools can also report much of the graphic work like project drawings, scheduling, and performing an abstract cost estimate and other primary construction estimates.

Conclusion

The types of construction estimates used, and the way the cost estimates are navigated are important factors in determining the construction project budgets. To ensure we deliver results with utmost accuracy, we must note that we are educating ourselves on all the various types of construction estimates that exist and are assimilating them into our project planning process. Since they can make or break the foundation of your construction project budgets.

 

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