Guide to Estimating Construction Costs - lceted -lceted LCETED INSTITUTE FOR CIVIL ENGINEERS

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Jun 23, 2024

Guide to Estimating Construction Costs - lceted

Estimating construction costs is a big deal when it comes to building projects. It's all about figuring out how much money you'll need, considering everything from materials and labor to equipment depreciation and office expenses. This guide breaks down the essential steps in the estimating process, emphasizing the importance of accuracy and giving you practical insights for each stage.


Why Accurate Estimating Matters

Getting your estimates right is crucial for construction projects to succeed. If you're a project owner, an accurate estimate helps you see if your project is doable within your budget. For contractors, it ensures you can put in competitive bids that are still profitable. Overestimating can make you lose bids, while underestimating can eat into your profits. So, finding that sweet spot with precise and balanced estimates is key to staying financially healthy and competitive.


The Estimating Process: 8 Key Steps


Guide to Estimating Construction Costs

1. Review the Bid Package

The bid package includes all the documents you need for the project, like contracts, bond forms, and construction specifications. You've got to go through these papers carefully to understand the project's scope, material requirements, and structural needs. This review lays a solid foundation for your accurate estimate.


2. Go Check Out the Site

Paying a visit to the construction site lets you see what's going on and how it might affect the costs. Things like lousy drainage, tricky access, or proximity to utilities can make a big difference in your estimate. Seeing the site in person helps you evaluate costs more accurately and comprehensively.


3. Figure Out the Materials You'll Need

This step is all about counting and measuring all the materials required for the project. You've got to categorize them by quantity, area, volume, or length. Doing this ensures you won't miss anything when you ask suppliers for their prices.


4. Get Pricing from Suppliers and Vendors

Once you've got your material list sorted, it's time to get prices from suppliers. Here, you've got to consider things like material waste, bulk pricing, and how long the quotes are valid. Don't forget to factor in costs for any equipment you'll need, whether you own it, lease it, or rent it.


5. Figure Out Your Labor Needs

Estimating the labor you'll need involves specifying roles, hours, and productivity rates. You've got to think about the loaded labor rate, which includes wages, taxes, insurance, and other benefits. Getting the labor costs right is critical for a reliable estimate.


6. Account for Insurance and Bonding Costs

Insurance and bonding are crucial for managing risks. You've got to include costs for general liability, builder's risk, professional liability, and more. Bonds like payment and performance bonds also add to the overall project cost.


7. Consider Overhead and Indirect Costs

Indirect field costs include things like permits, temporary offices, site cleaning, and professional services. Overhead costs, like office rent, administrative salaries, and software subscriptions, need to be spread across all your projects. You've got to allot a percentage of these costs to each project to make sure you're covering everything.


8. Add in Profit and Contingency

Finally, you'll adjust the total project cost to include your profit margin and contingency. Profit is what keeps your business growing, while contingency covers unexpected costs. Typically, you'll set aside around 5-10% of the contract price for contingency.


Turning an Estimate into a Bid Proposal

After determining the sales price, a bid proposal is created. This proposal details all costs and aligns with the project specifications. Clear and precise language helps ensure the bid covers all aspects of the project, facilitating a smooth review process.

Types of Estimates

Estimates vary depending on the project stage:





Order of Magnitude

Rough estimates based on similar past projects.


Schematic Design

Cost per square foot calculations for preliminary designs.


Design Development

Estimates based on tentative designs and material lists.


Construction Documents

Realistic budgets using nearly finished designs.


Bid Estimate

Precise cost evaluations for final bids.


The Role of Estimating Software

Construction estimating software automates takeoffs, calculations, and adjustments, enhancing accuracy and productivity. While software streamlines the process, the expertise of skilled estimators remains crucial for inputting accurate data and making informed decisions.

Benefits of Estimating Software:

  • Automated Takeoffs: Machine learning can automatically determine material quantities from project drawings.
  • Reduced Human Error: Computer calculations ensure accuracy and quick adjustments.
  • Increased Productivity: Estimators can focus on analysis and decision-making rather than manual calculations.

Data-Driven Estimating for Long-Term Growth

Successful construction businesses rely on data-driven estimating. Historical job costing data and a detailed understanding of indirect and overhead costs enable companies to create competitive and profitable bids. Continuous improvement in estimating processes is key to financial sustainability and growth.

In conclusion, construction cost estimating is a meticulous process that requires attention to detail and a thorough understanding of project requirements. By following these steps, estimators can create accurate, competitive, and profitable bids, ensuring the success of construction projects.


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