Composition of total price of a construction project

The total cost of a construction project comprise of direct cost, contingency costs and margin.

Direct cost includes labor, material and equipment costs related with a construction project.

As for example direct cost for building foundation may contain the following :- 

• Cost of formwork, reinforcing steel and concrete
• Cost of labor to create and later strip the formwork, and position and complete the concrete
• Cost of equipment cost related with foundation activities like concrete mixer.

Contingency costs affect overall project cost which happens during the course of the project. While estimating the project cost there is always some When estimating the cost for a project, product or other item or investment, there is always ambiguity regarding specific content of all items in the estimate, how work will be performed, what work conditions will be like when the project is executed and so on. These uncertainties may create risks to the project. These risk are sometime referred as "known-unknowns" as the estimator is conscious about them and based on past experience, can even estimate their probable costs.

Margin alias markup includes three component indirect or distributable costs, company-wide or general and administrative costs; and Profit.

Indirect costs relate to project-specific cost not related with a specific physical item. These costs may range from project management cost, payroll preparation, receiving, accounts payable, waste disposal and building permits.

Company Wide Cost comprises of costs not associated with project but occurred throughout the course of a project. These types of costs belong to the costs of some parts of company salaries and rentals. Company wide costs may also include the costs occur prior to or after a project. These types of costs relate to proposal preparation cost and the cost of outside auditing.

Profit for construction may come in two ways – Gross Profit and Net Profit. Gross profit is calculated by deducting the real cost of the job from the total price decided. The range of gross profit may range from 25 percent to 40 percent.

But the average net profit creates the bottom line of a construction firm. The average net profit is calculated by deducting overhead expenses from Gross Profit. Net profit is what is left after all expenses are deducted.


Posted by Rajib Dey
Business Development
Global Associates
A pioneer company in construction estimating
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Some useful methods for construction cost estimation

Cost estimation can be termed as a well-devised forecast of the possible construction cost of a specific building project. A detailed cost estimate presents information to owners, architects, and builders about the facility and the project budget throughout the design phase.

A cost estimate should incorporate all the items to be included in the general contractor’s
bid. A standard format is applied to break down the items for preparing the cost estimate. The cost of each item is established from a database of up to date construction cost information.

Accurate cost estimation plays a key role in construction projects that leads to better decision making. There are several methods available to prepare the estimate of a project. These methods are based on the project’s scope, estimating purpose and estimating resources.

Parametric cost models
Under this method a parametric model is applied in which costs are forecasted based on project characteristics (parameters) in a mathematical model. Here models are developed from historical cost data based or from building a model scenario on similar systems or subsystems. Models can be simple (for instance, with the cost per square foot to estimate the total cost of building a home) or they can be complex (for instance, applying several factors to estimate the total cost of home construction, for example the number of floors, windows, and doors).

Statistical analysis is performed on the data to discover connections between cost drivers and other system parameters, for example design or performance parameters. The analysis creates cost equations or cost estimating relationships to be utilized independently or grouped into more complex models.

Bottoms-Up method
This method is applied at the time of progression of level of detail with the advancement of project. Under this method a work statement and set of drawings or specifications are utilized to “takeoff” material quantities necessary for executing each separate task achieved in completing a prearranged operation or generating an equipment component. From these quantities, direct labor, equipment, and overhead costs are derived and added. The contractors always organize this type of estimate to support their proposal bid process. This entails with a detailed WBS and pricing out each work package making up the project.

Top-down estimate
It is subsidiary technique that starts with work breakdown structure (WBS). To get a top down estimated schedule the estimator has to break down the activity and set up linkage between activities. It is applied once a good overall estimate is ascertained for the project and the method is sub-divided down through the layers of the work breakdown structure.

A top-down estimate facilitates a project manager to obtain a very similar project’s budget, work some financial math magic and get a rational budget for the current project.

Top down estimating is primarily applied in construction projects to provide a quick estimate where the prerequisites are more or less static, and there aren't too much unknowns. This method can also be applied for small software projects.

Top-down estimates employ rules of thumb, parametric models, analogies, or cost estimating relationships (CERs). CERs based on historical experience that can present data involving the cost to build up a source line of software or the cost per square foot for a building construction project.

