Lecture 6: Estimating Cost and Cash Flow

Instructor: Sang Hyeok Han

Department of Building, Civil, and Environmental Engineering
Concordia University

Coding System
Project Code
Standard Code
A project Code system provide the framework for project
planning and control & is used to interface with:
Management & Supervisors
Numbering of drawing & specs
Procurement documents
Scheduling codes
Cost Codes
Accounting codes
<#>

Project Cost Code Structure

Cost coding system provides the multiple or
hierarchical levels of cost spending typical of complex
construction projects.
The work account descriptions or designations vary
in accordance with the type of construction.

<#>

Project Cost Code Structure

The standard cost accounts published by the
American Road Builders Association based on the
MasterFormat Classification.
MasterFormat classification is used by the R. S.
Means Building Construction Cost Data

Division
Level 2
Level 3

Level 4
Level 5

03 11 13.25

5000
All concrete items
Concrete Forming
Structural Cast-in-Place Concrete forming
Forms in Place, Columns
Structural cast-in-place concrete forms
made of plywood and used once for jobbuilt 8 8 columns

Construction Cost Estimating

Conceptual or Preliminary Estimating: Made in the early
phases of a project.
High
Time - Referenced Cost Index Estimate
Cost - Capacity Factor Estimate
The Cost Per Function Estimate
Parameter Cost Estimate
Low

Accuracy
and
complexity
to produce
Project life cycle
<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Time - Referenced Cost Index Estimate

Cost index describes changes in cost over time
Estimate the cost based on the cost of similar facility
completed in earlier years (accuracy = 20-30%), not
consider other factors such as size or capacity etc.
It can be used in planning and policy decisions early
in the life cycle of a project
Estimated Cost = Cost of Similar Project (Year Y)

Cost Index (Current year)

Cost Index (year Y)

Index to be converted
Index on 1967 base =
<#>

Index of 1967 base

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Time - Referenced Cost Index Estimate

-Engineering News Records (ENR) Cost Indexes Types
(http://www.enr.com):
Building Cost Index: Is calculated to measure the cost
of purchasing a package or components
Example: How Much it cost to purchase 3250 (2x4 board
feet of lumber),
3000 pounds of structural steel shapes,
base mill price,
120.5 Hours of skilled labor...

Construction Cost Index: It is used when labor costs

are higher proportion of total cost
<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Time - Referenced Cost Index Estimate

Example: Use ENRs Building Cost Index type
-

Assume that a similar structure is completed in 1978 including

design and owners expense for a cost of $4,200,000.
A warehouse with similar structure is constructing in 2015.
The ENR index = 1674 in 1978, 14217 in 2015, 676 in 1967.
Calculate the estimated cost for a project of similar size and
quality

<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Cost - Capacity Factor Estimate: Estimates the cost based on

the cost of a similar facility with a different size, scope, or capacity
(Accuracy 15 - 20%).

- Has been widely used in the petrochemical sector of the

industrial

C2 = C1 (

Q2
Q1

Where:

C2 - Estimated Cost of new Facility of Capacity Q2

C1 - Known cost of Facility of Capacity Q1
x - Cost capacity factor (for building Construction = 0.8)
<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Cost - Capacity Factor Estimate:

Example:
Estimate the cost of a warehouse with a useable area of
150,000 S.F., knowing that a similar warehouse with a
useable area of 120,000 S.F. was constructed for
$4,200,000.00.
(assuming cost capacity factor = 0.8%)
C2 = 4,200,000 * (

0.8
)

150,000
120,000

C2 = 5,020,850.62

$5,000,000.00
<#>

Very approximate and

preliminary estimate

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Combination of Cost Index & Cost - Capacity Factor:

Take into account changes in both time & Capacity.

