5 Step Cost Estimating Process

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7 Common Pitfalls when Construction Estimating
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Construction cost estimating is more than simply creating a list of costs and deliverables. 

The estimator must also carry out a detailed, in-depth analysis of the project scope which will lead to a list of credible assumptions that are needed to anticipate the total project cost. In essence, a holistic analysis of the entire project scope is required. 

Several rounds of cost estimates will be created with increasing levels of accuracy and detail as things progress

Estimates are more than just a list of costs. They provide a high-level overview of:

  • The services to be provided so that it is crystal clear what your client should expect
  • Project scope, so that your client understands what your service will entail
  • Timelines and completion dates to manage expectations for both parties
  • Terms and conditions to avoid disputes further down the line

Below, we have outlined the key steps in estimating process for the construction industry.

1. Order of Magnitude

Order of magnitude is what we call the initial estimate of the cost of a project. It has an expected accuracy of -25% to +75% and occurs in the initial phase of a project or the initiation phase. In construction, it is used to inform the bidding process by contractors in order to secure future business from a prospective client. 

The purpose of this type of estimate is to provide stakeholders and decision makers with a rough idea of the project costs order of magnitude i.e. how much will the project cost to complete. 

The main challenge in order of magnitude estimating is figuring out exactly what needs to be included. Why is this challenging? Well, at this early stage, exact or precise information is often limited. So, it is your job to think ahead and consider all aspects of what is likely to be needed to complete the job. From there, you can add your buffer of -25% to +75%.

In essence, the order of magnitude estimate gives you a rough outline as to what the costs range will be for a project and is useful for stakeholder communications and ultimately, the project negotiation process.

2. Schematic Design Estimate

Next is the schematic design estimate which is a conceptual estimate based on square footage or unit cost. 

Estimations will be made around the following areas:

  • Architecture
  • Overall structure
  • Mechanical and electrical aspects 
  • Plumbing
  • Fire alarm system

At this stage, estimators will have enough guidelines to help them better determine the design concept so the margin of error typically runs at around 15 - 20%.

The main function of this process is to decide whether or not to proceed with a project based on how feasible the estimate appears to be.

3. Preliminary Estimate

This estimate is also known as a Design Development Estimate. It will provide a ballpark figure for your client as to what you estimate the probable cost of the project will be. 

It takes place in the conceptual stage, after your initial plans and estimates have been drawn up. The expected cost will vary depending upon the available information regarding the project at that time. 

In terms of units and measuring, rate per square foot/per cubic foot/per room/per occupant are usually given.

This estimate will include a breakdown of the following costs:

  • Preliminaries
  • Substructure
  • Internal superstructure
  • External superstructure
  • Finishes (walls, floors, ceilings)
  • Contingencies 

It can be thought of as a litmus test for a project’s feasibility i.e. whether the figure you are forecasting is within your client’s budget range.

4. Construction Document Estimate

This estimate is informed by the construction specifications and drawings. It is based on estimated unit costs and by analysing finalised project designs, objectives, and key deliverables. 

They will typically run off a margin of error of 5% and used to control project expenditures and avoid cost overruns.

It will include specifications and drawings for the project and for in depth detail around flooring, walls, ceilings, furniture and all MEP systems (mechanical, electrical and plumbing engineering).

5. Bid Estimate

This will be the final and most detailed estimate you give to the client. It is often viewed as the most important estimate as you will be submitting it with the hope of winning the business against your competitors. 

Carnegie Mellon University states that a bid estimate often reflects the desire of the contractor to secure the job as well as the estimating tools at their disposal.

During this stage of the estimating process, markups should be applied to each section or to the total overall figure to ensure that a profitable bid is submitted. 

Markups are essential to the estimation process because, without profits, the contractor stands to incur losses and a negative impact on their future work.

Finally, it is important that bid estimates are clear, easy to read and well presented. With this in mind, it is important to note that clients may also look at your history and success in completing past projects. 

In conclusion

ConX is here to help you from the preliminary stage right through to sending the final bid estimate. You can access our easy to use takeoff and quoting software, or let our team of experienced estimators do it for you.

Get started with a free account in minutes.