This method estimate the size (duration and cost) and risk of a project (or phase) by looking at the project as a whole and matching it with the similar projects executed in the past.

Specific Analogy Technique
This method is useful for early life cycle macro-estimation. Analogous estimating relies on historical information to forecast the cost of the current project. Under this method one has to select one or two completed projects that most intimately match the characteristics of your launching project concerning the scope of the current project, its size, and other known variables.

The process of analogous estimating considers the known cost of an item used in previous estimating systems as the basis for the cost of a similar item in a new estimating system. If any similarity is found, observe how many effort hours that project took, and utilize the information for your estimate. (If the organization don’t have any tracking for actual effort hours, detect how many people worked on the project for how long, and then regulate the hours as required.) Adjustments are made to known costs to make up differences in relative complexities of performance, design, and operational characteristics.

Watch the following power point presentation for demo.
http://www.nps.navy.mil/orfacpag/resumePages/OA4702/Chapter%2011%20Analogy.ppt

Cost Review and Update Technique
Under this method an estimate is created by investigating previous estimates of the same project for internal logic, completeness of scope, assumptions, and estimating methodology and bring up to date with any alterations.

Trend Analysis Technique
This method compares originally estimated contract costs against actual costs on work performed up till now to obtain a contractor efficiency index. The index is very useful for regulating the cost estimate of work not completed so far.

"Design-to-Cost"
Under this method all cost goals for development, acquisition, or operations and maintenance are utilized like design parameters together with technical performance, in the systems design trade-off process. In some situation where the absolute value of a dollar threshold required to be enclosed, the project definition, conceptual design, and development can deal with performance trade-offs to arrange the project in a predetermined cost envelope.

"Cost as the Independent Variable"
This method is an affordability based method ideal for planning project scope. The method begins with a fixed budget and performs toward the back in the course of a repetitive procedure of prioritizing and choosing constraints to appear at a project scope attainable within budget constrictions.

Posted by Rajib Dey
Business Development
Global Associates
A pioneer company in construction estimating
Join our estimating forum 

DraftLogic Electrical & ConEst IntelliBid 7.0 are now integrated to make electrical estimating process 14 time faster

DraftLogic Electrical, the leading electrical design software is now seamlessly integrated with ConEst IntelliBid 7.0 to feed all line voltage elements of an electrical design into electrical estimating software mechanically. Now electrical systems design, takeoff, and estimating will be put in under one roof.   

This combination will provide some great benefits to electrical designers and estimators as they can easily verify and optimize their estimate because there is NO counting, NO scaling, NO measuring, and NO take off work for line voltage systems.

The electrical designers and estimators will be able to create a completed electrical design and estimate from an architectural floor plan fourteen times faster.  

By utilizing this combination DraftLogic Electrical users can export all elements (devices, feeders, and branch circuit wiring as well as luminaires, receptacles, and motors) of their electrical design with associated details into ConEst IntelliBid's count sheets to get rid of manual counting and data entry.

Panel schedules for every panel and every circuit are settled.  Every interconnection from every Branch Circuit wiring run is settled together with support for DraftLogic Electrical's multiple circuit home run groupings facilitating the estimator not to perform any take-off and scaling work.  Vast detail about each piece of switch gear, motor, and feeder is fed into their respective count sheets, saving thousands of keystrokes.


Watch this video for live presentation


Posted by Rajib Dey
Business Development
Global Associates
A pioneer company in construction estimating
Join our estimating forum

Some exclusive journals containing useful information on construction estimating

Construction Estimating Journal contains various types of compact articles, case studies to simplify the construction estimating process.

Gain knowledge on changing cost estimating methods and techniques and how they are being applied to make better your decision making and benefit an organization.

Use innovative thinking from industry leaders, including the experts who work on the construction estimating projects.

H. G. and F. A. J. Gonsalves. 1994. Life cycle management: An integrated approach to managing investments. Journal of Cost Management (Summer): 35-48.
Read More....

Albright, T. L. and H. Roth. 1993. Controlling quality on a multidimensional level. Journal of Cost Management (Spring): 29-37.
Read More....