I2
Q2
)*(
I1
Q1

C2 = C1 (

x
)

Previous Example

2103
Estimated Cost = 4,200,000 (
248
Estimated Cost = $ 42,576,003
<#>

*(

150,000 0.8
)
120,000

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Cost Per Function Estimate:

Cost is estimated based on expenditures per unit of use
once more information can be obtained in the engineering
and design progress.
Example:
$/Bed for Hospital
$/Bed for nursing home
$/Seat for Auditorium & Theaters
$/Car for Parking Lots
<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Cost Per Function Estimate:

Example: Estimate the construction cost of a hospital that has a
capacity of 100 beds. The estimated cost should cover overhead and
profit & does not cover design and land costs

850 S.F per bed in Hospital

Unit cost / S.F. = $145.00/S.F.
City cost index (Montreal) = 104.2%
Cost Multiplier for project size modifier = 0.97

<#>

Solution:

Estimation of Gross Square-Foot of Gross Floor:

Modification of $/S.F. Based on City Cost Index:

Project Size Modifier:

Total Construction Cost:

<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Parametric Cost Estimate: most commonly used in

building construction
Relates all costs of a project to a few parameters that
reflect the size and scope of project.
R.S. means provide unit costs for a number of
building types with construction tasks.

<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

<#>

Construction Cost Estimating

Conceptual or Preliminary Estimates:

Building
construction cost
data published by
R.S Means
<#>

Construction Cost Estimating

Detailed Estimates:

Steps:
1. Identify all direct cost activities (WBS).
2. Perform Quantity takeoff for each activity (from
drawings only for activities constructed by the contractor not
for those subcontracted).

3. Estimate direct cost for each activity.

4. Calculate total direct cost of all activities.
5. Estimate total project indirect cost
6. Estimate project mark-up
7. Total project bid = Direct Cost + Indirect Cost +
Mark-up
<#>

Construction Cost Estimating

Detailed Estimates:
1. Identify all direct cost activities
2. Perform quantity takeoff for each activity:

<#>

An example for perform

quantity takeoff for each
activity:

<#>

Construction Cost Estimating

Detailed Estimates:
3. Direct cost estimate for each activity:
It is the cost that can be directly assigned to a specific
activity and it includes:
L) Labor Cost.
E) Equipment Cost.
M) Material Cost.
E) Subcontractor Cost.

<#>

Construction Cost Estimating

Detailed Estimates:
3. Direct cost estimate for each activity:
L) Construction Labor Cost.
1 - Estimate A: Daily labor cost.
A ($/day) = [Hourly rate ($/mhr) * 8 h/day]
2 - Estimate P (productivity): Crew daily output
P (Unit/day)
(some use historical data)
3 - Estimate B: Unit labor cost.

A ($/day)
P (Unit/day)
4 - Estimate L Labor direct cost
B ($/Unit) =

L ($) = B ($/Unit) * QTY, of work (units)

($) = [($/day)/(Unit/day)]* (Unit)
<#>

Example: Estimate the labor cost for the formwork of a

continuous wall footing that has a QTY of 500 Square
Foot of contact area (SFCA), Montreal, QC, 2016.
Solution:
The activity is constructed by crew C1 that has a daily
output of 375 SFCA/day:

<#>

Solution:
Carpenters and 1 laborer are required at $48.45/hr and
$37.90/hr from R.S. Means, respectively.
1. Crew labor cost A:
A ($/day) = [Hourly rate ($/mhr) * 8 h/day]
= [3 * 48.45 + 1 * 37.90]* 8 = $ 1466.00/day
2 - Crew daily output P: Given (P = 375 SFCA/day)
3 - Unit labor cost B = A/P
B ($/Unit) = ($1466.00./day)/(375 SFCA/day)
B = $ 3.91 / SFCA
4 - Total labor direct cost L = B * QTY
L ($) = ($ 3.91/SFCA)*(500 SFCA) = $1954.667
<#>

Construction Cost Estimating

Detailed Estimates:
3. Direct cost estimate for each activity:
Construction Equipment Cost: (Equipment used for construction
installed equipment considered material)
Types of Construction Equipment:
1- Major Equipment
1.1 Earthmoving machines
1.2 Concrete pomp
1.3 Cranes,.
2. Minor Equipment
2.1 Power tools
2.2 Water hose,.)

