Construction Cost Estimating: How to Price a Project

How do you ensure your construction project gets off to the best possible start? Accurate construction cost estimating is among the key drivers of successful project planning and execution. Whether you're a general contractor, construction manager, or project estimator, it’s critical to understand how to correctly estimate costs so you can ensure profitability. 

Read on to discover everything you need to know about construction cost estimating, including the different types of estimates, potential challenges, best practices, and the role technology can play in keeping your costs down.

What is Construction Cost Estimating?

Construction cost estimating means calculating the total budget necessary to complete a project by taking into account factors such as materials required, expected labor costs, and desired profit margins.

With an accurate cost estimate worked out, it's easier to allocate resources, plan a timeline, and make informed decisions at each stage of the construction process.

What to Include in a Cost Estimate

An effective cost estimation process requires consideration of all the relevant components that affect a project's expenses. Let’s take a closer look at what should be included in your estimate.

Quantity Takeoff / Material Takeoff

List and quantify all the materials required to complete a construction project according to the plans and specifications. Quantity takeoff will include everything from bulk items like concrete and steel to smaller components such as fixtures and fittings, even nails.

Labor Costs

To calculate these you need to estimate the labor hours, the amount of time that a worker spends on a specific task, and the labor rate, the hourly payment to skilled workers. Include benefits, overtime, worker compensation, and unemployment insurance in your calculations.

Subcontractor Costs

Ensure your estimate accurately accounts for any specialized work or trades subcontracted to external parties such as electrical wiring, lighting installation, plumbing, or HVAC. Be sure to factor in the cost of subcontractor labor and materials when creating your construction cost estimate. It’s also important to review and verify that the subcontractor bid covers their full scope as outlined in the drawing set and specifications.

Equipment Costs

Equipment costs include the expense of operating, and leasing or buying required machinery. The choice of equipment also affects project completion speed, influencing various costs beyond the direct operational expenses.

Material Costs

The price and availability of materials can change due to market trends so use historical price information to inform your estimate of expected material costs. Factor in an extra percentage to cover materials wastage.

Overhead / Admin Costs

Consider non-direct construction expenses, such as administrative and transport costs, equipment, temporary structures, and various project-specific costs. Estimates should include an allocation of funds to cover rework.

Contingency Costs

Make room in your estimate for a budget to cover things like weather delays, excessive material fluctuations, and unexpected site conditions.

Taxes and Fees

Factor in any applicable taxes, permits, or fees that may affect the project's overall cost.

Profit Margin

Once the estimated costs of delivering a project are finalized, you can apply your desired profit margin and evaluate the final budget, allowing for adjustments if needed.

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Types of Construction Cost Estimates

There are different types of construction cost estimates depending on the project stage, each serving specific purposes. For example, early estimates provide an initial cost overview, essential for securing financing. Later, during the design phase, another estimate may be necessary to ensure the project stays within budget, allowing for adjustments if needed.

To get an idea of how cost estimates work, the American Society of Professional Estimators (ASPE) breaks down estimating into the following five levels:

1. Rough Order of Magnitude Estimate (ROM)

This is based on available project information during the early planning stages. It draws on data from similar past construction projects and will provide a rough idea of the expected costs.

2. Schematic Design Estimate

A more detailed estimate that uses preliminary drawings and specifications.

3. Design Development Estimate

Further developed designs allow for more detailed cost information.

4. Construction Document Estimate

By this stage, there is a need for a comprehensive estimate, based on fully detailed construction documents, that provides much more accurate cost projections.

5. Bid Estimate

The final estimate is explicitly prepared for bidding, incorporating detailed project requirements and specifications.

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Each estimate level provides increasingly accurate cost forecasts as the project progresses through its stages.

Challenges In Construction Cost Estimating

Accurately estimating costs for construction projects can be difficult because every project is unique. Unforeseen internal and external factors can also interfere with the project and throw your budget off course. 

Here is a look into the main challenges that could affect the accuracy of your estimate:

Rework and Errors Due to Manual Processes

Manual construction processes are prone to errors that lead to rework and other added costs. Human error is inherent in manual methods, and anticipating them is challenging.

Conflicts Between Stakeholders

Ineffective communication, misunderstandings, and stakeholder conflicts can lead to delays and cost escalations. 

