Dr.

Hany Abd Elshakour

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 Learning Outcomes

 The attendee will be able to:

 Differentiate between the basic terms related to cost
estimating
 Decide when and where the different types of
estimates are used
 Describe the cost estimating procedure
 Estimate the direct cost of the work items
 Perform a detailed estimating of the site overheads
 Know the project sub-deliverables in this area.

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 Session Outline

 Basic terms related to cost estimating (review)

 Estimating types through project phases
 Cost estimating procedures
 Estimating direct cost
 Labor cost
 Equipment cost
 Material cost
 Subcontractor cost
 Short in-class example
 Forms/ template
 Project deliverables
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 Basic Definitions

Project Cost Management includes the processes

involved in estimating, budgeting, and controlling
costs so that the project can be completed within the
approved budget.

Cost Estimating – The process of predicting costs of

construction, i.e. determine the probable costs of the
resources needed to execute the project activities in
accordance with the contract documents.

Cost estimation is probably the most essential function

to the success of construction organization.

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 Structure of Tender Price

Bid Price

Cost Markup

•Profit
Direct Cost Indirect Cost •Risk Contingency

•Labor
•Materials Project General
•Equipment Overhead Overhead
•Subcontractor

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 Basic Definitions
Direct costs: The cost that are incurred in executing project
work items, and which apply directly to specific work item.
These refer to the cost of the materials, labor, equipment
and subcontractors used in all the activities in a project's
WBS.

Site overheads: This refers to site costs, which are incurred

in achieving project completion, but which do not apply
directly to any specific work item but are chargeable directly to
the project. It is standard procedure to list and price each item
of project overheads on a separate sheet. Typical item of job
overheads include the salaries of on-site contractor's staff
personnel, the costs of utilities, storage buildings, project
insurance, permits, access roads, fence, first aid,
furniture, site security, etc.
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 Basic Definitions
General overhead: A share of the costs incurred at the
general office of the company. These costs cannot be charged
to any specific project. Office overheads include expenses
such as salaries, office rent, utilities, furniture, computer,
legal expense, marketing, insurance, taxes, and others.

Markup or margin is an allowance for profit, risk

contingency (in some literature markup can include office
overheads). Many factors must be considered in deciding a
markup figure and each can have an influence on the figure
chosen. Risk contingency is used to provide a safeguard
against uncertain circumstances that are anticipated to affect
the project such as weather, labor problems, soil conditions,
changes,…etc.

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 Types of Estimates
Cost estimates may be divided into at least two different
types, depending on:
1. The purposes for which the estimates are prepared,
and the needs of the user for the estimate.
2. The amount of information known when the estimates
are prepared.
3. The time available to prepare the estimate.

There are approximate estimates (sometimes called

parametric, preliminary, conceptual, rough order of
magnitude, or budget estimates) and detailed estimates
(sometimes called final, or definitive estimates). Each of
these may be subdivided.
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  Estimating Types through Project Phases
Project Concept Preliminary Detailed Tender Construction
Phase Stage Design Design Preparation

Estimate Preliminary Elemental Unit Rate

Type and + 50 or +15% or
Accuracy -25% to Operational
+75% -5% to
+10%
Cost per Assemblies Quantity
Square Cost Take off,
meter,….. Method
statement,
and
Production
Rate
Order of Magnitude Detailed Method

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  Parametric versus Detailed
ROM, or Parametric Estimate Detailed Estimate
 At the early stage of the project  Mainly during the tendering and
planning of construction
 A rough estimate  A accurate estimate
 Easy to perform  Requires a lot of effort
 More important to the owner  More important to the contractor
 Less expensive than detailed estimate  Can cost from 0.5% to 2% of total
project cost
 Based on two or more project  Based on quantity take off from
parameters drawings and specifications
 Accuracy can be improved by  Based mainly on real cost data of
applying variation factors (year, work items
location, size and shape, capacity,
quality, soil conditions, weather,
regulations, ..)
 Suitable for decisions related to  Suitable at the bidding stage
budgeting and the (go/ no-go)
decision for the project.

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  Detailed Cost Estimating
The preparation of the detailed cost estimate generally follows a
systematic procedure. The process of cost estimating may be described
in the following steps:
1. Plan and schedule the estimate
2. Thorough review of the complete set of contract documents, visit the
project site, and attend meetings
3. Create a detailed WBS
4. Take off the quantities of materials
5. Prepare a method statement
6. Obtain and analyze bids from suppliers, and subcontractors, collect and
calculate all-in labor rate, all-in plant rate, material costs, and
subcontractors' costs
7. Assess the output of selected resources and elapsed time of deployed
resources
8. Develop a general time schedule of the project
9. Calculate the direct cost and site overheads
10. Prepare the estimator's report
11. Calculate taxes, bonds, insurance, and overhead
12. Determine contingency and profit
13. Calculate the tender price and the unit price of each item 12
 Plan and schedule the cost estimating tasks

