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Construction Cost Estimating

Presented By:

This manual was created for online viewing. State specific information in this manual is used for illustration and is an example only.

mail: P.O. Box 509 Eau Claire, WI 54702-0509 • telephone: 866-352-9539 • fax: 715-802-1131email: [email protected] • website: www.lorman.com • seminar id: 406307

Saleh Mubarak, Saleh A. Mubarak, Ph.D.

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Construction Cost Estimating

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This publication is designed to provide general information on the topic presented. It is sold with the understanding that the publisher is not engaged in rendering any legal or professional services. The opinions or viewpoints expressed by faculty members do not necessarily reflect those of Lorman Education Services. These materials were

prepared by the faculty who are solely responsible for the correctness and appropriateness of the content. Although this manual is prepared by professionals, the content and information provided should not be used as a substitute for professional services, and such content and information does not constitute legal or other professional

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This disclosure may be required by the Circular 230 regulations of the U.S. Treasury and the Internal Revenue Service. We inform you that any federal tax advice contained in this written communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding federal tax penalties imposed by

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mail: P.O. Box 509 Eau Claire, WI 54702-0509 • telephone: 866-352-9539 • fax: 715-802-1131email: [email protected] • website: www.lorman.com • seminar id: 406307

Prepared By:Saleh Mubarak, Saleh A. Mubarak, Ph.D.

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CONSTRUCTION COST ESTIMATINGBy: Saleh Mubarak, Ph.D.

Lorman Education Services

1

© 2019 Lorman Education Services. All Rights Reserved.Lorman programs are copyrighted and may not be recorded or transcribed in whole or part without its express prior written permission. Your attendance at a Lorman program constitutes your agreement not to record or transcribe all or any part of it. This publication is designed to provide general information on the topic presented. It is sold with the understanding that the publisher is not engaged in rendering any legal or professional services. Although this manual is prepared by professionals, it should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

This disclosure may be required by the Circular 230 regulations of the United States Treasury and the Internal Revenue Service. We inform you that any federal tax advice contained in this written communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding federal tax penaltiesimposed by the federal government or (ii) promoting, marketing or recommending to another party any tax related matters addressed herein.

The opinions or viewpoints expressed by the faculty members do not necessarily reflect those of Lorman Education Services. These materials were prepared by the faculty members who are solely responsible for their correctness and appropriateness.

Learn Effective Cost Estimating Techniques and Best Practices.

Cost estimating is one part of the total construction project management team effort. It impacts many other departments such as procurement, scheduling, accounting & finance, and other. Although cost estimators may need to know all the in’s and out’s in the process of cost estimating, everyone involved in the management of the construction project needs to be familiar with the cost estimate and the cost management process. Cost estimating is an important subject to those in the legal field because disputes arise typically in almost every construction project, with the cost as the core issue in the dispute. Also, this topic is recommended for architects and engineers who are involved in the design of construction projects as well as owners of such projects.

CourseDescription

4

LearningObjectives

At the end of the this course, participants will be able to:

1. You will be able to discuss the importance of construction cost estimating and the qualifications of

the estimator.

2. You will be able to review the definitions and concept of construction cost estimating including the

major cost categories.

3. You will be able to recognize the methodologies of both approximate and detailed estimates.

4. You will be able to describe how cost estimates must be adjusted for project conditions.

Course Outlines

• The mathematical intuition

• Introduction to Cost Estimating• Definitions and concepts

• Types of estimates and their uses

• Work Breakdown Structure (WBS) and the CSI MasterFormat,

• Direct versus indirect cost

• Estimating indirect cost• Bonds and insurance

• Risk Allocation

• Cash-flow diagrams

• Construction Cost Estimating• Estimating labor and equipment

• Cost estimating database/sources of pricing

• Cost of materials

• Approximate estimates

• Tips on quantity take offs and cost estimating

• A quick look at RSMeans online estimating

5 September 2019 Construction Cost Estimating - Dr. Saleh Mubarak 7

5

Mathematical Intuition

• The Mathematical Intuition is the ability to:

1. Instantly / quickly perform mathematical operations and obtain reasonable and relatively accurate (approximate) results

2. Make a good common sense judgement on answers, produced by self or others, and tell if the number is too low, too high, or about right.

