CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT

1. CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENT ESTIMATING PROJECT COSTS LECTURER : ASST. PROF. AHMET ÖZTAŞ UNIVERSITY OF GAZİANTEP DEPARTMENT OF CIVIL ENGINEERING Lecture 8

2. CHP 8-ESTIMATING PROJECT COSTS • Introduction • Common Estimating Traits • Function Of The Estimate • Estimate Considerations (Project size, Project quality, Location, time) • Types Of Estimates • Estimating during design • Estimating during construction • Conclusion

3. Learning Objectives In this chapter you will learn the following: • How an estimate evolves over the life of the project. • The common characteristics of every estimate. • Three basic estimate types used during project design. • How to organize, structure, and complete a unit price estimate.

4. Introduction-1 There are many costs associated with construction projects. Some are not directly associated with construction itself but are important to quantify because they can be a significant factor in whether or not project goes forward. These are; • Financial agreements • Real estate transactions • Consultant services • Public relations • Marketing • Government regulations • Maintenance • Operations

5. Introduction-2 Estimating is a dynamic process that begins in very early stage and ends when the project is turned over to the owner. As project is moves along in time, amount of information generated increases. This information improves an estimate's accuracy but costs more. Estimators consider past projects while anticipating new factors. Some of this factors include: • Current technologies, • Marketplace demands on material and labor, • Quantities of materials, • Timeline of collective bargaining agreements, • Level of quantity, • The requirements for completion.

6. Introduction-3 If we have a good data base of actual costs from past experiences, quick and accurate estimate can be prepared. Each new project provides a clearer picture of the actual cost of construction and adds to the value of the data. Larger design and construction companies maintain their own data bases. Smaller companies may rely on the data developed from independent cost consultants and cost data suppliers. In US R.S. Means supply cost data and sell construction cost information to owner, designer, and constructors.

7. Purpose of An Estimate To know in advance the expected cost in varying degree of accuracy, at different phases of the project.

8. Common Estimating Traits-1 Specific format estimators use varies with the type of estimate, type of project, and with company procedures. As experienced estimators know, all estimates share common traits as the following • As project develop, there is continual competition among issues of quality, size, performance, and cost. Owners want the biggest building with the best finishes and systems that will perform over the time for the least amount of money. The design and construction team uses estimates to ensure that good cost information is developed and a feedback loop established so that these conflicts can be addressed as quickly as possible.

9. Common Estimating Traits-2 • Estimating combines science and art. • Estimates are not guarantees of costs. • An estimate can only be as accurate as the information upon which it is based. Estimates depend on many factors. Document completeness, data base currency, the skill and judgement of the estimator. • An estimate’s accuracy increases as the design becomes more precisely defined. • Methodology and procedure are important for accurate estimating. Otherwise, the ability to process all the information that makes up an estimate will suffer. As the design process proceeds, the level of detail increases.

10. Common Estimating Traits-3 Estimates, as a consequence, become more complex, reflecting the many different factors that go in to each unit of work. • Each estimate is based on previous estimates. INPUTS Scope definition Time to prepare Quality of cost data Estimator skill Estimate accuracy Figure 8.1 – inputs of estimate accuracy

11. Function Of Estimate-1 From an owner’s perspective an early estimate helps • To define the affordability of the project, • How big is the project can be for the money available, and • What level of quality is possible. The estimate can also guide the decision among two or three possible options. Estimates offer guidelines to designer, who selects materials and sizes the project to fall within the owner’s budget. At the end of design process estimates must also be prepared by individual trade contactors to figure their bid price.These are done with nearly completed design documents, and are the most timeconsuming and most accurate of estimates.

12. Function Of Estimate-2 PM team often prepares a detailed estimate at this point to verify the accuracy of bid prices and to negotiate with trade contractors. An estimate can be used by PM to define the scope of work for each subcontractor as well as determine fair pricing. An estimate can also be used as a planning tool. Procurement specialists use it to define how much of a given item will need to be purchased. In the field, superintendents consult the estimate; • to determine total quantity of work in a particular location, • the total number of hours needed to do the work, and • the materials required.

13. Owner's Purpose of Estimate 1. Making investment decision in the conceptual stage. 2. Negotiate and finalize the contract at the implementation phase. 3. To implement cost control measures.

