What is Construction Cost Estimating?
The Ultimate Guide

The Ultimate Guide to Cost Estimating

For any proposed construction project, whether it’s a brand-new commercial development, a renovation to an office building or adding square footage to an existing hospital, you will need to first determine the project’s financial feasibility. If not carefully examined and budgeted for, the sheer range of complexities and costs involved in undertaking a large construction project can have devastating impacts on ROI, profitability and the overall success of a project.

The safest way to examine the financial feasibility of a large-scale construction project is with an accurate, independent construction cost estimate. Cost estimating is an invaluable tool for achieving an actionable understanding of all costs associated with the proposed project, and then carefully managing those estimated costs throughout all phases of design.

In this comprehensive guide on construction estimating, we will cover the following topics:

• What is Cost Estimating?
• The Value of an Independent Cost Estimate
• 4 Major Construction Estimating Benefits
• Finding a Qualified Construction Cost Estimator
• Understanding the Core Estimating Stages

What is Cost Estimating?

Cost estimating is the process of systematically forecasting all costs associated with completing a project within a defined scope. When it comes to construction, construction cost estimating forecasts all of the projected costs needed to complete a project. The cost estimate serves as a roadmap for a project to be designed, bid and built and can significantly mitigate your level of risk. It can be used to assess financial feasibility, budget for expenditures, oversee project spending and even flag costs that aren’t in line with the budget.

When considering a development, there are numerous costs beyond just labor and materials that directly impact the total project cost and need to be examined and budgeted for. For example, a client may be unaware of the role inclement weather can have on a project’s bottom line or fail to consider the financial impact of necessary specialized equipment. A well-researched, accurate construction estimate will examine all these costs and more, including materials, labor, location, climate, project duration, building codes, equipment and the availability of utilities, etc.. Even factors such as surface topography, soil conditions and material lead times are considered.

Armed with an accurate cost estimate, you can reasonably determine the financial feasibility of the proposed project, make modifications if needed, finalize the scope, establish a budget and carefully monitor the budget as it progresses throughout the design phases. A construction estimate also enables you to price-check builder’s quotes and independently verify the accuracy of estimates and material costs. It can even help bring a project plagued by cost overruns back into alignment by correcting quantity and pricing errors and by eliminating unnecessary contingencies and scope overlaps.

The principal benefit of a construction estimate is that it can significantly mitigate the level of risk. Each proposed project expenditure is accounted for and costs that aren’t in line with the budget can be flagged for further examination. Accurate cost estimating brings clarity, assurance and peace of mind to large and/or complex construction projects.

Cost estimates are typically prepared by a team of experienced cost estimators, generally Certified Professional Estimators (CPEs), engineers, quantity surveyors and project managers who have a thorough understanding of the costs associated with all design stages and construction disciplines including architectural, structural, civil, mechanical, electrical and plumbing. They use the latest project cost control techniques, estimating and BIM (Building Information Models) technology to prepare detailed and accurate estimates.

The Value of an Independent Cost Estimate

Taking on a sizeable construction project ultimately comes down to managing a considerable amount of complexity and risk. The bottom line is always at stake, timelines are tight and disputes among the various project team members can occur.

Typically, an owner or developer will look to competing construction companies to obtain several estimates/bid proposals on how much the project will cost. These construction companies may provide cost estimating services in-house, or they may use a third party. Either way, it is most prudent to turn to an independent cost estimating firm, that is in no way affiliated with your organization or the proposed project, to conduct an unbiased cost estimate in order to achieve an objective view of the project budget. This third-party estimate helps serve as a basis for comparison and assists in determining the reasonableness or unreasonableness of the bid or proposal(s) being evaluated. Consequently, it helps lessen your risk and brings greater assurance to the project at hand.

For example, let’s say a client is considering a significant renovation to a healthcare facility and obtains an estimate from a construction firm on how much the project will cost and its duration. This client may then decide to have an independent cost estimate prepared in order to verify the accuracy and reasonableness of the projected costs presented by the construction firm. If both estimates are reasonably comparable, the client may decide to proceed with the project. If, on the other hand, the disparity between the two estimates is significant, the client may choose to renegotiate or seek out additional estimates from competing construction firms.