• How does this apply to a construction cost estimator?

5 September 2019

Construction Cost Estimating - Dr. Saleh Mubarak Slide No. 8

Impact of New Technology

• Replacement of human skills• Pros & cons

• How to deal with it?

• All physical and mental skills: use it or lose it!• Can you test yourself

occasionally?

• How can you maintain / improve your mental skills?

• 𝐴 3 2 5

5 September 2019


6

Approximate Math

• Approximate math: • Why and when

• Rules, short-cuts, and tricks

• Approximate estimating:• Comparison to a known amount

• Using a Multiplier / proportions• Sacks of cement / concrete

https://www.quikrete.com/calculator/main.asp

• Dangers of relying completely on such tables

5 September 2019


Approximate Math

• Use in order:1. Mental math

2. Pencil & paper

3. Calculator or computer

• Primary and secondary tools (check!)

• Apply common sense judgment

• Practice…

5 September 2019


7

Wood Joists

Girder

Joist, spaced @ 16” o.c.

60 ft

26 ft


Proportions - Multiplier

How many stories in this building? How high is this pile (in

feet and meters)?

6 floors

5 September 2019


8

How many windows are there in this building?


How Many Bricks in a Palette?


9

How Many Bricks in all Palettes?


Areas: The Dividing Method

5 September 2019


Area

What is the total shaded area?

10


5 September 2019


Area

AB A

B B

A

Area = A + B Area = A + B Area = A - B


• Total Area =

B * C + ½ * C * (A – B)

5 September 2019


A

CB

11

Areas: The Strip

5 September 2019


Method 1:Total Area = 40 * 24 – 34 * 18 = 348 FT2

16 * 10

24’18’

40’

3’

34’

Areas: The Strip

5 September 2019


= ( 40’ + 18’ ) * 2 each

Method 2Total Area = 2 * (40 + 18) * 3 = 348 FT2

3’

24’18’

12

Math Intuition: One Last Thing

• Remember that a cost estimator’s “math intuition” proficiency depends not only on relative accuracy, but also on speed of processing!• Especially when you don’t have your tools!

5 September 2019


Cost and Value

• Cost is the amount measured in money, cash expended or liability incurred, in consideration of goods and/or services received• From a total cost management perspective, cost may include any

investment of resources in strategic assets including time, monetary, human, and physical resources.

Definitions in this and the next two slides are from the AACE International Recommended Practice No. 10S-90

• Cost versus value• Value = Perceived benefits received / Perceived price paid

• Cost of a commodity is the same for all customers but its value differs depending on the individual’s need to this commodity

5 September 2019


13

Definitions

• Cost Estimating is the determination of quantity and the predicting or forecasting, within a defined scope, of the costs required to construct and equip a facility, to manufacture goods, or to furnish a service.• Cost estimating is the process used to quantify, cost, and price the

resources required by the scope of an investment option or a project.

• Quantity Estimating is the process of measuring the work of the project in the form of a series of quantified work items.• The four measures (length, area, volume, each)

5 September 2019


Definitions

• Total Cost Management (TCM) is the effective application of professional and technical expertise to plan and control resources, costs, profitability and risks

• As a predictive process, estimating must address risks and uncertainties. The outputs of estimating are used primarily as inputs for budgeting, cost or value analysis, decision making in business, asset and project planning, or for project cost and schedule control processesAACE® International Recommended Practice No. 10S-90, Rev. November 14, 2014

5 September 2019


14

Definitions-2• Baseline Budget: The approved cost estimate of the project

including approved changes. It represents the price tag the contractor puts on the project and the owner approves

