Cost Estimating
Cost estimating, as applied to capital construction projects, is both an art and a science. The art is knowing which elements of the science of estimating are appropriate to the task at hand. One of the first questions an experienced cost estimator should ask is: "What will this estimate be used for?" The answer to that question will tell the estimator many things: the level of detail required, the appropriate format, how contingency or management reserve should be treated, the proper approach to escalation, and a number of other related issues. Of course, the experienced estimator will ask other questions, such as "what type of contract is contemplated?" before deciding how to apply the science of estimating to the client's project.
Scope - The first challenge is to clearly define the scope of the estimate. For projects at the construction documents [CD] phase, this is undertaken almost exclusively using the plans and specifications. When the plans and specifications are less mature, such as at the schematic design [SD] or design development [DD] phases, the estimating team must engage the design team, both architects and engineers, in a dialogue to fill out the missing information. When preparing estimates for projects in the earliest stages of design, where all that is available are sketches and limited narratives, the estimating team relies heavily on its own experience. Cost estimates of this nature often support proformas for new or expanded business operations and are critical to the operation's economic success, despite the lack of specificity available at that early time.
Quantities - Once the scope is clearly identified, the next task is to quantify the work items or work activities. The estimating team must know how to break out the quantities to reflect differences in pricing. For instance, the estimators must know that quantities of reinforced concrete wall formwork have to be separated into high production formwork, appropriate to crane handled ganged forms verses hand-set or built-in-place forms. While they would appear to be the same type of work, they are quite different when priced.
Often, when undertaking estimates for projects in early stages of design, it is useful to develop the quantities to a higher level of detail than the project information currently justifies. This would be done in lieu of allowances or "square foot" prices. This approach is very useful when the project is subject to change control throughout its design life. As the design matures, the expanded quantities (and pricing) developed at the earlier phase can be compared to the actual quantities (and pricing) developed at the subsequent design phase.
Pricing - It is always a challenge to accurately price an estimate. While the pricing of materials and installation of so called "commodity" type items (conduit, pipe, drywall, tile roofing, etc.) is relatively straight forward, the pricing of more specialized work presents the estimating team with a significant challenge. Mass excavation cannot be accurately priced using database pricing, unless of course, the excavation is identical to that covered by the database both in type, location and time. Otherwise, the estimating team will need to develop the excavation work using specific equipment, haul distances, cycle times, etc.
When database costing is used, it often must be modified based on the circumstances. For instance, concrete work undertaken in a potentially chemically toxic area must reflect the use of personal protective equipment [PPE], which will lower worker productivity.
Other non-"commodity" type items can only be dealt with by soliciting prices from manufacturers and subcontractors. This is where the art comes in. The "street price" and the actual price to the prime contractor at bid time can vary as much as 30 to 50 percent, but at times only 10 percent depending on the state of the market. The estimating team must have the experience to discern these subtleties. Examples of these types of items are process equipment, generating equipment, large one-time castings, computer systems, etc.
Organization of the Estimate - Once the quantities for a project have been determined and the pricing has been established, it would seem that the estimate itself is all but complete. It is important to understand that the cost estimate format is an essential communication tool. The estimate information should be presented in a manner that best communicates that information to the reader.
In general, cost estimates are developed using pricing for labor, material, equipment, and sundries, although in some instances, subcontractor costs may be yet another category.
When dealing with buildings, two common estimate formats are the "Building Systems" format and the "CSI" format. The "Building Systems" approach [sometimes referred to as "Master Format"] categorizes work by function [i.e., structural frame, exterior closure, interior construction, etc.] rather than by trade. The "Building Systems" format is often used in the earlier stages of the design. After the design has firmed up in the Construction Documents phase, the estimate format will likely change to "CSI" which is based on the trade [carpentry, masonry, electrical, etc.] to be comparable to a contractor's estimate.
Cost estimates for process plants are usually organized in a "Systems" format. Each process system with its piping and equipment is presented in a system/sub-system manner. Operations estimates [that is, non-capital cost estimates] are generally organized by process or function so that the true cost of labor, utilities, supplies, etc. can be determined.
Regardless of organization selected, the estimate should be accompanied by a narrative, known as the "Basis of Estimate". This communicates to the reader the purpose of the estimate, its inclusions and exclusions, and limitations. It also describes the documents and information the estimating team relied on while developing the estimate.