In construction, estimation is the process of forecasting the costs of building a structure. The estimating process may span several phases of a project, mirroring concept, schematic design, design development, and final construction documents. Estimation is typically handled by the general contractor. Be a little careful with estimates prepared by architects and engineers in the design team—they often do not have their finger on the pulse of market conditions and tend to use industry unit pricing. Complex projects often benefit from estimating services provided by a construction management company, as an independent estimate helps validate the contractor’s pricing and sets proper client expectations.
What does construction estimating entail?
Cost estimation in construction project management is a multi-faceted activity. On the one hand, the process quantifies a project’s construction costs; on the other, it assigns a dollar value to risks, i.e. the exposure to possible things that can go wrong, unanticipated conditions or requirements, change orders, and actual losses.
Hard and soft costs
Construction costs are broken into two categories: hard and soft costs. The former account for all materials, labor, equipment, general conditions and fees for all work performed by the general contractor that must be purchased to build out the site and erect a structure.
In an estimate, hard costs are organized to reflect the Master Format divisions, which vary depending on the project’s complexity, but typically include at least the following:
- Existing conditions and general requirements
- Woods, plastics, composites
- Thermal and moisture protection
- Doors and windows
- Special construction
- Conveying equipment
- Fire suppression
- Exterior improvements
In addition to the above, a general contractor will add their own general conditions (management labor) fees, taxes, insurances, bonds and any other costs. To quantify these items and determine what each scope of work entails, estimators rely on drawings and specifications. It goes without saying that the more complete and accurate the drawings the better and more accurate estimate you’ll receive.
Too often clients view architecture and engineering as commodities, rather than looking for best value. Is it generally better to pay the design team for complete drawings rather than have the contractor interpret them and provide change order pricing for what is missing and ambiguous later.
Next, each scope must be priced. The unit rates come from a wide range of sources. Preliminary estimates may use historical pricing data, whereas bidding estimates-those which demand higher accuracy-are based on actual quotations from subcontractors and/or vendors.
Soft costs cover items and activities peripheral to construction. These include permits, entitlement, design, engineering, construction management, consulting, certain forms of insurance, and financing costs among others. Less understood than the hard costs of physical construction, soft costs are more difficult to pinpoint, and typically require a construction manager’s input. Soft costs are also directly related to the duration of design and the owner’s ability to make decisions and not change the scope.
What are the types of estimates?
Estimating progresses over several stages. Design estimates may be produced by architects, engineers, the client’s construction management company, or by the general contractor. Often, estimating starts when the design team gets to work and doesn’t end until construction drawings are issued. Below are the types of estimates produced at various stages of design:
Concept Estimate. Also called an rough order of magnitude (ROM) estimate performed early in the project, this preliminary estimate is typically based on the conceptual design and historical costs per square foot. The procedure establishes ballpark costs and the project’s overall viability, and also helps set the client’s expectations and may assist in determining the most suitable construction methods and materials.
Schematic Design Estimate. A schematic design is the architect’s first attempt at interpreting the client’s vision and taking it to the drawing board. The next estimate will rely on these initial drawings for quantities and will help the project team balance the client’s design intentions with their budget expectations.
Design Development Estimate. As the design progresses, engineering and architectural details and finish decisions are incorporated, further estimates will allow the client to track forecasted budget expenditures and understand his or her design decisions correlate to cost.
Construction Documents. General contractors bidding on a project produce an estimate based on the construction documents. The resulting bid estimate forms the basis of their bid or proposal, and, depending on the contract type, may bind them to the quoted price. On large, or complex projects, it helps to have a qualified, experienced construction management professional review the bids and ensure that the quoted prices reflect the client’s design intentions and that all design requirements have been interpreted and priced correctly.
Whatever your project, the budgeting process is central to its success. Be sure to retain professionals to assist you in evaluating the costs so you can meet your budget.