Cost Estimation in a Construction Company Under the guidance of Prof. K. Narayanan Department of Humanities and Social Science Indian Institute of Technology,

Cost Estimation in a Construction Company

Under the guidance of Prof. K. Narayanan

Department of Humanities and Social Science Indian Institute of Technology, Bombay

Submitted by :- Deepak Garg (05329015) Priyesh Wadhwa (05329011) Saurabh P. Singh (05329037) Mukesh S. Rawat (05329020)

Road Map• Introduction

• Types of Construction Cost Estimates

• Approaches to Cost Estimation

• Unit Cost Method of Estimation

• Other Methods

Introduction• Cost Estimation

– Cost estimation is one of the most important steps in project management.

– Why• Feasibility study.• Profit measures.

– How• Advanced software packages are available.

Costs in Construction Firm• Initial Capital cost

– Land acquisition– Planning and feasibility studies– Architectural and engineering design– Construction, including materials, equipment and labor– Insurance and taxes during construction

• Operation and maintenance cost– Operating staff– Labor and material for maintenance and repairs– Utilities– Periodic renovations– Insurance and taxes

• Unexpected cost during construction– Design development changes– Schedule adjustments– General administration changes

Types of Construction Cost Estimates• Design Estimates

– Screening estimates (or order of magnitude estimates)– Preliminary estimates (or conceptual estimates)– Detailed estimates (or definitive estimates)– Engineer's estimates based on plans and specifications

• Bid Estimates– As a contractor, a bid estimate is submitted to the owner

either for competitive bidding or negotiation.

• Control Estimates– Budget estimate for financing– Budgeted cost after contracting but prior to construction– Estimated cost to completion during the progress of

construction.

Approaches to Cost Estimation

• Production function

Q = P(I1,I2,….. In)

• Empirical cost inference

• Unit costs for bill of quantities

• Allocation of joint costs

Unit Cost Method of Estimation

Simple Unit Cost Formula

Formula Based on Labor, Material and Equipment

Example

• Cost estimate using labor, material and equipment rates.

Other Methods• Allocation of joint costs

- Difficult causal relationship b/w element and associated costs

- Joint costs are prorated in proportion of basic costs of elements

For example : F being overhead associated with different elements

Fi = F * yi/y

Then total cost can be written as :-

Li = yi + Fi

• Historical cost data- Widely used for forecasting / estimation future costs

- Collected and organized for future use

- Continuous updates

- May effect cost substantially if relative prices change

Other Methods contd.• Cost indices

- Reflect price level changes for inputs and outputs

- Weighted aggregate average of different components of selected element

- Can be used for cost forecasting with historic data

- General price indices are provided by govt.

- Construction specific price indices are collected from industry sources

- Screening estimates are generally made on single factor like constructed area, no. of rooms etc

- Adjustments are made to these using

- Inflation indices

- Construction specific indices

of detailed factors

Other Methods contd.•Based on Engineer's List of Quantities

- based on a list of items and the associated quantities

- list is provided to contractor

- costs for winning bidder is taken as starting estimates

- progress payments are made to contractor depending upon the units of work done and unit prices listed

- each unit defined the level of detail of measure

- ex. Sample entries in bid table for engineer’s list-

Item Unit Quantity Unit price Item cost

Tiling sf 1000 12 12000

Water Proofing

sf 1000 7 7000

.

.

.

.

.

.

.

.

.

.

Rs.19000

Computer Aided Cost Estimation • Types:

– Simple spreadsheet calculation software.– Integrated systems.

• Features:– Databases for unit cost items.– Databases of expected productivity for

different components types, equipments, and process.

– Version control, Flexible reporting formats, import and export utilities, archive of past projects.

• Advantages: Rapid cost estimation and with less efforts.

• Example : as will be shown

Estimation of Operating Costs • Depends upon: maintenance

policies and facility use.• Minimized by: periodic repairs

and rehabilitation at periodic intervals.

• Example: Maintenance cost on a roadway– C = 596 + 0.0019 V + 21.7 A – Where, C is the annual cost of

routine maintenance per lane-mile.

– V is the volume of traffic on the roadway measured in ESAL (equivalent standard axle loads)

– A is the age of the roadway in years since the last resurfacing.

Case study• Raheja builders

• Estd. in 1952

• Uses simple unit cost estimation method

• Uses simple accounting tools

• In process of configuring ERP

Thanks

Questions?

Allocation of Construction Cost over time

• Rate of work done during various time periods expressed in percentage of project cost per unit time.

• The value of work completed at a given time expressed as a cumulative percentage of project cost

Example

• Decomposition of a building foundation into design and construction elements.

Price indices in subsequent years show a proportionate changes due to price changes. Percent change in price indices for year t+1-

jt+1=((It+1-It) / It )* (100%)

- Measure price level changes