• Review the scope of the project

• Analyze contract documents Perform detailed WBS
 Drawings, Specifications, Bill
of quantities, ……..
• Site visit, Take off the quantities for WBS elements
• Meetings,

• Obtain and analyze bids from suppliers

Select the most appropriate construction method
• Obtain and analyze bids from specialty
contractors/ subcontractors
Estimate production rate of selected resources and • Collect and calculate all-in labor rate,
elapsed time of deployed resources all-in plant rate, material costs, and
subcontractors' costs

Develop a general time schedule of the project

Estimate the direct cost for each item and the site
overheads of the project

Calculate taxes, bonds, insurance, and overhead

Determine contingency and profit

Calculate the tender price and the unit price of each item
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Dr. Hany Abd Elshakour

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  Estimating Material Costs
 Materials not only form a significant percentage of the
works but, due to the volatility of materials price,
contractors have to send out unique inquiries for almost
all materials in every estimate prepared.
 Written quotations are desirable so that such important
considerations as vendor prices, freight charges,
delivery schedule, and guarantees are understood.
 It will be necessary to analyze other costs such as
transportation, storage, handling, re-handling, taxes,
and waste.
Material Cost = quantity of materials * unit cost of the material

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1. Delivery and Unloading cost Dr. Hany Abd Elshakour

2. Handling Cost

3. Wastage Cost

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  Estimating Labor Costs
 Predicting the cost of labor for a construction activity is
probably the most challenging part of the estimator’s job.

 To estimate the labor cost for an item of work, one of

three approaches can be used. All are based on the idea
that the work item will consist of an estimated number of
units, or quantity, and the total labor cost will be that
quantity multiplied by the estimated labor cost per unit.

 The particular approach depends on the way the

contractor keeps its historical cost records.

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 1. Estimating Labor Costs based on labor unit cost

If the contractor’s cost records for making masonry work are

kept on the basis of labor L.E./m2, we simply multiply the
quantity of the work item by the historical unit labor cost,
perhaps modified to incorporate inflationary cost changes.

Labor cost = Quantity of work item * Labor cost per unit

Example:
If the labor cost is L.E. 6.5/m2, and the quantity is estimated
to be 2000 m2
the labor cost estimate = (2000 m2) * (L.E 6.5/m2) = L.E.
13000.00.

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 2. Estimating Labor Costs based on Production Rate

 Perhaps a better way to keep labor effort records is by

production rate instead of labor pounds.
 Production rate (Output rate): Quantity of outputs
produced per unit of time = Output / Time. (e.g. production
rate of bricklaying crew = 50 m2 per day)
Labor cost = (Quantity / Labor production rate) * Labor rate
Example:
If the production rate of a crew, consisting of 3 labors is 50
m2/day and the crew cost is L.E. 325/day, and the quantity is
estimated to be 2000 m2
Labor cost = (2000 m2) / (50m2/day) * L.E. 325/day
= L.E. 13000.00.
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 Sources of Production Rate

1. Estimator’s, planner’s and construction manager’s

manual
2. “known” to construction managers and estimators by
their experience
3. Educated guesses
4. Estimating and cost books
5. Company’s manual data
6. Computer programs (Expert system, Artificial Neural
Network (ANN))

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 Notes on Production Rate
1. An estimator who has access to production rates obtained on
projects constructed under conditions similar to the conditions that
will exist on a project for which he is preparing an estimate should
use them instead of the rates appearing in tables prepared by
someone else.
2. The time which a worker will consume in performing a unit of work
will vary between laborers and between projects and with climatic
conditions, job management, complexities of the operation, and
other factors.
3. Adjustments to the stored production rate can be made by the
estimator to reflect unique job conditions.

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 3. Estimating Labor Costs based on Unit Rate

 Usage rate (Unit rate):The time needed to produce one

unit of output = 1 / Output rate. (e.g. 2 hrs/m2)
 The unit rate is simply the reciprocal of production
rate m2/day
Labor cost = (Quantity * Labor unit rate) * Labor rate

Example:
If the unit rate of a crew, consisting of 3 labors is 0.16 hr/m2
and the crew cost is L.E. 325/day, and the quantity is
estimated to be 2000 m2
Labor cost = ((2000 m2) * (0.16 hr/m2) / (8 hr/day)) * L.E.
325/day = L.E. 13000.00.
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  Estimating Labor Rates
 The direct cost of labor also includes indirect labor costs.

 These costs are those expenses paid by the employer

that are in addition to the basic hourly rates, including
social security funds, unemployment compensation tax,
workers' compensation insurance, public liability and
property damage insurance, and any fringe benefits.

 Such expenses can be substantial, often exceeding 50%

of the basic hourly rate.