In either scenario, an independent cost estimate helps mitigate risk and provides considerable peace of mind during design. It can also help you tackle any cost-driven corrections early on, avoid conflicts at the time of bidding and construction and ultimately guide the design and construction phases in the most cost-effective manner.

Four (4) Main Construction Estimating Benefits

As we’ve touched on, obtaining an accurate estimate from an experienced construction cost estimator is fundamental to any commercial project. Let’s take a look at four (4) main benefits of cost estimating.

• More Accurate Budgeting. Commercial construction projects are bursting with complexities. If the project goes beyond the scope of the budget, you will have to find another way to pay for the additional expense or forgo a feature to save money. Obtaining a construction estimate is the best way to determine the project’s closet true cost and is essential for establishing a well-researched, accurate budget.
• Improved Risk Mitigation. A principal benefit of a cost estimate, particularly an independent one, is that it can substantially mitigate your level of risk. Each expenditure is accounted for and it helps serve as a basis for comparison in determining the reasonableness or unreasonableness of the bid or proposal being evaluated.
• Stronger Client Relationships and Enhanced Team Collaboration. Strong relationships between the owner, general contractor, subcontractors and other project team members are an important component of a successful project. Cost estimating brings clarity, consistency, accuracy, assurance and peace of mind in order to help all parties build trust, foster confidence and establish strong working partnerships.
• Ensures Reasonable Contractor Pricing. An independent cost estimate gives you an accurate, unbiased and objective view of the project cost and all projected expenditures. It establishes a basis for comparison, in turn allowing you to price-check quotes and determine the reasonableness of the bid(s).

Finding A Qualified Construction Cost Estimator

As we’ve touched on, procuring a construction estimate from an experienced estimator helps ensure the success of your project. Let’s take a look at some of the requirements and qualifications to look for in an estimating firm:

• An established track record with extensive cost estimating experience, particularly in the same market or project type.
• A proven method for preparing accurate cost estimates using the latest project cost control techniques, estimating and BIM technology.
• A cost management team with a working knowledge of the costs associated with all design stages and construction disciplines including architectural, structural, civil, mechanical, electrical and plumbing. They should have a specific expertise in the following areas:
  • Architectural drawings
  • Construction methods, building materials, building codes and market trends
  • Cost of materials, lead times, hourly output of workers and overhead expenses.
• The value of the service fee in relation to the project cost.

Understanding the Core Estimating Stages

Grasping the main stages or levels involved in the process of cost estimation will give you valuable insight into how your project budget comes together.

1. Order of Magnitude. This is a preliminary estimate and the first serious attempt at forecasting the overall cost of the construction project and determining its financial feasibility. At this time, the project scope is discussed, construction methods are considered and alternatives are explored.
2. Conceptual Design. In this phase, a more complete cost estimate is prepared to compare with the budget and feasibility determinations. More detailed design criteria are explored such as construction materials, drawings, renderings, conceptual plans, foundation requirements, utility requirements, etc.
3. Design Phase Estimating. In this phase, the project scope and design are developed and materials are selected. Information needed for this estimate may include floor plans, engineering design criteria, preliminary schedules, equipment layouts, etc.. Estimates are typically prepared at design milestones—Schematic Design (SD), Design Development (DD) and Construction Document (CD).
4. BID Evaluations/Analysis. This estimate is used to evaluate contractor bids. Probable costs are developed for comparison with bids and used to determine the reasonableness or unreasonableness of the bid being evaluated.
5. Change Order Review. A change order is an amendment to the original scope of work. At this stage, an independent estimate is prepared and compared with the change order request.

Conclusion

Prior to embarking on a commercial construction project, it’s essential to have an independent cost estimate prepared by a qualified construction cost estimator. Armed with this information, you will be able to assess financial feasibility, establish a budget, tackle corrections early on, price-check quotes and ensure the design process progresses in the most cost-effective way.

For more information on cost estimating, and how it can help support your vision and accomplish your goals, contact The Concord Group.