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1 introduction to cost estimating

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1 introduction to cost estimating

  1. 1. Building Economy ARE 431 Dr. Mohammad A. Hassanain ١ Introduction to Cost Estimating ٢ Is Cost Estimating an Art or a Science? What is an Estimate? What is the Purpose of Estimating? What is the Role of the Estimator? What the Estimator Must Know (Skills)? The Components of an Estimate. Possible Sources of Errors in Cost Estimates. Today’s Lecture
  2. 2. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٢ ٣ Is Cost Estimating an Art or a Science? Before answering this question, let us first define what is an Art ? And what is a Science ? An art is the process of arranging elements in a manner that affects senses and emotions. It involves imagination and creativity. A science is the systematic approach to gathering knowledge and data based on laws and theories. Cost estimating involves calculating cost as well as visualization of how the project will be built, therefore, cost estimating is a blend of both art and science. ٤ What is an Estimate? An estimate involves calculating the costs of construction work on the basis of probabilities. Two activities are undertaken when carrying out a cost estimate: Measurements: all measurements are approximate. Pricing: the degree of approximation is even greater because of the difficulty in predicting all the probabilities of items such as labor productivity and site conditions.
  3. 3. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٣ ٥ What is an Estimate? Costs of construction work are classified as: 1. Materials costs. 2. Labor costs. 3. Equipment costs. 4. Overhead (general and job) costs. 5. Profit. Data on all of these costs are required to develop or prepare an estimate. ٦ What is the Purpose of Estimating? The purpose of estimating is to forecast (predict) the cost required to complete a construction project in accordance with the contract plans and specifications. There are two distinct tasks in estimating: To determine the probable real cost of the project. To determine the probable real time to build the project. Because construction estimates are prepared before a project is constructed, an estimate is, at best, a close approximation of the actual costs.
  4. 4. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٤ ٧ What is the Purpose of Estimating? The true value of the project will not be known until the project has been completed and all costs have been recorded. Therefore, the estimator does not establish the cost of a project; he simply establishes the amount which the contractor will receive for constructing the project. ٨ What is the Role of the Estimator? The estimator’s job is to prepare estimates of building project costs. The success of a contractor’s business depends on the accuracy of these estimates. The estimator’s success will be based on his previous experience and knowledge of the construction industry. A contractor or estimator lacking this experience may over-, or under-estimates his project costs.
  5. 5. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٥ ٩ What is the Role of the Estimator? In either case, this could impact the success of his company: If costs are too high, his jobs will be few and far between. If costs are too low, he will not be able to stay in business. All cost data is acquired from experience. If an estimator does not have cost data from his own experience, he must use cost data from price books and handbooks. ١٠ What is the Role of the Estimator? The more valid data the estimator has available, the better he will be able to estimate the probabilities of costs. The following factors affect the accuracy of cost estimates: 1. Site location and accessibility. 2. Subsurface and soil conditions. 3. Time and season. 4. Climatic conditions. 5. Wage agreements. 6. Strikes. 7. Market prices of basic materials. 8. Availability of money. 9. The demand for construction.
  6. 6. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٦ ١١ What the Estimator Must Know (Skills)? 1. He must have a thorough knowledge of the building trades. This includes types of construction and methods of construction. 2. He must be able to read building plans and notes, and understand the specifications. If he finds any discrepancies between the plans and specifications, he will bring them to the attention of the architect or owner for solution. When all the questions are answered and problems are solved, he can then prepare and finish the cost estimate. ١٢ What the Estimator Must Know? 3. He must have a thorough understanding of the building codes in the area where the building project is to be constructed. 4. He must have a thorough understanding of construction materials. He must understand the sizes, strengths, and the capabilities of the materials with which he works. He must be able to substitute equal quality materials when specified material are not available.
  7. 7. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٧ ١٣ What the Estimator Must Know? 5. He must keep up with the development of new construction products and materials. To keep current, he should frequently visit trade shows and subscribe to building magazines. 6. He has to possess some basic mathematical ability. 7. He has to have at his fingertips reference materials, books, tables, and tabulating equipments to speed up his job. In time he will acquire reference materials in the form of material catalogs, brochures, and manufacturer specification sheets for the product he uses. ١٤ What the Estimator Must Know? 8. Finally, he must project (forecast) labor cost changes. The estimator must realize that labor costs may vary in different geographical areas of the country. He must also realize and project in his estimates future increases in labor costs because of upcoming events.
  8. 8. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٨ ١٥ The Components of an Estimate Most estimates are made up of the following five parts: 1. Materials: The estimator makes a take-off of all the different materials required on the project from the plans and specifications. 2. Labor: The estimator estimates the hours needed to do the required work and then multiply by the appropriate wage. 3. Equipment: The cost of equipment includes ownership or rental fees, moving to the job site, erecting, dismantling and operating. ١٦ The Components of an Estimate 4. Overhead: There are two types of overheads: 4a. General overhead: includes all costs that can not be directly charged to any particular project, such as the cost of office supplies, rent, travel expenses and salaries. 4b. Job overhead: includes all costs which apply directly to the project and can not be charged to materials, labor, or equipment. 5. Profit: Most estimators show the profit expected from a job as a percentage of the total estimated cost of the project. The profit varies from 6-15%.
  9. 9. Building Economy ARE 431 Dr. Mohammad A. Hassanain ٩ ١٧ The Components of an Estimate Approximate profits usually expected are: Small projects 15% Medium projects 12% Large projects 10% Very large projects 6-8% ١٨ Possible Sources of Errors in Estimates 1. Mistakes in material take-offs. 2. Errors in carrying forward material from quantity sheets to summary sheets and from there to direct cost sheets. 3. Mistakes in estimating the labor time required for certain items of work. 4. Errors in estimating hourly wages of labor. 5. Failure to allow for rising costs of materials. 6. Failure to allow for delays due to breakdown of machines and acts of God (e.g. earthquakes and storms).
  10. 10. Building Economy ARE 431 Dr. Mohammad A. Hassanain ١٠ ١٩ Possible Sources of Errors in Estimates 7. Making no provisions to have estimates checked. 8. Insufficient allowance for overhead. 9. Omission of profit.

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