<#>

Construction Cost Estimating

Example: Estimate the equipment cost for a construction
activity that requires N crew (from the former example)
Solution:
1 - Daily Equipment Cost A: (combined O&O) (power tool)
A ($/day) = [Hourly rate * 8 h/day] = $23.40/day
2 - Crew daily output P: (P = 375 SFCA/day)

3 - Unit Equipment cost B = A/P

B ($/Unit)=($23.40/day)/(375 SFCA/day)=$ 0.06 / SFCA
4 - Total Equipment direct cost E = B * QTY

E ($) = ($ 0.06/SFCA)*(500 SFCA) = $ 31.2

<#>

Construction Cost Estimating

Detailed Estimates:

Steps:
1. Identify all direct cost activities (WBS).
2. Perform Quantity takeoff for each activity
3. Estimate direct cost for each activity.

4. Calculate total direct cost of all activities.

5. Estimate total project indirect cost
6. Estimate project mark-up
7. Total project bid = Direct Cost + Indirect Cost + Mark-up

<#>

Construction Cost Estimating

Detailed Estimates:

Steps:
1. Identify all direct cost activities (WBS).
2. Perform Quantity takeoff for each activity
3. Estimate direct cost for each activity.
4. Calculate total direct cost of all activities.
5. Estimate total project indirect cost
6. Estimate project mark-up
7. Total project bid = Direct Cost + Indirect Cost + Mark-up

<#>

Construction Cost Estimating

Detailed Estimates:
5. Estimate Project Indirect Costs
They are costs that can not be assigned directly to specific
construction activities, they represent 30% of project direct
cost. This includes:
1. Workers Compensation
2. Main Office Expenses
3. Field Office, Photos
4. Field Supervision
5. Tools and Minor Equipment
6. Performance and Payment bonds
7. Taxes
8. Insurance
<#>
9. Overtime

Construction Cost Estimating

Detailed Estimates:

Steps:
1. Identify all direct cost activities (WBS).
2. Perform Quantity takeoff for each activity
3. Estimate direct cost for each activity.
4. Calculate total direct cost of all activities.
5. Estimate total project indirect cost
6. Estimate project mark-up
7. Total project bid = Direct Cost + Indirect Cost +
Mark-up
<#>

Cash Flow
Cash flows can be estimated by attempting to assess
flows from:
(1) Projects in progress
(2) Projects under contract but not yet begun
(3) Potential projects, which will start during the
coming period for which forecasts are being made

<#>

Cash Flow

<#>

Cash Flow
Example

<#>

Cash Flow
Example

<#>

Cash Flow
Example
Total bid cost of a project = $200,000
Contractor bill at the end of the month
- Finish the work exactly following the schedule
- markup = 25% of the total cost of the project
Owner Payment to contractor
- 10% retainage of all validated progress payment
claims until 50% of the contract value has been built.
- All retainages will be released to contractor in the
owners last payment
-Transfer the payment 30 days later
Payment = 1.25(direct cost + indirect cost)
<#>
- 0.10{1.25(direct
cost + indirect cost)}

Cash Flow
Example

<#>

Cash Flow
Example

<#>

Cash Flow
Overdraft
Examples: Automobile dealers, clothing stores etc.
The amount of overdraft is calculated by a number of factors,
including the amount of markup or profit the contractor has in
a bid, the amount of retainage held by owner, and the delay
between billing and payment by the owner

<#>

Cash Flow
Overdraft Calculation
Interest rate is 1% per month

<#>

Cash Flow
Overdraft Calculation

<#>

Cash Flow
Overdraft Profiles for multiple projects

<#>

Thank you !
Q&A?