What is Construction Cost Estimating?
The Importance of Independent Cost Estimates

Why Do I Need a Construction Estimate?

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 must 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. Construction 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 Construction Cost Estimating?

Construction cost estimating is the process of forecasting all costs associated with completing a project within a defined scope. This construction estimate serves as a roadmap for a project to be designed, bid, and built. 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 impact of inclement weather 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, among other factors. Even factors such as surface topography, soil conditions, and material lead times are considered.

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 throughout the design phases. A construction estimate also enables you to price-check builders’ 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 not aligned with the budget can be flagged for further examination. Accurate cost estimating brings clarity, assurance, and peace of mind to large and 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 considerable 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 use a third party. Either way, it’s crucial 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 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.

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 during bidding and construction, and ultimately guide the design and construction phases in the most cost-effective manner possible.

4 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 closest 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 comparing 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 essential to a successful project. Cost estimating brings clarity, consistency, accuracy, assurance, and peace of mind 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, 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 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 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 cost estimation process 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. The project scope and design are developed in this phase, 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.