Principles and Techniques of Cost Estiating
Principles and Techniques of Cost Estiating
Principles and Techniques of Cost Estiating
The primary function of cost estimation is to produce an accurate and reliable cost forecast of a
construction project. However the costs to be forecasted depend on the requirements of a client
and also upon the information and data available to develop the model. For instance, a client or
contractor may need to know the lowest tender price at one stage and/ or the final project cost at
completion stage.
There are different techniques currently used for project cost estimation at different stages of the
project development process and even within the same stage. The attractiveness of each of these
methods includes its:
1. Ease of application
2. Familiarity of the user
3. Speed at which it can give results
4. Its tolerable level of accuracy
5. Its reliability
A. The following are the main models used by consultants in the construction industry:-
The data used in these models are usually derived from historical records of already completed
buildings
B. Contractors when preparing bids or tenders normally use resource analysis method. This
includes the analysis of major resource constituents or inputs such as:-
1. Materials
2. Labour
3. Plant
4. Overheads
5. Profits
Operating
Tradesmen Labourers Apprentices costs/ running Fixed costs
/artisan costs
Functional Unit
This method relies on the fact that there exist a relationship between the cost of a building and
the number of functional units which it accommodates. These units are expressed in terms of
intended use of the building
By costing a single functional unit, rather than say floor area, the designer gets area flexibilities
which allow him choice of quality as well as quantity of accommodation of the building during
design.
This method is considered unreliable because every building is unique on account of the
following factors
1. Site conditions
2. Price levels set by market conditions at a given time
3. Specifications levels variations
4. Different access and circulation arrangement
5. Client characteristics
6. Consultant and design characteristic
7. Contractor characteristics
8. Project characteristics
9. Contract procedure and procurement methods etc.
SUPERFICIAL METHOD
This method bases its estimation on the fact that the building cost is much more closely related to
floor area. The method entails measurement of total floor area within, the internal perimeter of
walls and is measured over all partitions, staircases, internal columns etc.
Where there are no external walls but instead columns exist, measurement is done from the
external perimeter of the columns. Lifts, chimney stacks etc. are assessed separately and their
cost added as a lump sum.
The advantage of this method is that it expresses costs in terms of accommodation required. This
is more meaningful to the client. Sometimes when estimates are required at the initial stages of a
project the only available information is floor areas then it becomes a very useful tool.
However, most of the factors causing unreliability cites under unit method apply as well.
STORY ENCLOSURE METHOD
It involves measurement of areas of floors between internal faces of external walls, roofs and
containing walls, each of which are weighted by different percentages and the resultant figures
totaled to give the number of Storey enclosure units.
a) Basement x 3.00
Ground floor x 2.00
1st floor x 2.15
2nd floor x 2.30
3rd floor x 2.45
Etc.
Lifts and other engineering services and external works are measured separately and costs
calculated and added as a lump sum.
Advantage
An advantage of this method is that it performs better as far as reliability is concerned because:
Disadvantages
Building costs in normal parlance refers to the capital costs of providing a new building.
However, once a building has been put up it continues to incur costs such as:
1. maintenance
2. decorations
3. heating
4. cleaning
5. repairing
6. from time to time, fairly expensive renovations
7. Also, each year the interest in capital costs will have to be found and a sinking fund paid
into it.
a) Cost-in-use
b) life-cycle costing
c) ultimate cost
d) total cost
were coined to describe a form of modeling technique to cope with this mixture of capital and
running costs. Hence cost in use can be defined to mean both initial construction costs and all
running costs, and include maintenance costs.
COST-IN-USE TECHNIQUE
Most cost budgets for construction projects only target initial capital cost of land, construction
and professional fees consequently, materials and construction processes have been selected
which are low in initial costs but which require frequent expenditure on maintenance and repair
during the life of a building.
Ideally it is argued that if the architect were allowed to spend more money initially on better
materials, running costs and some occupational charges would be lowered and in the long run
pay for themselves.
EXAMPLE
a) Softwood window casting $ 1600 initially but requiring painting at the cost of $2000
every 5 years
b) Hardwood costing $1000 initially but requiring treatment every 10 years at the cost of
$2000
c) Aluminum at $ 1600 initially and requires no maintenance throughout the life of the
building.
1. Alternative A
Cost PVF Amount ($)
Initial cost 800.00
PV of painting 5th year 0.519
10th year 0.270
15th year 0.140
20th year 0.073
25th year 0.038
30th year 0.020
35th year 0.010
1.070x$50 53.50
Cost in use 853.50
2. Alternative B
Cost PVF Amount
Initial cost 1000
PV of painting 10th year 0.270
20th year 0.073
30th year 0.020
0.363x $20 7.26
Cost in use 1007.26
3. Alternative C
Remains at $ 1600
Therefore,
A costs $853.50
B costs $1007.26
C costs $1600.00
1. Lack of reliable historical data and the predicting useful life of materials leads to
inaccurate assessment of maintenance and running costs of different materials, processes
and systems.
2. There are three types of payments, initial, annual and periodic. These must be brought to
a common basis for comparison purposes. This requires mastery of discounted cash
techniques.
3. Income tax has a bearing on maintenance costs and needs consideration as it can reduce
the impact of maintenance costs. Taxation rates and allowances are subject to
considerable variation over the life of the building
4. The selection of suitable interest rates for calculations involving periods of up to 60 years
is extremely difficult.
5. Inflationary tendencies may not affect all costs in a uniform manner, thus distorting
significantly the results of cost in use calculations.
6. Where projects are to be sold as an investment on completion, the building client may
show little interest in securing savings in maintenance and running costs
7. Where the initial funds available to the building client are severely restricted, or his
interest in the project is short-term, it is of little consequence to him to be told that he can
save large sums in the future by spending more on the initial construction stage.