14. Contractor’s Purpose of Estimate 1. Determine project cost and profit. 2. To Implement cost control measure. 3. To develop data base that can be used for future project.

15. Engineer’s Purpose of Estimate 1. Provide the owner with probable estimate. 2. Evaluate alternatives.

16. Contractor’s Estimator Determines actual cost of project for bidding purposes. Has detailed company cost data for labor and equipment. Knows which construction methods are to be used. Has knowledge of actual materials’ suppliers to be used and quantity discount prices. Engineer’s Estimator Determines expected cost. Does not know who will receive award, therefore does not know contractor’s exact resource costs. Does not know actual labor rates. Must assume probable construction methods to be used. Does not know who project supplier will be. Must use local list prices. Comparison of Contractor’s and Engineer’s Estimator

17. Estimate Considerations Every estimate considers the same basic issues. Project price is affected by; • Size of the project, • Quality of the project, • Location, • Construction start and duration, • Other general market conditions Accuracy of an estimate is directly affected by the ability of estimator to properly analyse these basic issues.

18. Project size Size of project is a factor of owner’s needs. In an estimate, size is handled differently depending on which stageproject is. At the conceptual stage, • size is issue of basic capacity, such as; • apartment units for a real estate developer, or • miles of roadway for a highway engineer. The principle of economy of scale is an important factor when addressing project size. As projects get bigger, they get more expensive but at a less rapid rate. Larger the project, more efficiently people and equipment can be used. Also, as people repeat task, they get better and faster, reducing cost of labour. On large commercial building and heavy engineering projects, worker productivity is plotted into learning curves.

20. Adjust for size or capacity • Cost of unit A= Cost of unit B* (capacity of unit A/capacity of unit B)x • Where:X is the cost capacity factor • Example: The cost of a 320 (ft3/hr) process unit is $675,000. From historical cost records, the capacity ratio factor is 0.72. Estimate the cost of similar process unit with a capacity of 450 ft3/hr. • Cost of unit A= ($675,000)*(450/320)^0.72 = $ 862,797

21. Project Quality An owner may require a high-quality project to create a specific image; Reasons: • the boardroom of a corporation may require high-end finishes to create an atmosphere of prosperity. • Owner may need a facility for a specific use. • Public safety in power plant or a missile launch site. Whatever the reason, consequences same… increase in costs. Early in the project, an estimator must discuss expectations of quality with the users, the designers, and applicable government agencies. Tools to estimate quality get more refined as design becomes clear.

24. Location Constructing a facility in Peru is different from constructing one in California. The differences are in the labor costs, the availability of materials and equipment, delivery logistics, local regulations, and climate conditions. The cost of labor and material in different locations can be predicted by establishing location indices for different cities and parts of the country. An index is created for a particular city by comparing the cost of labor, equipment, and material for that city to national average.

25. Time A project is estimated at a given point in time, but usually the actual procurement and field construction occur at some point in the future. Sometimes this future can be years away, especially in a very large or phased project. Estimate must take into consideration when actual project will be built. Labor and material cost usually escalate in time. So estimator can predict where these costs will be at the time of actual construction. Estimator takes past actual costs and adjusts them to today's costs. Example: R.S. means, ENR cost indices.

26. Time/location adjustment problem Problem: You have been asked to prepare an estimate for 40,000 square-foot office building to be located in Canton, Ohio with construction to start in the spring of 1996. Your company constructed a similar building in San Antonio, Texas, in 1980 for $1.5 million. Solution: Refer to the 1996 means square foot data book. Use historical location indices to make necessary adjustments. estimated time and location index for canton … 101.5 Combined time/location index for san antonio in 1980 … 55.0 Calculation: San antonio building cost = canton building cost San antonio index canton index $1,500,000/55,0 = canton building cost/101.5 Canton building = $2,768,182 Thus estimated building cost in Canton is $2,768,182.

