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

Cost Estimation in a Construction Company

Under the guidance of Prof. K. Narayanan 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. What, why, when, how.

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 engineers list-

Item Tiling Water Proofing . .

Unit sf sf . .

Quantity 1000 1000 . .

Unit price 12 7 . .

Item cost 12000 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 lanemile. 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