CONSTRUCTION ESTIMATING

BCN 5625 SPRING 2008 DR. DOUGLAS LUCAS

TYPES OF ESTIMATES The American National Standards Institute (ANSI) defines three types of estimates: Order-of-Magnitude Estimates, Budget Estimates, and Definitive Estimates

Order-of-Magnitude Estimates
Order-of magnitude estimates have an expected accuracy between +50% and -30%. They are generally based upon cost-capacity curves and cost-capacity ratios and do not require any preliminary design work.

Budget Estimates
Budget estimates are based on flow sheets, layouts, and preliminary equipment descriptions and specifications and have an accuracy range of +30% to -15%. Design generally must be 5 to 20% complete to complete such an estimate.

Definitive Estimates
Definitive estimates require engineering data, such as site data, specifications, basic drawings, detailed sketches, and equipment quotations. Design is generally 20 to 100% complete, and the accuracy of this type of estimate should be within a range of +15% to -5%.

Construction Industry Estimate Types

Construction Management professionals and CM consultants generally define three (3) types of estimates: (1) Conceptual and preliminary, (2) Detailed estimates, and (3) Definitive estimates.

Conceptual and Preliminary Estimates

Conceptual and preliminary estimates are generally made in the early phases of a project and tell the owner whether a contemplated project is economically feasible. Conceptual and preliminary estimating methods are different from one type of construction to another. The most sophisticated procedures have generally been developed for large projects in the industrial construction sector.

 Most of the existing conceptual and preliminary estimating methods are found in one or more of the following categories: Time-referenced cost indices, Costcapacity factors, Component ratios, or Parameter costs.

Cost Indices
Cost indices demonstrate changes in cost over time. Generally, they are applied in the construction phase of projects. Many of these types of indices are published in the technical press. Examples include the Construction Cost Index and Building Cost Index published quarterly by Engineering News-Record in the Quarterly Cost Roundup. Two approaches are used to derive these indices. One approach, we shall call Resource Input Approach periodically re-prices and totals a constant package of resources that serve as input to a typical construction project. The other approach, we shall call Output Cost Approach is based on the cost of a completed construction project.

 Resource Input Approach- Example: Engineering News-Records Building Cost Index is computed as follows: Components: 1088 board feet of lumber (2X4, S4S,20-city average),2500 pounds of structural-steel shapes, base mill price, 2256 pounds of Portland cement (bulk, 20-city average), and 68.3 hours of skilled labor (20-city average). We can convert from one base period to another as follows: Current cost in 1991 = 2730 (assumed) Base Cost (1967) = 676 Index on 1967 base = index to be converted index of 1967 base relative to original (1913=100)base = 2730 X 100% = 404% 676

Output Cost Approach Example: Assume that the total cost of an installed hollow metal door in 2007 is $1,030 each and the the cost of the same door during the base reference period of 1957 was $745. Calculate the 2007 cost index for the hollow metal door. Example: 2007 Cost Index = 1030 X 100% = 138% based on 1957 base 745

Examples of published output-type indices include those published by the American Appraisal Company, the Austin Company, the George A. Fuller Company and the Port Authority of New York and New Jersey. These and others are reported by the Engineering News-Record.

 Example: To demonstrate the use of a cost index, let us apply Engineering News Records Building Cost Index to a warehouse. Assume that we have an estimate on file for a similar structure that we completed in 1978 including design and owners expense for a cost of $4,200,000. We are planning to build the new warehouse in 1991. The ENR index for 1978, relative to a base date of 1967, was 1674/676 = 2.48 or 248%. The projected cost for a project of similar size and quality would be: 404% X $4,200,000 = $6,840,000 248% Considering the level of accuracy, we may round this up to a cost of $6,900,000.

Cost-Capacity Factor Estimating

Cost capacity factors apply to changes in size, scope or capacity of projects of similar types. The cost capacity factor is expressed by the following equation: C2 = C1 (Q2/Q1)x Where C2 = estimated cost of new facility of capacity Q2 C1 = known cost of facility of capacity Q1 and the exponent X= the cost-capacity factor for this type of work In a warehouse, gross floor area or enclosed volume might be a reasonable measure of capacity.

Let us use our previous warehouse example. Warehouse cost varies fairly closely with floor area. So for example,we assume first that a cost capacity factor of X =.8 is representative of this type of work. Secondly, assume that we have a current estimate for a similar warehouse located nearby, with a usable area of 120,000 square feet. Further assume that a prospective owner for the new warehouse wants a structure with a usable area of 150,000 square ft. The estimate of the cost-capacity factor for the new warehouse is computed as follows: C2 = $4,200,000 ($150,000/$120,000).8 = $5,020,000 or approximately $5,000,000

 Both cost indices and cost-capacity factors can be combined to take into account changes in both time and capacity. To do so the following formula would be used: C2 = C1 X (I2/I1) X (Q2/Q1)x
where I1 and I2 are the relative cost indices for the times associated with known and proposed facilities.

Assuming that I1 = 2.48 and I2 =4.04 for the warehouse in question, thus putting off construction of the warehouse to the 1991 time frame, the estimated cost would be:
C2 = $4,200,000 X (4.04/2.48) X (150,000/120,000).8 C2 = $8,176,000 or approx. $8,200,000

Component Ratio Estimates

Once contractors have good price quotations for materials and equipment, they can use component ratios to complete component ratio estimates. They can do so by using two techniques: the equipment-installation-cost ratio or the plant- cost-ratios. In the equipmentinstallation-cost ratios approach, the contractor multiplies the installation cost of that equipment or material, including shipping, erection labor, and ancillary fittings and supplies by the purchase price of the equipment . These equipment or material costs are usually computed or taken from historical data the contractor has from previous similar projects. Then the installation cost is added to the purchase cost to get the total cost of the equipment.

 Example: If the contractor knows that he has to install a belt conveyor in our example warehouse, that the conveyor will cost $125,000 and that the installation cost is roughly 50% of the cost of the equipment, he can estimate the total cost of the installation of the conveyor. Cost = $125,000 + .5($125,000) Cost = $125,000 + $62,500 =$187,500 If he has similar information for all of the equipment and materials that are needed to build the warehouse, he can perform similar calculations for every component and then sum them and add profit, overhead and contingency to arrive at an estimate.

Plant-Cost-Ratios
The use of plant cost ratios is particularly useful for contractors that are doing work in the industrial plant or processing plant construction area. For example if the contractor knows that the f.o.b. cost for all the equipment for a fluid process plant adds up to $4,000,000 and that a good historically valid plant cost ratio for this type of project is 4.5, then the estimated total cost for the construction of the plant would be: Total Cost = $4,000,000 X 4.5 = $18,000,000

Parameter Cost Estimates

Conceptual estimates based on parameter costs are most commonly used in building construction. R.S. Means publishes Means Square Foot Costs annually which includes costs for a number of building types as well as for individual construction tasks. For the example warehouse, some of the unit costs are expressed in terms related to the gross enclosed floor area such as mechanical and electrical work; others are related to parameters such as the square feet of wall area for interior construction work such as concrete block work and wall finishes. Parameter estimates can give fairly reasonable levels of accuracy for preliminary estimates.