Dr. Gianluca di Castri, Italy “Risks and Disruption in Engineering & Construction Project” (2003 – ACostE Seminar, London, England)
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Cost Evaluation of Construction at 500 Bed Tertiary Care Teaching Hospital.
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Construction Congestion Cost (CO) Traffic Impact and Construction Cost Robert I. Carr, Ph.D., P.E. Professor Emeritus of Civil Engineering
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Dr. Kenneth K. Humphreys, PE CCE, United States “Conducting Project Risk Analysis: How to Do It and How Not to Do It” (2003 – NORDNET, Oslo, Norway)
Read More....

Dr. Steen Lichtenberg, Denmark “How to Avoid Overruns and Delays Successfully – Nine Basic Rules and an Associated Operable Procedure” (2004 – Hanscomb-Means Report)
Read More....

Dr. Gianluca di Castri, Italy “Risks and Disruption in Engineering & Construction Project” (2003 – ACostE Seminar, London, England)
Read More....

Larry R. Dysert, CCC, United States “So You Think You’re an Estimator” (2005 – AACE International, New Orleans, Louisiana, USA)
Read More....

John A. Walewski, G. Edward Gibson, Jr. and Ellsworth F. Vines, United States “Risk Identification and Assessment for International Construction Projects” (2006 – Ljubljana, Slovenia)
Read More....

Dr. Maarten Vrijland, The Netherlands “Cost Overrun in the Public Sector: A Case Study” (2004 – Cape Town, South Africa)
Read More....

Dr. J. J. P. (Basie) Verster, South Africa “Real Time Integrated Cost Planning and Control – Mitigation and Resolution of Claims” (2006 – Ljubljana, Slovenia)
Read More....

Dr. J. J. P. (Basie) Verster, South Africa “Managing Cost, Contracts, Communication and Claims: A Quantity Surveying Perspective of Future Opportunities” (2006 – Plenary Lecture, Ljubljana, Slovenia)
Read More....

Construction Cost Management: an analytical taxonomy for critical literature reviewby Mahanim Hanid
Read More....

Posted by Rajib Dey
Business Development
Global Associates
A pioneer company in construction estimating
Join our estimating forum

Construction Estimating Checklist: A New Era of Estimating Service

If you are a newbie in the estimating service zone then you should know about construction estimating checklist and how to organize them. it is not possible to get the help of expensive software for fancy estimate proposals. Well you need at the very least some sort of checklist. There is a lot of free e4ducation and tips online to help your design a good construction estimating checklist. From how to methods to tips, all you have to do is search on the Google.

The Checklist of Construction Estimating

But you have to follow a basic structure for your construction estimating checklist should consist. Assuming you have the name of your company and address already registered, your form should have the following main features on it: Client Information like full name, address, phone number of both work and at home, email address; Project Description like brief description of project to ensure that your estimate includes all the client wants, example would be Kitchen remodel or Bathroom remodel or roof repair and Project ID: as your business grows and you end up deciding on what software will best help you manage your business, you will need each project to have the separate id. As the hope that the client will continue to use you for other projects, each project should have their own identification.

The teamwork to create a checklist

The Estimate: Now break down all the different steps the job will entail with a cost of 10% more that you think you can do the job for. This gives the client some wiggle room to negotiate bringing you back down to where you would have estimated the job to cost but giving the client a feeling of win/win negotiations. Total the cost. But the most important part of this estimate is that it should have an expiration date. You have no control over material cost but know that your supplier revises their cost on a particular day of the week and then your estimate should be in direct correlation to that cost. Your suppliers will give you an estimate of cost in writing guaranteeing the quote till a particular date. Make sure to make note of that date and make sure to include that date in your estimate.

Now make sure to organize your estimate by phases, no more than 3 phases. As you will ask for upfront payment per phase and schedule a walk through the completion of every phase with the client. Make sure to charge them for walk through inspections as the project may require city inspections in addition to your detail inspection which cost time. But this will also help you control the client wanting to do an unscheduled inspection which would take you away from your work and may be an insurance liability.

This should give you a good idea how to get started making an effective construction estimating checklist.

