How to Estimate a Construction Project

How to Estimate a Construction Project

Accurate cost estimation for a construction project is crucial for creating and maintaining a budget for project costs. Read more to learn how to estimate a construction project. 

Article Overview:

— Construction project estimate terminology that you need to learn and know. 

— Key elements of a construction project estimate to ensure accuracy and getting approved. 

— Simple steps for creating a construction estimate so you don’t recreate the wheel every time. 

What is a Construction Cost Estimate?
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What is a Construction Cost Estimate?

Construction estimates are used to get a general idea about the approximate project cost to complete. Here, the contractor gathers information from specs and quotes to determines how much labor and raw material to estimate the project.

An accurate construction cost estimate is crucial to a successful construction project. The more accurate a construction cost estimate is, the more specific and detailed the project duration and construction costs will be. However, getting an accurate construction cost estimate can be hard. And the consequences of an overestimate or underestimate can detrimentally harm projects. The amount of time and effort put into a construction cost estimate saves businesses time and money in the end. While the systems are more complex, the methodology for performing a construction cost estimate is relatively straightforward. This brief guide can help you increase your abilities to create a construction cost estimate.

Construction Project Estimate Terminology

Here is a list of terms that are helpful to know about a construction project estimate.

Order of Magnitude (OOM) – are rough estimates delivered in a range based on historical project data and expert judgment. OOM occurs before the building starts.

Schematic design – Is one of the first steps in the construction process. The architect and client will talk about the requirements and goals for the project. It offers a rough drawing of site plans, floor plans, elevations in an illustrative view. 

Takeoff – also known as an MTO (Material Takeoff). In the development of an estimate, takeoffs are the process of analyzing specifications and technical drawings to determine all of the elements for a project. 

Bill of Quantities – Is a Contract document that itemizes all workmanship and materials involved in a project, used for helping price a project.

Bid – is an alternative to the estimate. This means the contractor (or subcontractor) agrees to a project in terms of the specific scope of work for a price. 

Uniformat System – is a standard for classifying building specifications, cost estimates, and cost analysis for buildings in the US. 

Quote – is a document that lists the expected costs associated with a proposed project. Because the prices of materials and labor fluctuate, quotes can expire. Quotes are disclosed before projects begin because they rely heavily on the demand and supply of materials and labor. 

Squaring – the calculation of volumes and areas for dimension calculations. 

Abstracting – transferring the squared calculations to an abstract, which someone can put into the right heading for the bill.

Stick Estimating – complete list of materials, the labor schedule down to the hour, all vendor proposals, costs, profits, all data points.

Direct Costs – are the accountable costs and expenses on facility, product, or function. In construction, direct costs are usually materials, labor, and equipment. 

Indirect Costs – are unaccountable costs that don’t have a direct connection with the construction project. Examples of indirect costs are overhead costs, security costs, travel costs, and administration costs.

Elements of a Construction Estimate
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Elements of Creating a Construction Project Estimate

One project’s construction cost estimate will use the same elements and methods as another project; however, each project is unique, and costs will vary.

Equipment Costs – must include equipment costs with cycle times, equipment capacity, and rent vs. owned equipment fees. 

Quantity Takeoff – with this, the estimator will look at the specs and designs to determine and identify the correct materials needed for the project. Without a quantity takeoff, the estimate will be inaccurate.

Labor Hours – Including labor hours in an estimate will vary the productivity expected to create a given project.

Labor Rates – with a basic wage and benefits estimate, you need to have labor rates to account for the various taxes and possible overtime work with the increased costs for the additional hours.

Material Prices – these given prices usually fluctuate because of current market demand and supply, the cost of transportation to the facility, the quantity demanded, and finally, the exchange rates if the materials are from outside the US.

Subcontractor Quotes – Most parts of projects are completed by specialty trades that work as subcontractors. Their quotes take into account material, labor, and equipment costs. #PowerToTheTrades! 

Indirect Costs – Indirect costs are essential in the estimation of a construction project because they are easy to forget since they are not directly related to a building project. Costs from legal fees, permits, design fees, utilities, etc. truly help make estimates more accurate.  

Design Phase of Construction Estimate
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Construction Cost Estimation Overview

The American Society of Professional Estimators lays out five levels of system estimates, which correspond to a level of accuracy. As more data comes in at the other levels, the estimates become more accurate, while ensuring it is the right program for them. 

In the design stage of a project, it is useful to use the design estimate. Within the design estimate, estimators use the Order of Magnitude level, Schematic Design level, and Design Development level. Schematic Design estimate uses the schematic design to estimate costs and help determine feasibility. Additionally, design development and construction document phases use the engineer’s estimate and construction documents. After the five levels of estimates, there are three types of estimates, and they correspond to the various levels and project stages.

