Estimation

General

During construction project planning and implementation, we need to know the quantities and costs
of various items required to meet the objective of the project. That is, construction project manager
has to anticipate the cost of project. The process of calculation of quantities and costs of various
items in connection with the construction project is called an “estimate”.

An estimate is prepared by first obtaining the quantity of the items required to complete the project
and multiplied by unit cost of the items. Details of the estimate depend upon the purpose of carrying
out estimate.

The preliminary estimate should be accurate enough to produce the cost of the project within 10%
to 15% variations.

During the life cycle of a project, different parties for various reasons require an estimate. The
details and method of estimations depend upon the needs and level of management decisions. 
Suppose a philanthropic organization wants to start an academic institute. The organization is
interested in knowing how much money is required to be spent. It can be just calculated from the
experience with previous project of similar kind. Such as, 20 thousand money per student has to be
invested. If academic institute is to be planned for one thousand students, 20 x 1000 thousand is
required. Next level of details may be required is how much money is to be invested on different
subheads, equipment, laboratories, hostels etc. These can be calculated based on knowing the area
of construction and cost of construction per unit area. But suppose hostel has to be built based on
specific drawing and specification. Now an estimate will be prepared from the drawing and
specification using specified rules. This estimates form the basis for contract evaluation by the
client. 

Similarly when contractor is bidding for the hostel, he will prepare his own estimate such that he
can buy the contract, also gets profit from the execution of the project. But during construction
period the construction, company has to prepare an estimate for order and supply of the material,
also for resource planning.

Thus we have seen from the above example that the estimate of same item of works differs in
details based on need of the project implementation. Also the level of accuracy needed for the
estimate is dependent on the purpose of estimate. Like estimate for material supply has to be very
accurate because storage of material will be burden for the project. But the accuracy of the estimate
to know the total cost to study the feasibility of the project will not be very high.

Different bodies involved in preparation of estimate can be grouped into following three classes.

1. The owner or owner's staff such as project manager.

2. Contractor's personnel such as senior manager, planner, site management staffs etc.
3. Materials suppliers and contractors

The owner generally employs a project manager/engineer, who helps him in preparation of contract
documents. The contract documents require the bill of quantities. Also, owner should be aware of
the cost to sell the contract. Thus an estimate is required of various quantities. The owner's project
manager prepares these estimates. Tender for the contract in a construction company is prepared by
higher management. These management are helped by estimators, site engineers and material
supplier to prepare the estimate of the job. 

Challenges in Estimating

The job of an estimator is not only to calculate the quantity and cost of the material, but to co-
ordinate different parties involved in the project or construction in particular. An estimator of the
construction company has to get involved with the site engineer, material supplier, instrument
(plant) manager and senior management staff to obtain the various details of the cost and explaining
the calculation to higher management. An estimator has to understand the project details, study
drawing and specification, obtain working conditions, labour and equipment productivity and
collecting other data from the site. An estimate also assesses the temporary work at the site such as
formwork for concreting, temporary plant for the storage of materials. Virtually, an estimator has to
build the project on paper to obtain the right guess.

In the organization, background work for estimation is carried out by higher management and
organizations keeps the details regarding unit cost of the items called schedule of rate, productivity,
and guideline for basic calculation. The basic calculation is carried out by junior level engineers or
assistants.

In preparing detailed estimate, we need to know the following two things

1. Quantities of the items involved.

2. Obtaining cost of the items involved.

Methods of obtaining quantities of the items involved is called quantity estimate and method
obtaining unit cost of the items involved is called rate analysis.

Types of Estimate:

Based on the rigor with which an estimate is prepared, the estimate can be classified as

1. Preliminary estimate.
2. Detailed estimate.

Requirements of preliminary and detailed estimate:

To prepare a preliminary estimate, quantity of work to be planned is measured in terms of unit of

person, built up area, extent of work in kilometer such as a preliminary estimate of housing can be
calculated based on type of house and number of house to be built. Similar preliminary estimate of
highway can be calculated by knowing the type of road in terms of lane or pavement and length of
the load. 

Preliminary Estimate

Different methods of preliminary estimate can be grouped into the following categories –

 Time referenced cost estimate

 Cost capacity factor
 Component ration/installation cost ratio
 Parameter cost
The preliminary estimate is obtained during early phases of project. As the project progresses, an
estimate keeps on getting refined and lastly we get definitive estimate.

i. Time referenced cost estimate – If the cost of construction of facilities is known at a

certain time, the present cost can be estimated by multiplying it with the cost index, with
reference to that time. Generally government finance department publishes cost index based
on depreciation, etc. But this cost index is very crude. Construction department keeps the
cost index based on the items and method of construction used. There are some limitations
of such method. During the time, technology changes; productivity of various equipment
may change; degree of competition may be different. One should be aware of all these
factors while using the cost index to estimate the constructed facilities.

ii. Cost capacity factor – This factor refers to the change in cost of built-up facilities with the
change in size of the project of similar type. If C1 and C2 be the cost of facilities to be built
and old facilities. Let their size be Q1 and Q2 . We can calculate the cost of the new facility
as

Where x is called the capacity factor. Many organizations publish the value of capacity
factor. It is reasonable to consider cost capacity factor between 0.6 to 0.8. The capacity
factor method and time reference method can be combined.

iii. Installation cost ratio – In the industrial project, the equipment to be installed is known
quite earlier to the details for their installation. In such situations, an estimate is prepared
based on the ratio or percentage of the cost incurred as the installation cost. The
organization generally maintains this type of data. Example- The cost of an equipment is
Rs.10,00,000, and its installation cost , including accessories is 50%. Thus the estimated
cost is

10,00,000 + ( 0.5 x 10,00,000) = 15,00,000 

We can consider the equipment in component wise and calculate the installation cost
individually. This approach will require detailed information, but will be more accurate.

iv. Unit Parameter cost – In many of the projects, it is possible to obtain the cost of unit
parameter of construction. These parameters may be unit area, unit volume, etc. This type or
procedures are used in building construction. Residential apartment in our country are
generally estimated using this method. There are different variations of the method. Some of
them widely used are as follows - Residential buildings are generally estimated using this
method.

Requirement for detailed estimate:

To calculate the detailed estimate, complete structural drawing of the facilities to be built up
and specification of the items are necessary. We also need to know the rate of each of the
items, which includes profit of the contractor.
Revised Estimate:

Due to change in the rate of material or change in specification of materials, an estimate is often
required to be modified. Thus, we prepare revised estimate against the original estimate. In the
preparation of revised estimate, original estimate is also provided such that comparison can be
made. There is no change in structural drawing and additional items are not added in the revised
estimate.

Revised estimate is a detailed estimate. It is also accompanied by the original estimate for
comparative purpose. While submitting the revised estimate, the reason for revision should also be
stated.

Supplementary estimate:

During the execution of project, structural modification are required or addition work is added for
construction. The estimate for additional work is called supplementary estimate. Supplementary
estimate is also required to be prepared when some of the items are overlooked. In preparing the
supplementary estimate reason for preparing the estimate would be clearly stated.

Example: Additional partition can be planned in the building. The estimate is prepared for
partitioning as supplementary estimate. Structural / architectural changes are prerequisite for
supplementary estimate.