8 Considerations for Construction Cost Estimates

The largest construction misconception is that financial losses occur during the build, a myth perpetuated due to cost overruns that go unnoticed until project termination. Accurate cost estimation and monitoring provide stakeholders with a sensible alternative to an ill-fated financial overage disclosure when the project ends. On the contrary, negligent cost control ruins contractors and property owners. Inaccurate expense estimates commonly occur due to the complex nature of variable resources. Fortunately, a revolutionary new advancement has emerged to help cost estimators and construction planners mitigate errors.

Construction Estimates Measure Viability

Construction enterprises rely on financial forecasting for survival. [1] Prior to a build, a cost estimator evaluates information for stakeholders, such as:

Property owners hire estimators to determine whether their vision is feasible. Contractors hire estimators to determine whether their firm has enough resources to compete for and complete a project. Therefore, several stakeholders typically employ their own cost estimator for the same project, especially for large projects requiring many discrete appraisals. Ideally, stakeholders recruit estimators before the project begins to evaluate costs based on the following considerations.

Factor 1: Materials

Materials costs include numerous variations in shipping and taxes. Large projects afford builders the opportunity to reduce costs by purchasing materials in volume. [2] However, more materials result in higher shipping and transportation expenses. Cost estimators determine the materials rates using the Standard Data Book.

Factor 2: Labor

Project success rests significantly on securing sufficient labor. Cost estimators also use the Standard Data Book to develop accurate labor forecasts. [1] Secondary benefits, such as employer tax contributions, also represent notable overhead. For reporting purposes, cost estimators calculate wages and then represent the sum as a percentage of total expenses. Wages vary by municipality. Therefore, it is critical that the estimator ascertain correct local rates and immediately update wage forecasts if changes occur.

Factor 3: Equipment

While equipment costs normally appear fixed, estimators try to reduce expenses by using alternative apparatus or rental and purchasing sources. The cost estimator also calculates indirect final expenses, such as equipment insurance or licensing.

During project execution, the estimator adjusts the budget when equipment changes arise. The cost estimator requires blueprints that are at least 25-percent complete to produce an accurate equipment expense forecast.

Project scope directly affects equipment costs. Whether stakeholders buy or rent apparatus, as well as how the devices interact with each other, also affects equipment costs considerably.

Factor 4: Logistics

Today, a relatively new technology called Business Information Modeling (BIM) allows estimators to compare similar, local construction projects. Early on, the cost estimator determines how location affects the budget. This information also reveals conditions that apply to the current project.

If materials originate excessively far from the construction site, project costs rise sharply. This increases costs for many project components requiring transportation. Geographical risks also factor into overall project costs but are sometimes difficult to quantify.

Factor 5: Plan Quality

A quality project plan increases operational efficiency and prepares builders for the best possible chance for successful build completion. [3] Poorly drafted plans cause confusion and diminish contractor confidence. Ambiguous specifications might even influence the contractor to charge extra to protect project financial viability for his or her firm.

Inaccurate specifications and omitted details, as well as incomplete blueprints and build plans, cause project delays and budgeting errors. These threats make blueprint and plan review by a veteran estimator paramount. Individuals who are familiar with the project parameters easily identify grievous and expensive errors.

Factor 6: Insurance

As the project plan nears completion, the estimator evaluates insurance costs. [2] To protect the project from risks, insurance is necessary for all staff members, tools and equipment, in addition to standard performance and payment bonds and contractor liability coverage. If the project involves special risks, the insurance estimate must include appropriate additional coverage. Depending on the shipping arrangements, insurance for materials and equipment while in transit is another incidental cost.

All contractors face different risks during the build. While experienced contractors know how much coverage to buy for most jobs, it is best that a qualified risk manager review the insurance estimates for accuracy.

Factor 7: Legal

Litigation arising from structural defects has changed the construction trade. Until recently, contractors have enjoyed enhanced protection from long-term workmanship liability. However, some district lawmakers have enacted legislation that is more balanced.

Liability structure grows increasingly complex as contractors hire subcontractors to meet work demands. When this occurs, some jurisdictions do not transfer liability to the subcontractor, which results in the original contractor passing the expense of additional insurance on to the property owner if possible. Otherwise, the added expense causes the contractor to lose profits.

The American Subcontractor Association has lobbied to limit the liability incurred by its members. As a result, accurate insurance estimates are particularly intricate and demanding.

Factor 8: Environmental

As green proponents weigh in on every threat to the environment, public calls for change and governmental intervention soon follow. [1] In league with this relatively new environmentally friendly thinking, the United States Green Council administers the Leadership in Energy and Environment Design (LEED) rating system, while the United States General Services Administration publishes the GSA LEED Cost Study outlining the expenses involved with LEED certification. The publication presents two cases, a new courthouse build and a courthouse eco-renovation, as examples of expenses incurred when building green.

A companion publication, the GSA LEEDS Application Guide, reviews how LEED certification planning affects upfront costs as well as how to manage LEED construction projects. The companion piece also explains how LEED certification helps contractors comply with GSA mandates. The Cost of LEED Certification by Joseph Perryman reviews how LEED certification affects construction projects and what role the cost estimator plays in LEED qualification. Additionally, construction trade periodicals frequently distribute news on current private sector and government LEED topics.

A Long Overdue Advancement

As the first innovation after a long period of inactivity in construction technology advancements, cost estimators benefit from the enhanced capability of building information modeling (BIM). Construction technology experts view BIM as an invaluable – and unstoppable – asset. The technology eliminates many common manual construction planning and design tasks.

While expensive, BIM users recoup costs several times over through reduced operational and labor expenses. The technology allows users to incorporate planning details from multiple disciplines, such as architecture – engineering and interior design – allowing cost estimators and planners to view how all project elements come together before the first project task begins. This capability allows planners to avoid designs that look perfect on the blueprint but do not work in real life, thereby eliminating the need to change build specifications during construction.

The technology is a boon to cost estimators, because it links directly to material rate databases. Using BIM technology, construction planners instantly provide visual renderings, three-dimensional virtual tours and numerical reports suitable for public and client consumption. As more laws mandate BIM technology adoption and the service opens up to more firms as it moves on to the cloud, the construction trade will require talented BIM proficient civil engineers.

Learn More

Civil engineers play a crucial role in engineering the structural solutions of tomorrow and plan, design, construct, and operate the infrastructure essential to our modern lives. As a student in the online Master of Science in Civil Engineering program, you can enhance your quantitative decision-making skills and learn how to justify managerial decisions with data. You will also explore the capabilities of modern management technologies and discover how to successfully leverage these tools to maximize efficiency in your projects and on your teams.

Sources:

[1] https://www.wbdg.org/design-disciplines/cost-estimating
[2] http://theconstructor.org/construction/preparation-of-detailed-construction-estimate/6476/
[3] http://www.constructionbusinessowner.com/topics/software/estimating/top-10-construction-estimating-mistakes
[4] http://www.zdnet.com/article/the-future-of-construction-meet-bim-or-else/
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