27. Adjust for inflation index Cost (@ t+ n) = Cost (@t)* (1+i%)n Where “i” is the expected inflation rate • Example: the screening estimate of an industrial plant for the production of batteries is $120 million in 2001 dollars, if the inflation rate is expected to be 8% per year , find the cost in 2004 dollars. • Cost = ($120)(1.08)3 = $151.2 million in 2004 dollars

28. Adjust for local index of construction costs • Total construction cost of a refinery in Tallahassee, Fl was $100 million. It is proposed that a similar refinery will be built in Los Angeles, CA. if the location index was 0.92 for Tallahassee, FL and 1.14 for Los Angeles, CA, make an order of magnitude estimate of the cost of the proposed plant. • Cost of CA plant= ($100)(1.14/0.92) = $126.67 million

29. Other An estimator who accurately incorporates project size, project quality location, and time has an estimate that reflects the fair value for the project. In normal market without any unusual circumstances, this estimate should reflect the price that is paid. However, market conditions shift, owner designer and contractor may look from different perspectives. Contractor may bid low or high. Such issues are included as % in either overhead, or profit in a final contingency.

30. Types Of Estimates Estimates are developed early in the design process so that the owner and designer have cost information to guide the design to ensure that costs are within a given budget. Differences among the estimates are a function of information available at the time of estimate. Estimates can be divided into two broad category; • Estimate during design • Rough Order Magnitude Estimates, • Square Foot/Cubic Foot Estimates, • Assemblies Estimates • Estimate during construction

31. Types Of Estimates ESTIMATING DURING DESIGN: Design estimates are important tools for the owner and the project management team as they develop the project’s scope of work. The discipline of providing cost information throughout the design phase makes cost a significant driver for project team. By providing cost information early and updating it, project team is kept in the realities of cost. • Rough Order Magnitude Estimates • Square Foot/Cubic Foot Estimates • Assemblies Estimates

32. Rough Order Magnitude Estimates Rough order of magnitude (ROM) estimates typically establish a cost per unit of capacity. These units are developed mainly from past projects. Examples are; • cost per bed for a hospital, • cost per apartment, • cost per pupil for a school, or • cost per mile for a highway. Accuracy of ROM estimate depends on quality of data used. Advantage: it can be calculated quickly, often in a few hours, and is typically assumed to have an accuracy of plus or minus 20 %. These estimates are often first costs that an owner sees.

34. Square Foot Estimates Once design in early schematic stage, it will start to produce floor plans, elevations, building sections. This information makes possible the calculation of floor areas or building volumes. These values are multiplied by appropriate unit costs to produce a square foot or cubic foot estimate. The appropriate unit costs are derived from either • in-house sources that track past similar projects, or • outside data sources. This base cost is adjusted to reflect more project-specific factors. Information regarding structural systems, building height, exterior closure, and overall footprint of building are all factors that will be assumed by estimator if real data are not available.

35. Square foot estimate example Problem: Estimate the cost to construct a 55,000 square-foot motel.The motel will be a two-story building.The exterior wall will be made of a decorative concrete block,and the building will use a precast concrete floor system.Other features include 150 ceiling smoke detectors,10 nickel-cadmiumemergency lights, and a 500-square-foot gunite pool. Calculation 1.Interpolate a base price between $74.85(49.000 square feet) and $74.15(61.000 square feet).The interpolation : $74.15 61,000 $ ? 55,000 $74.85 49,000 74.85- ($6,000 * 0.70 )/12,000 =$ 74.50 2.Add the costs of the pool,smoke dedectors,and emergency lights. 150 smoke dedectors*$141 = $21,150 500-square foot gunite pool*$50 = $25,000 total = $52,050 Total project cost (with additives) = $4,149,550

38. Assemblies Estimates In later stages of design, it is possible to configure estimates into a series of systems. This method is called assemblies estimating. It uses system or assembly units of a project. In ROM estimate, unit is the number of beds or miles of road. In assemblies estimate, unit is the foundation, the roofing; the electrical system, and so on. Since units are smaller, estimate becomes more flexible, but also requires more designer input, takes longer, and costs more money to prepare. Its accuracy is in 10% range. Use breakdown called uniformat system. Allows smaller subsystems within bigger system. Example: System– 6. interior construction, Subsystem— 6.3 drywall partition. This subsystem includes the cost of the metal studs, drywall installation, taping, and finishing.

40. Example:Concrete footing

41. Example:Computerized Approach

42. Estimating During Construction This estimate is the most detailed of all estimate types and is also the most important. Companies (interested in actually performing the work) price the project. It caries legal implications. If bid is accepted, a construction company is legally bound to a specific price for a specific scope of work. On large complex projects, the scope of works is a continual focus of discussion between the contractor and designer. Many factors affecting costs lie outside the scope of works; These are owner-requested changes, unforeseen conditions, regulatory requirements.