• Cost Control: The continuous practice of:1. Tracking actual cost

2. Comparing actual cost to the baseline budget, and finding / calculating cost variances

3. Analyzing cost variances to find the causes of any problems

4. Taking corrective action whenever and wherever needed

• Cost Monitoring / Cost Tracking

5 September 2019


Definitions-3

• Schedule of Values: A listing of elements, systems, items, or other subdivisions of the work, establishing a value for each, the total of which equals the contract sum. The schedule of values is used for establishing the cash flow of a project and serves as the basis for payments requests

• In its simplest form (spreadsheet), it has the item code, description, quantity, unit, unit price, total cost (quantity x unit price)• The summation of all items total cost = contract sum

5 September 2019


15

5 September 2019


CONTRACT

LINE ITEM

NUMBER

(CLIN)

CONTRACT LINE ITEM (CLI) TITLE QUANTITY UNIT OF

MEASUREUNIT PRICE TOTAL PRICE

1 (CLI Title) $0.00

2 (CLI Title) ‐

$0.00

3 OPTION A, (CLI Title) $0.00

4 OPTION B, (CLI Title) ‐

5 OPTION C, (CLI Title) ‐

6 OPTION D, (CLI Title) ‐

7 OPTION E, (CLI Title) ‐

8 OPTION F, (CLI Title) ‐

9 OPTION G, (CLI Title) ‐

10 OPTION H, (CLI Title) ‐

$0.00

$0.00

TOTAL PRICE FOR ALL OPTIONS (Contract Line Item Numbers 3 through XX) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

TOTAL PROPOSED PRICE ‐ BASE PLUS ALL OPTIONS (Contract Line Item Numbers 1 through XX) ‐‐‐‐‐‐‐‐‐‐‐

TOTAL BASE PRICE (Contract Line Item Number 1 through X) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

5 September 2019


APPLICATION NO:APPLICATION DATE:

PERIOD TO:PERCENT COMPLETE TO DATE:

A B C D E F G H I J

ITEM DESCRIPTIO N O F WO RK SCHEDULED MATERIALS TO TAL % BALANCE RETAINAGE

NO. VALUE FRO M PREVIO US THIS PERIO D PRESENTLY CO MPLETED (G ÷ C) TO FINISH (IF VARIABLE

APPLICATIO N STO RED AND STO RED (C - G) RAT E)

(D + E) (NOT IN TO DATE

D OR E) (D+E+F)

(Fill in & break down contract values)

(Add any change order(s) descriptions)

GRAND TOTALS 0 0 0 0 0 0 0 0

Contract Manager: Minimum performance requirements successfully completed and approved by: _____________________________________________ Date: ____/_____/_____

Schedule of Contract Values (This form must be completed by the Contractor for the Project.)

PROJECT NAME:

PROJECT #:

CONTRACTOR:

WO RK CO MPLETED

16

Cost Estimating

• Cost Estimating: From Whose Perspective?• Owner

• Contractor / Subcontractor

• Designer (engineer / architect)

• Financier

• Government (not as an owner)

• Investor / share holders

5 September 2019


The “Balancing Errors” Rule

• While the price of one item may be too high or too low, the overall estimate should be pretty accurate