Annual World Of Concrete Show 2011

Annual World of Concrete Show is the biggest show on earth for the commercial concrete and masonry. The most comprehensive commercial concrete and masonry event will take place from 17 to 21^st January, 2011. In just five powerful days, you’ll access all the latest technologies, resources and education you need to keep your business current, competitive and rock-solid. Although this is the first year exhibiting at World Of Concrete or WOC, the organizer are excited to showcase their Job Simplicity product and participate in this premier construction event.

The strength of the industry’s first and most important annual trade show for concrete and masonry professionals can make a world of difference for all types of contractor business like estimating. WOC is the ONLY annual event for the architect, contractor and estimator – no other show has a more focused show floor. If you are in any business segment of the Concrete or Masonry industries, like designing, estimating and all that, this is your show. World of Concrete will bring you quality customers and targeted leads to keep your business running strong in 2011!

In the WOC, there will be two segments; the first is the Seminar (January 17-21) and the other part is the Exhibition (January 18-21). WOC will feature special unique events, a world-class education program with both 3-hour and 90-minutes sessions, industry-specific certifications & exams, interactive demonstrations and competitions, and an opportunity for you to meet with Interntional Exhibitors and network with your peers.

Benefits of Attending WOC:

• See it all in one place. Find everything you need to win more jobs, make more money and streamline your business.
• Get connected. Make new contacts and strengthen your industry connections.
• Work smarter. Learn how to work leaner, greener and more efficiently.
• Get hands-on. See, touch and test the latest products under real-world, jobsite conditions.
• Find new opportunities. Capitalize on the trends that will drive future markets and provide opportunities to profit.
• Get your questions answered. Attend expert-led seminars for the new skills, practical solutions and creative strategies to improve your business.

This is a grant opportunity for all the members of the AEC industry like architects, engineers, contractors, estimators, designer and everybody. This is the most cost effective way to gain multiple leads in the shortest amount of time.

A variety of Functions of cost estimate in construction push you to success

Now- a- days construction becomes that business field which is changing rapidly with the changes of the society. As the total civilization is changing across the world, the demands of people are almost changing with the necessity of present situation. Ultimately the total process of construction is changing itself. To accommodate with the new kind of changes an ideal businessman must concentrate on his project as well as his project cost. Otherwise he or she can not be able to make him or herself stand steadily in the construction business.

So to be a successful businessman you must aware of the importance as well as the functions of the cost estimate in construction

Estimate Project Costs:
To determine the total cost of the project is the main function of cost estimating in construction. To estimate the individual costs of each major component of the project is the second stage of cost estimation. Even when the construction planning begins the project-wide estimate is often done before it. It is one of the vital determining factors in the final cost estimating process.

The factors behind the estimation:
The estimates for the individual parts of the project get underway once the total project budget is established. The estimates for the project depends on all the materials, labor, equipment and subcontractor costs. Such other general conditions like permit costs, temporary office costs, and utility and insurance costs also work as the “factors” behind the estimation.

Developing Materials List:
Materials keep an important part in estimating the cost of the whole project. If the list of materials becomes long, the cost of the project automatically becomes high. In that case the estimation will be done based on the high cost of the project. So an estimator must be careful about the list of the materials as it is an essential part of determining the cost of the whole project before the construction starts at all.
Some materials in a project must be looked at more critically during estimating because slight differences in their features can make big differences in their costs. And individual cost difference makes a great effect on total cost of the project as we have already discussed before.

Specify Equipment Needs:
Equipment to move materials, people and earth must be included in the final project estimate. As the estimators consider how the work will get done, they have to think about what equipment & what kind of equipment will be necessary; as the cost depends on the quality & quantity of the equipments. Estimators have to decide if certain equipment will be hired, or if there is contractor-owned equipment that will do the job. The required equipment must be specified on the project schedule for hiring, and in the case of owned equipment the equipment managers will be notified so that the hiring cost will be saved as well as the estimation will not reach at so high.

Simply, we can say estimation is just like a budget. If we can maintain our budget we will definitely save certain money for our future as we have already decided while do the budget. Similarly, if we can estimate the cost of a project properly we will definitely make a good profit which we may utilize in another project. On the contrary, if we can not we must have to face a big failure. So we must aware of the functions of cost estimate in construction to meet the success.