This course introduces the types of cost estimation from the conceptual design phase through the more detailed design phase of a construction project. In addition, the course highlights the importance of controlling costs and how to monitor project cash flow. Students will work on a break-even analysis of construction tasks in a project.

From the lesson

Introduction to the Types of Cost Estimates

Professor Odeh describes the types of cost estimates in a construction project. Also covered in this module are the tools and methods used to create estimates.

Instructor, Department of Civil Engineering and Engineering Mechanics, Columbia University Director of Research and Founder, Global Leaders in Construction Management

Let's say we have an old process plant with a capacity to produce

10,000 gallon per day and we refer to a particular chemical.

The cost today to build the plant would be around $1 million.

The appropriate cost-capacity factor, which is X for

this type of project is 0.6.

What would be an estimate for

a similar plant with a capacity of 30,000 gallon per day?

So, we want to find C2 and we know C1 of 1 million and

we know Q2 what's the new production for that new project of 30,000 gallons.

And we know Q1, which is 10,000 as we can see in this equation here.

And the Q2 over Q1 to the power of x, which is the 0.6, and

that will give us around $1.93 million

to build similar plant with a different capacity.

So let's take another example.

And I'm going to connect, in this example, what

we explained in example number 2 in the course index or the course indices.

So, consider the cost-capacity factor of around 0.8 for the warehouse that we just

solved just a few minutes ago from the cost, and this is Example 2.

If you remember we have warehouse that was planned to be built in November 2013.

And we assume that you have an estimate for a similar warehouse,

that's been done in 1978, worth of course 4.2 million.

So, let's assume that warehouse that had been

built in 1978 has around 120,000 square feet of usable area.

The prospective owner for the new warehouse,

wants a structure with a usable area of 150,000 square feet.

So in this case, why I combine them both because in this

kind of equation we want them to use the cost indices

approach to adjust for the time differences and adjust for

the cost from 1978 to let's say 2013.

Based on the cost indices Example number 2.

And we want to adjust on the capacity, and the change here

in this question, the change in the size of the project.

So what we will be doing is C2,

the cost estimated that we're trying to find or

figure out, we highlight the cost index,

which is the 5,317 divided 1,674 from 1978.

If you remember,

these are the numbers we got from example number 2 from the cost indices.

And we multiplied by the cost capacity factor,

which is the 150,000 divided by the old

capacity in 1978 was built the 120,000 and

you have that by the power of x which is the 0.8 which

is the cost capacity factor for this type of project.

And that will give us an approximation of $16

million as a cost estimation for

such a project with the different usable area for that warehouse.

Now, I will go with another

quick tools methods just to give you an introduction to them.

First one is the component ratios.

Here we have an example to a component ratios which would

be under the industrial construction industry.

Where major items of components or

even equipments are identified, such as compressors,

pumps, furnaces, refrigeration units,

belt conveyors as well as turbine generators.

So usually industrial construction have very good historical documentation and

analytical techniques using ratios like the following,

equipment installation cost ratio and the planned cost ratio.

The equipment installation cost ratios is the following,

you multiply the purchase cost of the equipment

or the component in that project by an empirically documented

factor to estimate the installation cost of that equipment.

These estimates sometimes can be accurate within 10 to 20% of the final costs.

So you have the cost of that equipment and

you have that factor from the historical data.

The multiplication will give you the installation cost for

something similar to that equipment or component.

Another ratio in the component ratios in addition to the equipment installation

cost ratios we have planned cost ratios.

And also, just quickly, planned cost ratios where it uses

equipment vendor price quotations as a basis for

the determining the cost of the whole constructed facilities.

So you just take the vendor prices, add them up

to hook up with the plant towards the end and the costs.

Parameter costs method is also another method that we want to highlight here and

to introduce it and it is commonly used in building construction.

Usually when publications such as oddest means publishes

square foot costs around annually, as I remembered.

And it includes unit costs for

a number of building types as well as for individual construction tasks.

Parameter costs relates all cost of a project to just a few physical measures or

parameters that reflect the size or the scope of the project.

With very good historical records on comparable structures parameter

costing can give reasonable levels of accuracy for preliminary estimates.

To be closer between ten plus

minus percent accuracy.

Now moving forward I want to highlight now the big picture of detailed estimate.

That detailed estimates comes when we are almost finalizing our design

and it is after the conceptual and the preliminary phases.

The general steps of the detailed estimates are the following.

One, breaking the project into cost centers.

These cost centers could be related to earth work,

aconcrete, structure seal, brick and masonry,

electrical, mechanical, pumping, and so on.

So after we have these cost centers, the second step is to

estimate the quantities required for each of these cost centers in step number 1.

This could be a physical items, or

an un-physical items for each of the cost centers.

A physical item where we then perform quantity takeoff.

An an unphysical item could be related to the builder, the builder's risk,

insurance, and amount of the required bonds and so on.

When it comes to the third point which is

price out the quantities from step number 2 here.

Using historical data, that's supplier,

as well as supplier catalogs and other kind of resources that you have in

the company as we will see in the several modules in the course here.

Last one is to calculate the total price for

each cost center by multiplying the required quantities by the unit price.

So this is from a big picture point of view what are the four

main processes in order to find a detailed estimate.

And this we will cover in much more details in the coming modules for sure.

But before we move forward I want to highlight also there is 2 types of

detailed estimate.

There is the Engineer's estimate and the Contractor's estimate.

The Engineer's estimate where the architect or

the engineer produce final Engineer's estimate or for

who comes up with total drop cost minus the mark up.

This is used for two things.

One to insure the design is produced within

the owner's financial resources to construct the building or the project.

Second, to establish a reference point In evaluating the bids and the work progress.

So, when the bids comes, we want to compare it,

to make sure that it is within what we are asking for, it makes sense or not.

So to evaluate with the bids,

as well as to evaluate the work progress in our project.

The second one is the contractor's estimate or

the bid estimate when the contractors start bidding for the project.

And then what I can say here it has to be low enough to obtain the work,

but yet high enough to make profit.

That's for the contractor's estimate.

Again I want to emphasize that the details of that quantity take off

will come in our next modules in much more detail with

several examples to build on from industry partners.