5 September 2019


17

Time and Cost Management

Design

Preliminary Cost Estimate

Summary Schedule

5 September 2019



Design


Summary Schedule

Bas

elin

e B

udge

tB

asel

ine

Sch

edul

e

Bidding / Negot

Det

aile

d E

stim

ate

Det

aile

d S

ched

ule

Contract

5 September 2019


18


Project Controls

Design Construction


Summary Schedule

Bas

elin

e B

udge

tB

asel

ine

Sch

edul

e

Cost Control

Schedule Control

Bidding / Negot

Det

aile

d E

stim

ate

Det

aile

d S

ched

ule

Contract

5 September 2019


The Golden Triangle

Cost

Scope

Quality

Schedule

5 September 2019


19

5 September 2019 Construction Cost Estimating - Dr. Saleh Mubarak Slide No. 36

Quality Time

Cost

Scope

The Golden Triangle: Another Perspective

Cost Estimate

Schedule

Procurement

Budgeting

Accounting

Project Control

Cost Estimating and Project Management


20

Project Costs to an Owner

1. Lost opportunity cost

2. Land, right-of-way (access), easements

3. Financing

4. Design fees

5. Permits and licenses

6. Construction

7. Project / Construction Management Services

8. Furniture and

Equipment

9. Start-up/Commissioning

10. Warranty

11. Operating and

maintenance

12. Rehabilitation/upgrading

13. Disposal

5 September 2019


Types of Cost Estimates

• Approximate Estimates: Comparing to area unit (SF, M2) or functional unit price (MGD, $/key) obtained from previous similar projects1. Feasibility studies

2. Compare alternative projects / designs

3. Make initial financial arrangements

4. Provide a guaranteed maximum price (GMP) in cost-plus-fee contracts

• Definitive (Detailed) Estimates: based on take-offs from design documents1. Bidding on a project

2. Project control

5 September 2019


21

Source: AACE International Recommended Practice No. 17R-97

5 September 2019


Des

ign

Dev

elop

men

t

Source: Document Project Readiness by Estimate Class Using PDRI, by Syed H. Zaheer, and Craig Fallows


22

How Much Accuracy is Needed?

• How Much Accuracy is Needed?

• Accuracy versus effort / time required

• Is it worth it?

Approximate Estimates

Detailed Estimates

Preparation Effort

Expected Accuracy

≈ 70%

100%

5 September 2019


To Bid or not to Bid?

• Factors influencing the contractor’s decision to bid or not to bid a project

1. Risk involved:a) Strength and stability of the companyb) Type of construction involved compared to the contractor's area of

expertisec) Location of the projectd) Size of the projecte) Type / complexity of the project

2. The project’s owner and architect/engineer, previous experience

3. The amount of work currently on hand / Bonding capacity4. The equipment and qualified personnel available5. Prevailing economic conditions / other bidders

5 September 2019


23

Types of Contract Award Methods

1. Competitive Bidding• Pre- or post-qualification

2. Selective Bidding

3. Direct award

• Public versus private projects

• When Time Matters…

5 September 2019


Types of Contract Agreements

• Fixed price contracts• Lump-sum

• Unit price

• Cost-plus-fee:• Cost plus a fixed (lump-sum) fee

• Cost plus a percentage fee

• Cost plus a sliding-scale fee

• Cost plus a fixed fee with a bonus / penalty

• Cost plus fee with a guaranteed maximum price (GMP)

• When do you recommend each type?

• Contract Templates: AIA, AGC, FIDIC, NEC

5 September 2019


24

Project Delivery Methods

• Design-Bid-Build (also called traditional method) Method

• Design-Build (also called Design-Construct) Method• turnkey projects

• Construction Management Method• CM-at-risk

• Pure agency construction management (also called CM-for-fee or CM Agency)

5 September 2019


Direct Versus Indirect Expenses

• How do you differentiate between a direct and indirect expense?

• Types of direct expenses:• Labor

• Materials

• Equipment

• Other (government fees, lab tests, etc.)

• Subcontracts

• Construction versus installed materials and equipment• The diesel generator example

5 September 2019


25

Types of Indirect Expenses

• Types of Indirect Expenses:

1. Job (project) overhead

2. General (main office) overhead

3. Contingency

4. Profit: Related to risk taken and competition

5. Inflation and Escalation

• Managing risk in estimating contingency, profit, inflation, and

escalation

• Factors involved in calculating / estimating profit

• Allocating indirect expenses

5 September 2019


Indirect Expenses AllocationUnallocated Total Partial

Allocation Allocation

Labor $375,211 $487,105 $456,564

Materials $422,735 $548,801 $514,392

Equipment $55,000 $71,402 $66,925

Subcontractor $165,000 $214,206 $200,775

Subtotal $1,017,946 $1,321,513 $1,238,657

Performance Bond $11,600 $0 $11,600

Insurance $30,538 $0 $30,538

Job overhead $55,987 $0 $0

General Overhead $50,897 $0 $0

Inflation / escalation $40,718 $0 $40,718

Contingency $50,897 $0 $0

Profit $62,929 $0 $0

Grand total $1,321,513 $1,321,513 $1,321,513

5 September 2019


26

Risk Allocation

• The guidelines of the Construction Management Association of America:

1. Risk should be assigned to the party who can best control it

2. Risk should be assigned to the party who can bear the risk at the lowest cost

3. Risk should be assigned to the Owner when no other party can control the risk or bear the loss

4. Assumption of risk by the other parties to the construction process results in increases in cost (visible or hidden) to the Owner”

Capstone: The History of Construction Management Practice and Procedures, 2003 Edition, Construction Management Association of America, Inc. (CMAA)

5 September 2019


Labor Analysis

• Labor source / pool: Union versus open-shop

• Labor Unit Price

• While crew cost may be constant, crew production fluctuates

based on many factors… so does the unit price!

• Factors influencing labor productivity

• Job conditions: Weather, site congestion, management type

• Crew conditions: Level of skill, equipment type and condition, overtime

• Design complexity and QA/QC requirements

• Productivity adjustment

5 September 2019


27

Adjusting Estimates

1. Weather / climate

2. Labor skill level

3. Crew composition

4. Design complexity

5. Local regulations

6. Location

7. Season

8. Project size

9. Resources availability

10. Inflation / escalation

11. Expectations for world events

12. Prevailing economic conditions, risk taken, and expected profit

13. Other factors

• Note that some factors have to do with productivity while others don’t


Labor Productivity Examples

• Example: A crew of three brick layers and two helpers laid 1,200 bricks in 6 hours. What is the daily output and the Man-Hours/M Bricks

• Solution:• Hourly output = 1200 bricks/6 hours= 200 bricks/hour

• Daily output = 200 bricks/hour * 8 hours =1600 Bricks = 1.6 M Bricks

• Crew labor hours = 5 workers * 8 hours/day = 40 man-hours

• Labor-Hours = 40 man-hours / 1.6 M Bricks = 25 man-hours/M Bricks

5 September 2019


28

Labor Productivity Examples

• Assume brick layer is paid $36/hour and helper is paid $30/hour• Crew daily cost = (3 x 36 + 2 x 30) x 8 = $1,344

• Cost per M Bricks = $1,344 / 1.6 = $840 (labor only)

• If productivity decreases by 20%:• Crew daily production = 1.6 *(100% – 20%) = 1.28 M Bricks

• Cost per M Bricks = $1,344 / 1.28 = $1,050 (labor only)

• Or, Cost per M Bricks = $840 / (1 – 20%) = $1,050 (labor only)

5 September 2019


Labor Analysis

• Labor Wage Add-ons1. Workers’ Compensation (W.C.) Insurance: Differs among states

and depends on contractor’s Experience Modification Rate (EMR) rating• EMR depends on the contractor’s safety record for the past 3 years

• The average EMR is 1.00. The lower the EMR, the lower the insurance premium for the contractor

2. Government taxes• In the US: FICA (6.2%) + FICA medical (1.45%) = 7.65% taken from

the employee paycheck and matched by the employer, up to $132,900 of wages

3. Unemployment insurance: Differs among states

4. Any other applicable taxes

5. Employer provided benefits

5 September 2019


29

Equipment Expenses

• Equipment Expenses:1. Depreciation

2. Maintenance

3. Investment (interest)

4. Taxes, insurance, and storage

5. Operating expenses (fuel, lubrication, tires, blade, etc.)

• Keep in mind that maintenance is both ownership and operation expense

• Equipment Rental

Ownership expenses

5 September 2019


Bonds & Insurance

• Types of bonds:• Bid bond

• Performance bond

• Payment bond

• Who ultimately pays for all “assurances”?