43. Bid estimates The contractor's bid estimates often reflect the desire of the contractor to secure the job as well as the estimating tools at its disposal. Some contractors have well established cost estimating procedures while others do not. If all or part of the construction is to be undertaken by the general contractor, a bid estimate may be prepared on the basis of quantity takeoffs from the plans provided by the owner or on the basis of the construction procedures devised by the contractor for implementing the project. Example: The cost of a footing of a certain type and size may be found in commercial publications on cost data which can be used to facilitate cost estimates from quantity takeoffs. Items such as labor, material and equipment needed to perform various tasks may be used as parameters for the cost estimates.

44. Organization Of Estimate Good organization is key to preparing reliable estimates and avoiding mistakes. Many peopleare involved. Information comes from a variety of sources and must be carefully catalogued. Estimating team’s goal: To minimize the number of company hours involved while preparing a competitive estimate. To begin, • Adequate space is set up, • Right mixture of senior & junior team member are assigned, • Forms are assembled. Most important information comes from contract documents, • whichexplain the scope of the work, • the conditions the contractor is expected to meet, • the legal requirements of the job, and • the schedule of completion.

45. Quantity takeoff Once estimating tasks are identified, categorized, and organize, team begins quantity takeoff. This is foundation of estimate. • Purpose is to accurately determine the quantity of work that needs to be performed on the project. Every work item is measured and quantified, separating the work into units of labor, material, and equipment. • The goal of the quantity takeoff process is to calculate every item of the project- no more and no less. Takeoff must use correct units. • Example: Excavation and backfill … m3, formwork …m2, concrete …m3, structural steel … ton • The process requires a thorough understanding of work involved in each of different disciplines of project. • Use preprinted takeoff forms as checklist.

46. Quantity takeoff-Example Problem: Typical plan and sections views of a building footing and foundation wall are given in figures Fig. 1 and Fig. 2. a) Determine the amount of earth that will be removed from the site. (Use a swell factor of 20%). b) Determine amount of formwork required to poor footings, walls and slab. Solution:a) Excavation calculations: Depth of excavation = 17.9 – 16.4= 1.5m. Volume excavated can be calculated as the volume of the rectangular area plus the volume of slopes (shown with S in Figure): Length of rectangular area: 25.6 + 2x0.9 = 27.4 m. Width of rectangular area: 10.6 + 2x0.9 = 12.4 m. Volume of rectangular area: 27.4 x 12.4 x 1.5 = 509.6 m3.

49. Quantity takeoff-Example Solution:a) Excavation calculations (continued): Width of slopes: (X in Fig 2) is equal to 1.5 m. since angle of slopes is 450. Using figure 3: Volume of slopes ;= 2[½(20.4 x 1.5 x 1.5) + ½(12.4 x 1.5 x 1.5)] = 96.3 m3. Total amount removed from site = 1.2 (509.6 + 96.3) = 727.1 m3. b) Formwork calculations: Footing outer strip: 2 (25.6 + 10.6) x 0.3 = 21.7 m2. Footing inner strip: 2 (24 + 9) x 0.3 = 19.8 m2. Walls outer strip: 2 (25 + 10) x (18.2 – 16.7) = 105 m2. Walls outer strip: 2 (24.6 + 9.6) x (18.2 – 16.7) = 102.6 m2. No formwork is needed for the slab. Total formwork needed: 21.7 + 19.8 + 105 + 102.6 = 249.1 m2. Note: Calculations are made assuming that first walls are poured than slab is poured. If slab is poured first total formwork will be also 249.1 m2.

50. Unit pricing Next task is to determine how much; • each unit will cost to produce, • to deliver to the site, • to install in the correct position, and • maintain until the project is turned over to the owner. Production of the product and delivery to the site are included in the material unit price. Cost of installing the product is part of the labor unit price. The equipment necessary to move the unit into place and install it is included in the equipment unit price. Project overhead covers the cost of accepting material, storing it at the job site, and protecting it until project is accepted. Company overheads includes estimate preparation, marketing company, and providing broad based technical and administrative support for project.