Chapter Three

Cost Estimating Approach

“For a project manager to effectively plan and

control a project, accurate estimating is essential”
Quality and accuracy of an estimate depends on:
• Time Available
• Information Available
• Techniques Employed
• Expertise and Experience of the Estimator
Level of information

Time now

Near
Future
Future
6 months
Low
Time
 Level of Information along a Project life-cycle

Concept Design Implement Comm Operation

Concept

Design

Implement

Commission
Operation phase
Types and methods of Estimates

A) Approximate Estimate
- Preliminary Estimates: Preliminary Estimates are employed
in the early planning phases of a proposed project to match an
owner's needs

B) Detailed Estimate
- Final Estimates
Estimating Methods

• Project Comparison Estimating or Parametric Cost Estimating

• Area & Volume Estimating
• Assembly & System Estimating, and
• Unit Price & Schedule Estimating
• Cost per functional unit
Relative Accuracy of Estimate Types
Relative Accuracy

Time Spent Preparing Estimate

Estimating Methods (Cont’d)

1. Project Comparison Estimating or Parametric Cost Estimating

Used in early planning stages
Little information is known about the program
Overall project parameters are only known
Estimating Methods (Cont’d)

2. Square Foot & Cubic Foot Estimates

Used for developing both preliminary and intermediate budgets
based on historical data
Needs measurement and calculation of floor areas and volumes
of the proposed spaces

More accurate estimates made with this method make adjustments and
additions for
- regional cost indices,
- local labor market rates, and
- interpolation between available cost tables.
Estimating Methods (Cont’d)

3. Assembly & Systems Estimates

Assemblies or systems group the work of several trades or disciplines
and/or work items into a single unit for estimating purposes

Intermediate level estimates performed when design drawings

are between 50% and 75% complete
Estimating Methods (Cont’d)

4. Unit Price and Schedule Estimating

The work is divided into the smallest possible work increments, and a
"unit price" is established for each piece
Detailed estimates performed when design drawings are complete
Most accurate means of projecting construction costs
5. Cost per functional unit

Hospital =cost per bed, Dormitory = cost per student, Cinema or

theatre = cost per seat, residential buildings = cost per area, road
works = cost per kilometer length, culverts or bridges cost per
meter span water supply or bridges =cost per meter span, water
supply or sewerage projects = cost per head of population.
3.2 Detailed Cost Estimates
 TENDER PRICE
INCLUDES

ALL-IN LABOR RATE

BUILT UP LABOR PER HOUR
UNIT RATES LABOR OUTPUT CONSTANT

MATERIAL COST INCLUDING

MATERIAL DELIVERY CHARGES

UNLOADING

WASTE ALLOWANCE

HIRE CHARGE PER HOUR PLANT

PLANT OUTPUTS
PLANT OPETATOR COSTS
ATENDANT, LABOR COSTS
NOMINATED
SUB-
CONTRACTORS
WORK
DOMESTIC LABOR ONLY

OVERHEADS
AND PROFIT

MARKET
ASSESSEMENT
Disposition of Cost Calculation
i) Direct Costs
a) Material Costs
- Quantity
- Loading, unloading and transportation costs
- Wastages
b) Labor Costs
- Standard wages
- Extra pay
- Supplementary pay
c) Equipment Costs
- Ownership of plant
- Hire of plant
Main factors in building up a rate:
* Standing costs
* Operating costs
d) Costs for Sub-Constructor
 UNIT RATE
BUILD UPS

LABOR MATERIAL PLANT

ALL IN OUTPUT GANG HIRE OPERATOR FUEL ATTENDANT

LABOR CONSTANT RATE COST COST COST LABOR
RATE PER UNIT OF BUILD UPS COST
MEASURE

SUPPLY COST UNLOADING WASTE

DELIVERED PLANT COST
COSTS ALLOWANCE
LABOR TO SITE PER UNIT OF
COSTS MEASURE
PER UNIT OF
MEASURE
MATERIAL
COST
ON SITE

MATERIAL
COST
PER UNIT OF
MEASURE

UNIT RATE COST

PER UNIT OF
MEASURE
 Disposition of Cost Calculation (Cont’d)
ii) Indirect Costs
a) Site Overhead Costs

b) General Overhead Costs

c) Risk and Profit

Direct Cost + Indirect Costs = Bid Sum

+ Value - added Tax (VAT)

Bid sum inclusive turnover tax /vat

Direct cost + Site overhead Cost = Production Cost

Production cost +General overhead cost = Self-costs
Self- costs + Risk& profit = Bid sum
Bid sum + Vat = Bid sum inclusive vat.
 Execution of Cost Calculation: Pricing

a) Construction Material Costs

Information required are:

- Quantity of material required to produce a unit amount
- Basic price at the source of material
- Transport, loading and unloading to the site
- Waste/loss

Ex. Calculation of material costs for 1m3 of C-25 grade concrete.