• Most common types of insurance• Workers’ Compensation (W.C.)

• Builder's Risk

• Public liability

• Cost-trust relationship between owner and contractor

5 September 2019


30

Performance Bond for Building Construction

Contract Amount Performance Bond for Building Construction

up to $100,000 2.50%

$100,001 - 500,000 $2,500 + 1.5% of amount over $100,000

$500,001 - 2,500,000 $8,500 + 1% of amount over $500,000

$2,500,001 - 5,000,000 $28,500 + 0.75% of amount over $2,500,000

$5,000,001 - 7,500,000 $47,250 + 0.7% of amount over $5,000,000

over $7,500,000 $64,750 + 0.6% of amount over $7,500,000

5 September 2019


Organizing the Estimate

• Prior to 1995, there was no “industry standard” for how to organize different cost items

• Mostly, it was organized by type of materials• However, there were many challenges, such as:

• Members made of more than one material such as reinforced concrete

• Same material, wood for example, used in different ways: concrete formwork, framing, kitchen cabinets

• Electrical work that belong to mechanical (HVAC) work

• New and unique materials

• Until the Construction Specifications Institute, CSI, came up with a “MasterFormat” in 1995

5 September 2019


31

First CSI MasterFormat, 1995

1.General Requirements

2.Site

3.Concrete

4.Masonry

5.Metals

6.Wood & Plastic

7.Thermal & Moisture Protection

8.Doors & Windows

9. Finishes

10. Specialties

11. Equipment

12. Furnishings

13. Special Construction

14. Conveying Systems

15. Mechanical

16. Electrical


The CSI MasterFormat 2004 - 2016

• Division 00 Procurement and Contracting Requirements

• Division 01 General Requirements• Division 02 Existing Conditions• Division 03 Concrete• Division 04 Masonry• Division 05 Metals• Division 06 Wood, Plastics, and Composites• Division 07 Thermal and Moisture Protection• Division 08 Openings• Division 09 Finishes• Division 10 Specialties• Division 11 Equipment• Division 12 Furnishings• Division 13 Special Construction• Division 14 Conveying Equipment• Division 21 Fire Suppression• Division 22 Plumbing• Division 23 Heating, Ventilating, and Air

Conditioning (HVAC)• Division 25 Integrated Automation

• Division 26 Electrical• Division 27 Communications• Division 28 Electronic Safety and Security• Division 31 Earthwork• Division 32 Exterior Improvements• Division 33 Utilities• Division 34 Transportation• Division 35 Waterway and Marine

Construction• Division 40 Process Integration• Division 41 Material Processing and Handling

Equipment• Division 42 Process Heating, Cooling, and

Drying Equipment• Division 43 Process Gas and Liquid Handling,

Purification, and Storage Equipment• Division 44 Pollution and Waste Control

Equipment• Division 45 Industry-Specific Manufacturing

Equipment• Division 46 Water and Wastewater Equipment• Division 48 Electrical Power Generation15 Divisions reserved for future expansion


32

CSI UniFormat

• UniFormat is a method of arranging construction information based on functional elements, or parts of a facility characterized by their functions, without regard to the materials and methods used to accomplish them. These elements are often referred to as systems or assemblies.