Changes in Project Scope

Modifications to the project scope might require adjustments to cost estimates. 

Supply Chain Issues and Market Fluctuations

Disruptions or delays in the supply chain can cause fluctuations in material prices, and changes in the job market can affect labor costs, impacting how closely the project follows your cost estimates.

Unexpected Site Conditions

Estimators may encounter unforeseen circumstances such as hazardous materials or unstable soil, which can cause a significant increase in estimated costs.

While every construction professional hopes for a smooth run, understanding and anticipating these challenges can help you develop strategies to mitigate their impact on the accuracy of your cost estimation.

5 Best Practices for Accurate Construction Cost Estimating

Adopting best practices drawn from the most successful projects is a reliable method to streamline the construction cost estimating process. It also enables the creation of more precise estimates and helps prevent expensive errors. Let’s take a look at each of them:

1. Collaborate and Communicate

Involve all relevant stakeholders such as architects, engineers, subcontractors, and suppliers, and establish clear communication channels among them to reduce the chances of misunderstandings and errors.

2. Prepare to Update and Adjust

Continuously monitor and update cost estimates throughout the project lifecycle to account for changes, such as scope modifications or market fluctuations. It's crucial to have a robust change management process in place to address these changes effectively.

3. Use Historical Data

Insights and data from previous projects or industry benchmarks can provide a glimpse into cost patterns and trends, enhancing the accuracy of future estimates.

4. Plan for the Unexpected

It’s a good idea to incorporate contingency costs into your estimates as a buffer against potential rework expenses.

5. Leverage Robotic Automation

Leverage the advantages of tech-driven solutions, such as automated multi-trade layout, in your plans to streamline construction processes, reduce errors, increase productivity, and lower costs.

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Discover how Skanska cut 3 months off the construction schedule, accelerated layout by 50%, and achieved 100% accuracy with Dusty Robotic's multi-trade layout.

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Cost Estimating Tools

Construction estimators traditionally relied on spreadsheets like Excel, but now there are many other options available. The right technology can streamline the estimation process for projects of all complexities, reducing human error and improving cost analysis and reporting. Here are some valuable tools to consider:

Spreadsheets

Traditional spreadsheets can help organize and calculate cost estimates. However, specialized construction estimating software can offer more advanced features and integration capabilities.

Construction Estimating Software

Purpose-built software designed specifically for construction cost estimation provides enhanced functionality, including comprehensive materials and labor costs databases, automated calculations, and report generation.

BIM Software

Building Information Modeling (BIM) software can combine cost estimates with 3D models, allowing for more accurate quantity takeoffs and budget calculations. It also allows for seamless integration with automated multi-trade layout solutions such as the Dusty Robotics FieldPrinter®.

Digital Takeoff Software

Digital takeoff tools enable estimators to perform quantity takeoffs directly on digital drawings, improving accuracy and efficiency.

Parametric Estimating Tools

Parametric estimating tools use algorithms and historical data to generate cost estimates based on specific project parameters.

Machine Learning and AI Estimating Tools

Advanced technologies like machine learning and artificial intelligence can analyze vast amounts of data to generate accurate cost estimates, incorporating intricate project details and specifications.

Choosing the correct cost-estimating tools depends on your project's complexity and your specific needs. With so many options available, embracing technology-driven solutions is an obvious step to enhance your accuracy, efficiency, and productivity.

How Construction Technology Can Keep Cost Estimates Down

Accurate construction cost estimation is vital for ensuring project profitability and success. By mastering the basics, adopting best practices, and integrating technological solutions, construction professionals can significantly enhance estimation accuracy.

The industry's shift towards innovative technologies, such as the Dusty Robotics FieldPrinter, addresses key estimating challenges. For example, automating layout tasks results in precise measurements, fewer errors, and multi-trade alignment, translating to lower rework costs, reduced material waste, and shortened timelines. Automated multi-trade layout’s integration with BIM software also lets you respond with agility to unexpected factors such as deteriorating site conditions and changes in project scope.

Learn more about how investing in advanced tools like the Dusty FieldPrinter not only optimizes cost estimates but also accelerates project timelines, ensuring delivery within budget and putting your firm ahead of the industry.

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