Required information for the calculation of material cost
§ Type and quantity of materials for a unit amount of work.
§ Basic price including transportation, loading and unloading of
materials.
§ Loss or wastage amount.
- 1Qtl of cement at Mugher - 550 Birr
- 1truck of Sand (13 m3 ) from source to Site 25000 Birr
- 1 truck of gravel (6m3) from source to site 8000 Birr
- 1m3 water 100 Birr
- Transportation cost 0.7 Birr/Qtl/Km
- Wastage 5%

Cost per
Type of material Unit Qty *Rate Unit
Cement Qtl 3.6 550 223.2
1980
Sand m3 0.5 1923 57.69
962
Gravel m3 0.75 1333.33
13 99.9975
999.75
Water m3 0.3 1
100 0.3
30
Sum 381.19
3971.75
Loss(5%) 19.06
198.6
Total 4170.35 Birr/m3
(b) Labor Costs

All costs, which result from the building /construction works of

the employees on site include:-
- Standard wages – basic current wage rate
- Extra and supplementary pay for
§ Production bonus
§ Long continuity of Service (permanent laborer)
§ Over time pay
§ Merit increase
§ Property creating performance
§ Less favorable condition /allowances
-Social Service payments
§ Holiday pay if any
§ Health insurance
§ Unemployment insurance
§ Payment during sickness
(b) Labor Costs
Required information for the calculation of labor cost
- Number and type of skilled and unskilled manpower for a particular type of work,
(Crew)
- Performance of crew per hour for a unit amount of work
- Indexed hourly cost of the workman ship.
- Utilization factor(UF) of the workmanship: Share of a particular personal
per hour for the specified work.
Example: Calculation of indexed hourly cost for carpenter
§ Standard wage:- 40 birr /day
§ Extra pay (for long continuity of service)
1Birr /hr for 60 % of the carpenters
§ Over time
50 weekly working hours / 44 weekly working hours/
6 overtime hours with 25% increment
§ Property- Creating performance
For 80% of the employees 0.25birr /hr
§ Supplements: 10% of wage

Solution:
Standard wage..........................................5 Birr /hr
Extra pay = 0.6 (1) ...................................0.6 birr/hr
Over time 6x0.25 x 5...............................0.15 birr/hr
50
Property creating performance 0.80(0.25) = 0.2 birr/hr
Supplements= 0.1(5) ..............................…..0.5birr/hr
Total..................................................…….. 6.45 b/hr.
Example2. Calculation of labor cost for a m3 of concrete; production rate 1.25 m3 /hr

Labour No UF Indexed Hourly cost

hourly cost (Birr)
Forman 1 1/2 7.29 3.645

Plasterer 2 1 4.28 8.76

Carpenter 1 1/4 6.45 1.61

Bar bender 1 1/4 6.45 1.61

D. Laborer 18 1 1.13 20.34

Total 35.97

Labour cost = 35.97/1.25= 28.78/m3

(c) Equipment Costs
Required information for the calculation of Equipment cost
§ - Type of equipment for a particular item of work.
§ - Performance of equipment per hour for a unit amount of work (production rate)

Two methods of calculation are followed.

I) With charges accounted for depreciation, interest return and monthly
repair costs
II) With monthly rental charges.
Example: Calculation of equipment cost for m3 of concrete
Mixer - Original cost = 50,000 Birr
Useful life = 3yrs
Interest rate=6.5%
Monthly repair cost with supplies: - 700 Birr
Virbrator- Original cost = 5,000 Birr
Useful life = 7yrs
Repair cost monthly = 50 Birr
 i) Mixer
Depreciation (d)
50,000 Birr = 7.89 Birr/hr
3x12(22x8) hr
Interest of return (i)
1/3 [50,000 (1+0.0665)3 - 50,000] Birr /year = 3465.83 Birr/year

Hourly cost 3465.88/(12x8x22) = 1.641 Birr/hr

Hourly repair cost = 700/8x22 = 3.98 Birr/hr

Hourly Mixer cost = 7.89 + 1.641+ 3.98 = 13.511 Birr/hr

Type of equipment No UF Hourly rental rate Hourly Cost

Mixer 1 1 1 13.51 13.51
Virbrator 1 1 0.81 0.81
Total hourly cost (Birr) 14.32

Excel format
3. Two approaches for cost calculation
i/ Cost Calculation with predetermined charges

ii/ Cost Calculation through the bid sum

Unit price = Surcharge x direct itemized cost

i/ Cost Calculation with predetermined charges

Example: Establish the unit price of 1 m3 concrete considered for in the

previous examples. Given that the surcharge for the indirect cost is 35%.
Material cost= 400.25
Labour cost = 28.78
Equipment cost = 11.04
Direct cost = 440.07
Indirect cost = 0.35 (440.07) = 154.02
Unite price = 440.07 + 154.02= 494.1 Birr/ m3
ii/ Cost Calculation through the bid sum
- Amounts for site overhead costs, general overhead costs,
risk and profit are ascertained separately for each project
Four steps for this calculation method:
- Establishing the production costs
- Establishing the bid sum
- Establishing the surcharges on direct itemized costs
Surcharge = Bid sum .
Direct itemized cost
- Establishing the unit prices