5 September 2019


CSI UniFormat 2010

• Element A: Substructure

• Element B: Shell

• Element C: Interiors

• Element D: Services

• Element E: Equipment and Furnishings

• Element F: Special Construction and Demolition

• Element G: Site work

• Element Z: General

• It almost follows the construction chronological order

5 September 2019


33

160000

100000

Tam

pa

Off

ice

Bld

g

110000

Foun

dat

ion/

Su

bstr

uct

ure

120000

Bui

ldin

g sh

ell

130000

Ext

erio

r cl

osur

e

140000

Inte

rior

fi

nish

es

150000

Mec

hani

cal

/ E

lect

rica

l

Site

Wor

k

121000

Col

umns

122000

Shea

r W

alls

123000

Ele

vate

d

Slab

s

124000

Bea

ms/

G

ird

ers

125000

CIP

Sta

irs

123100

Pos

t-te

nsio

ned

Sl

abs

123200

Flat

Sla

bs

123300

Waf

fle

Slab

s

123400

One

-way

Sl

ab a

nd

beam

123110

Fals

ewor

k

123120

Reb

ar

123130P

ost-

tens

ion

cabl

e

123140

Con

cret

e

123111

Soff

it a

nd

edge

s

123112

Scaf

fold

(t

able

s)

123113

Shor

es

123114

Res

hore

s

Level 0

Level 1

Level 2

Level 3

Level 4

Level 5

Work Breakdown Structure, WBS

5 September 2019


The CSI Masterformat in WBS Format

Title Level

03 00 00 Concrete 103 10 00 Concrete Forming and Accessories 2

03 11 00 Concrete Forming 303 11 13 Structural Cast-in-Place Concrete Forming 4

03 11 13.13 Concrete Slip Forming 503 11 13.16 Concrete Shoring 503 11 13.19 Falsework 5

03 11 16 Architectural Cast-in Place Concrete Forming 403 11 16.13 Concrete Form Liners 5

03 11 19 Insulating Concrete Forming 403 11 23 Permanent Stair Forming 4

• Don’t forget level 0!

5 September 2019


34

Project Breakdown: The Estimator vs. the Scheduler!• Estimators and schedulers could not agree on a

methodology to breaking down the project• For the estimator, the type of material is what matters, regardless to

where or when in the project it is installed

• For the scheduler, when and where matter more than the type of materials

• For example:• Suspended slabs must be separated by floor / location for the scheduler

but can be all combined for the estimator

• Reinforced concrete member can be considered one activity to the scheduler while the estimator has to separate the formwork, the rebar, and the concrete mix

• Now, BIM offers new method for the project breakdown that encompasses the estimator, the scheduler, and everyone else.

5 September 2019


Model Estimating

• Model estimating is a concept that was developed and enabled with the computer technology.

• It’s concept is to provide a detailed take-off and costing to a known project. Later on, this estimate can be the base for estimating similar projects based with proper adjustments (for new project numbers and specs, location, and other items).• The user can also replace items / elements with other available via

a pull-down menu to suit the new project or the client’s demands

• Model estimating allowed the quick preparation of “semi-detailed” estimate with reasonable accuracy.• This accuracy depends on the accuracy of the original estimate and

comparison assumptions

5 September 2019


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5 September 2019 Construction Cost Estimating - Dr. Saleh Mubarak Slide No. 68

Change Orders

• A change order is a formal written document, signed by the owner, directing the contractor to make changes from the original contract. After its approval (by the owner) it becomes a part of the contract’s legal documents. A change order can be used for adding, deleting, or substituting work items

• Number and amount of change order reflects one of the measures of the project’s success

• Why is a change order bad for the owner?

• Estimating change orders. Impact on schedule.

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Cost of Changes

Time

$

Ability to influence design

Cost of change

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Quantity Takeoffs

• The four basic measuring modes:• Count (each, dozen, etc.)

• Linear / lineal (meter, etc.)

• Area (square meter, etc.)

• Volume (cubic meters, etc.)

• Tools of takeoffs:• Manual / mechanical

• Semi-electronic

• Digitizers

• Directly from CAD or BIM


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Tips on Takeoffs

• Rounding: Be reasonable

• Don’t depend completely on the automated process; apply common-sense judgment

• Eliminate / minimize the possibility of missing / duplicating an item

• Be well-organized. Make it easy for you or someone else to track / audit your trail

• Specify your source of information

• Missing or unclear information?