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Dr. Hany Abd Elshakour

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  Estimating Equipment Costs
 Equipment maybe owned by the contractor or it may be rented
or leased for the project. Contractors rent equipment on a
short-term basis, often month to month. Leasing is for longer
terms of a year or more, with a common provision that the
contractor has the option of purchasing the equipment at the
end of the lease period.

 When equipment is purchased, it is necessary to determine

the costs of owning and operating each unit, which include
 Depreciation
 Maintenance and repairs
 Investment
 Fuel and lubrication or another type of energy

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 Estimating Equipment Costs
 An often-used process for estimating the cost of
equipment is similar to that for labor, wherein
1. Equipment cost =
Quantity of work item * Equipment cost per unit

2. Equipment cost =
(Quantity / Equipment production rate) * Equipment rate

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  Estimating Subcontractor Costs
 For many projects a significant amount of work is performed by
subcontractors who specialize in a particular area. The
estimator provides a set of drawings and specifications to
potential subcontractors and requests a bid from them for their
particular work.

 Subcontract offers may be provided to the general contractor

either on a lump-sum or unit-price basis. If a lump sum, as
would be likely with electrical work, they are simply added to
the other items. If they are given on a unit-price basis, the
product of that proposed price times the estimated quantity
becomes the estimated cost of the item; examples might be
rock excavation on a per-cubic-meter basis or footing
insulation based on the area in square meters.
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 Example
It is required to estimate the direct cost of delivery and
placing 240m3 of plain concrete for foundation. Each cubic
meter of the concrete consists of 250 kg cement + 0.8 m3
gravel + 0.4 m3 sand.

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1. Select the Appropriate Construction Method

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1. Select the Appropriate Construction Method

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2. Determine the Resources according the Construction Method

According to the construction method, the concrete will be

mixed by a concrete mixer loaded by a mini-loader and
labors and poured by using wheelbarrows.

Concrete mixer Mini-loader Wheelbarrow

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3. Estimate the Material Cost
Material type Vendor price Transportation Material cost per
and Waste cost unit
Cement L.E. 650/ ton 3% L.E. 669.5/ ton
Gravel L.E. 80/ m3 5% L.E. 84/ m3
Sand L.E. 25/ m3 5% L.E. 26.25/ m3
Water L.E. 0.5/ m3 2% L.E. 0.51/ m3

Quantity = 240 m3
Material cost =
240 [(0.25*669.5) + (0.8*84) + (0.4*26.25) + (125/1000)*0.51]=
240 [167.4 + 67.2 + 10.5 + 0.06] = 240*245.2 = L.E 58839

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4. Estimate the Equipment Cost
Based on
 Quantity of the work,
 Production rate, and
 Activity duration
Type of equipment Required No. Production rate Rental rate
Concrete mixer 1 60 m3 / day L.E. 300/ day
Mini-loader 1 Loading gravel L.E. 350/day
and sand
Wheelbarrow 2 ……….. L.E. 20/day/one

Equipment cost/day =
(1*300) + (1*350) + (2*20) = 690 L.E/day
Production rate of concrete mixer = 60 m3/day
Duration = 240 / 60 = 4 days
Equipment cost = 4*690 = L.E 2760

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4. Estimate the Labor Cost
Based on
 Quantity of the work,
 Production rate, and
 Activity duration
Mixing and pouring crew Required No. All-in labor rate
Foreman 1 L.E. 130/ day
Laborer 6 L.E. 65/ day /one
Carpenter and helper 2 L.E. 100/day/one

Labor cost/day = (1*130) + (6*65) + (2*100) = 720 L.E/day

Duration = 4 days
Labor cost = 4*720 = L.E. 2880.

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5. Estimate the Item Direct Cost
Item Direct Cost =
Material cost + Equipment cost + Labor cost
= 58839 + 2760 + 2880 = L.E. 64479

6. Estimate the Item Budget

Cost Work type quantity Material Labor Labor Equip. Equip.
code cost cost unit cost unit cost
(L.E.) (L.E.) cost (L.E.)

Concrete 240 m3 58839 2880 12 2760 11.5

L.E./m3 L.E./m3
………….

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Cost Estimating Forms/templates
Summary Sheet
Cost Description quantity Calculation Material Equipment Labor Total
code cost cost cost cost

Recap Sheet
Item Bid unit quantity Material Equip. Labor Subcont. Total Unit Total
No. item cost cost cost cost direct price price
cost

Bid Form
Item No. Description unit quantity Unit price Total price

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 :‫المطلوب تقديمه األسبوع القادم من الطلبة هو اآلتي‬

1. Direct costs of each activity should be

estimated. The activity report should be
presented on a spread sheet like Excel. The
report should include an explanation of the
assumptions made in selecting the crews,
production rates, and the direct costs for each
activity.

2. Detailed estimate of the site overheads of the

project.

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End of Today’s Session

Questions?

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