The Bid Estimate phase presents the bid. It uses multiple data points, such as construction documents, takeoffs, and other direct costs. With these data points, the estimator determines an approximation of what the job should cost and submits it with the other paperwork for consideration to work on the project. Submitting paperwork is crucial in project management because it tracks information flow, keeps everyone on the same page, and makes information accessible.  Accurate estimates can help the business win more jobs. If a construction firm has a reputation for staying within estimated budgets, they are apt to win more jobs than low bidders who consistently go over budget.  

Order of Magnitude
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Levels of Estimate

Level 1: The Order of Magnitude 

The order of Magnitude determines feasibility before the project design starts. It is based solely on expert judgment and previous costs of similar projects. The typical range in this level is from -25% – 75%. 

Level 2: Intermediate Estimate

The primary purpose of the intermediate estimate is to determine project feasibility from the concept of the general project. Large-scale commercial projects develop this type of estimate because they use the information to decide whether to carry 0ut or abandon the project. 

Level 3: Preliminary Estimate

This estimate uses a moderately detailed scope to combine unit costs. Usually, project budgets are estimated off of the preliminary estimate because it is accurate enough for basic financing.

Level 4: Substantive Estimate

The substantive estimate is based on estimated unit costs. The estimate is created by analyzing reasonably finalized project designs, objectives, and deliverables that are established by the company. Additionally, it used to control project expenditures to stay within the budget. 

Level 5: Definitive Estimate

This estimate is the most accurate and reliable because it occurs when costs are known. It is used to create bids, tenders, and cost baselines. All estimates are calculated by assumptions and can be susceptible to change when costs are updated.  

Construction Estimate
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Creating Construction Cost Estimates

Creating a construction cost estimate might seem daunting. And when considering that cost estimating was performed by hand, it can seem impossible. However, nowadays, some systems and tools make a construction cost estimate easier. 

The Uniformat System for building estimation is a government standard for estimating buildings. It starts with the significant group elements then drills deeper into individual elements. This helps break up building estimates, so they’ll be easier to understand and complete parts of projects.  

Besides dividing up cost estimation into specific groups, estimators must include a bill of quantities. The bill of quantities is an itemized list of work and materials necessary for the project. For a construction cost estimate, that would include takeoff quantities and more to get the accurate number. Estimators use elements like takeoffs, construction documents, squaring, and abstracting to come up with the appropriate amounts for billing.

Construction Estimating by Hand
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Cost Estimation Approaches

Estimators use and gather almost all the same data in nearly the same way. How they use the data in their estimates differs by their approach to construction cost estimation. Some cost estimators use unit cost estimating. When every unit of work has an associated cost, it’s relatively easy to put together all the data into an estimate.

Another incredibly accurate measure of estimation is called stick estimating. It uses a complete list of materials, the labor schedule down to the hour, all vendor proposals, costs, profits, all data points. Then the estimator takes the list of items and calculates the total cost and uses that as the estimate. It’s incredibly accurate, especially for estimators with many years in the industry.

Estimating Construction Costs By Hand:

Though this is the approach that the construction industry USED to do, it is prone to errors. Not to mention, it is a waste of valuable time, and it is not a repeatable or scaleable process. Often, estimators think they are detailed with their documents, takeoffs, and scope, and it is still highly probable that there will be an error in numbers.  Remove the potential for manual errors and leverage estimating software.  

To automate the next step of migrating the approved estimate into action (not another project-specific spreadsheet), using Construction management software can increase efficiency on job-sites and improve project delivery processes by reducing mistakes, unnecessary costs during construction. With eSUB’s construction management platform, you can input data of material costs, equipment costs, labor hours, so you can track real-time payment status, complete purchase order tracking, and receive faster approvals. All of this collected project data is your single source for truth, accessible/reportable in real-time, and can be used for optimizing future project estimates and bids. 

Building Information System
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Using Building Information Modeling (BIM) to Estimate Construction Costs:

BIM is the process of generating and managing digital representations of the functional and physical characteristics of places. 3D computer models show how certain materials will hold over time. BIM incorporates CAD (Computer-Aided Design) software to draft the image with the help of specs and designs. With the combination of 3D-Design and Cad, images are manipulated to see how they fit before the ordering of materials. BIM representations can estimate costs, plan construction, and predict performance. 

BIM can automate calculations for the estimation process. Building information modeling is a useful tool in the analysis of design decisions. Since BIM has the option of versatility with visualizing different alternatives, engineers can determine costs faster than by hand.   

If a project is complete and there is a need for renovation and expansion, BIM can reveal the location of components, even if they are in the walls and floors. In already existing projects, it is hard to estimate the costs of initially installed units. Since BIM can improve the accuracy 

Final Thoughts

In this information age, the tools needed for estimation are easier to find, which increases the expected accuracy of construction cost estimation. Understanding all of the elements involved in a proper cost estimate makes it easier to produce a more accurate number. Accurate estimation matters in construction because it determines whether a project will succeed on time and budget or not. With the understanding of a basic construction cost estimate and the right tools, a more accurate estimate will be easier to come by.