• Add reasonable allowance for waste

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Timing of Project

• Effect of timing on estimate:• Prevailing economic conditions, demand and supply

• Trends, cycles, and future expectations

• Seasonal / after a disaster

• Availability of funds, interest rate

• Availability of resources

• Re-pricing estimates

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Do My Numbers Change with Time?

• Yes: Prices of all resources

• Little: Productivity, insurance, overhead

• No: Quantities

• Other: Subjective terms such as profit,

contingency

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Cost Estimating Databases

• Contractor’s own

• Software databases

• 3rd party databases

• Quotations from vendors• Document all info

• Expiration date

• Online databases updates

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Pitfalls in Estimating1. Lack of accuracy in estimating quantities / missing an item

2. Lack of accuracy in estimating unit prices, especially major ones

3. Mathematical errors, too much dependency on computers and lack of mathematical intuition / common sense

4. Insufficient risk assessment of impact on cost:• Not accounting for inflation / escalation

• Not accounting for or insufficiently estimating contingency

• Over or underestimating the appropriate profit percentage

5. Not being familiar enough with location

6. Failing to read the contract or at least the relevant parts

7. Not accounting for waste (order quantity versus installed quantity)

8. Wrong or irrelevant comparison to another item

9. It didn’t cost me anything! I used my own equipment

10. For owners: Wrong type of contract

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Are you Paying Attention to the Overall Picture?• It is true you must focus on “major items”, but you need to

be careful from:• Tendency to focus on the construction cost only (for owners)

• Tendency to focus on the immediate cost only

• Tendency to focus on “favorite” items

• Tendency to ignore time-value of the money and/or inflation

• Tendency to be a “perfectionist” and focus too much on small stuff

• The “emotional” factor

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Cash Flow Analysis

• What are the types of cash flow diagrams?

• From whose point of view?

• Importance of cash flow analysis

• What is needed for preparing cash flow diagrams?• The CPM schedule tells us when activities are planned, and

• The cost estimate gives us the cost of these activities• the cost may not necessarily be distributed linearly over the duration of

the activity

• So the result is a prediction of spending amount by time period

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Contractor’s Cash Flow Example• A contractor anticipates his

spending to be as shown in the 7-months project.

• Owner’s reimbursement lags by a month and owner retains 10% till the final and satisfactory completion of the project.

• Borrowing money cost the contractor 1% per month.

• Draw the cash flow diagrams and calculate the cost of borrowing money and maximum debt

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Month Spending1 $175,0002 $210,0003 $265,0004 $272,0005 $207,0006 $155,0007 $93,000

Total $1,377,000

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Contractor’s Cash Flow

Spending

Time

$

Reimbursement

Profit

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Month Spending Reibursement Net Cash flowCumulative Cash flow Future Value *

1 ($175,000) 0 ($175,000) ($175,000) ($187,623.69)2 ($210,000) $157,500.0 ($52,500) ($227,500) ($55,729.81)3 ($265,000) $189,000.0 ($76,000) ($303,500) ($79,876.76)4 ($272,000) $238,500.0 ($33,500) ($337,000) ($34,860.23)5 ($207,000) $244,800.0 $37,800 ($299,200) $38,945.386 ($155,000) $186,300.0 $31,300 ($267,900) $31,929.137 ($93,000) $139,500.0 $46,500 ($221,400) $46,965.00

$221,400.0 $221,400 $0 $221,400.00Total ($1,377,000) $1,377,000 $0 $0 ($18,850.98)

Maximum amount of debt (required line of credit) = $337,000Total bid:

Total cost 1,377,000$ Profit @ 5% 68,850$ Cost of borrowing money 18,851$ Total bid = 1,464,701$ Say $1,465 k


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Cash Flow Diagram


Net Cash Flow Diagram


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Cumulative Cash Flow Diagram


Owner’s Cash Flow

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Time

$

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Conclusion…

• Any comments? Questions?• Keep in touch:

• (813) 455-9338 [email protected]

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Thank you for choosing Lorman Education Services for your continuing education needs.

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