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# Cost Estimating Notes | EduRev

## : Cost Estimating Notes | EduRev

``` Page 1

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 1 of 14
Construction Economics & Finance

Module 5
Lecture-1

Cost Estimating:-
The purpose of cost estimating is to forecast the cost of a project prior to its actual
construction. Cost estimating is a method of approximating the probable cost of a project
before its construction. The exact cost of a project is known after completion of the
project. Cost estimate is prepared at various stages during the life of a project on the basis
of the information available during the time of preparation of the estimate. Generally for
any construction project, three parties are involved namely owner, design professionals
and construction professionals. In some cases the design professional and construction
professional are from the same company or they form a team through a joint venture for
providing service to the owner in the project. It is the responsibility of each party
involved in the project to estimate the costs during various stages of the project. An early
estimate helps the owner to decide whether the project is affordable within the available
budget, while satisfying the project’s objectives. For cost estimating, work breakdown
structure (WBS) serves as an important framework for organized collection project cost
data and preparing the cost estimates at different levels. It is a technique that involves the
hierarchical breakdown of the project into different work elements at successive levels
and defines the interrelationships between them. For preparation of cost estimates, the
estimator performs quantity take-off to quantify each item of work by reviewing the
contract drawings and specifications. In cost estimation, quantity take-off is an important
task that is carried out before pricing each item of work and quantities should be
represented in standard units of measure. Before bidding for a project, the estimator
(along with his or her group) of a construction firm needs to determine the total cost of
the project in accordance with contract documents consisting of drawings, specifications
and all other technical documents and requirements. The total project cost consists of two
components namely direct cost and indirect cost. Direct cost includes cost of materials,
equipment and labor associated with each item of work and also includes cost of
Page 2

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 1 of 14
Construction Economics & Finance

Module 5
Lecture-1

Cost Estimating:-
The purpose of cost estimating is to forecast the cost of a project prior to its actual
construction. Cost estimating is a method of approximating the probable cost of a project
before its construction. The exact cost of a project is known after completion of the
project. Cost estimate is prepared at various stages during the life of a project on the basis
of the information available during the time of preparation of the estimate. Generally for
any construction project, three parties are involved namely owner, design professionals
and construction professionals. In some cases the design professional and construction
professional are from the same company or they form a team through a joint venture for
providing service to the owner in the project. It is the responsibility of each party
involved in the project to estimate the costs during various stages of the project. An early
estimate helps the owner to decide whether the project is affordable within the available
budget, while satisfying the project’s objectives. For cost estimating, work breakdown
structure (WBS) serves as an important framework for organized collection project cost
data and preparing the cost estimates at different levels. It is a technique that involves the
hierarchical breakdown of the project into different work elements at successive levels
and defines the interrelationships between them. For preparation of cost estimates, the
estimator performs quantity take-off to quantify each item of work by reviewing the
contract drawings and specifications. In cost estimation, quantity take-off is an important
task that is carried out before pricing each item of work and quantities should be
represented in standard units of measure. Before bidding for a project, the estimator
(along with his or her group) of a construction firm needs to determine the total cost of
the project in accordance with contract documents consisting of drawings, specifications
and all other technical documents and requirements. The total project cost consists of two
components namely direct cost and indirect cost. Direct cost includes cost of materials,
equipment and labor associated with each item of work and also includes cost of
NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 2 of 14
subcontracted works. Indirect costs are the costs which are not associated with each item
of work rather these costs are calculated for the entire construction work and includes
overhead costs (both job office or site office overhead and general head office overhead),
contingency i.e. cost for any unforeseen work and profit. It is important to accurately
estimate all the cost components of the project before bidding. The material cost for each
item of work can be calculated by multiplying required quantity of materials by its unit
price. The material quantity take-off or the quantity of materials for an item of work can
be easily calculated by using the information from contract drawings and specifications.
The current unit price of materials can be obtained from the material suppliers. In
addition, the estimator has to add a certain percentage for wastage of materials while
calculating the material cost. The equipment cost consists of two components i.e.
ownership cost and operating cost. Generally the equipment cost is expressed on hourly
basis. As already mentioned (in Module 4), equipment operator wages which vary from
project to project are normally calculated as a separate cost category and are added to
other components of equipment operating cost. The procedure of calculating hourly
equipment cost is already stated in Lecture-1 and Lecture-2 of Module 4. The hourly
equipment cost and production rate of the equipment are used to calculate the cost per
unit production of the equipment. The production rate of the equipment depends on its
rated capacity, production cycle time, efficiency and also on job site conditions. The
labour cost depends on the productivity of labourers which vary with the nature of work.
The productivity of labourers depends on various factors namely their skill, number of
working hours in a day, supervision, nature of job, job site conditions etc. The portion of
work that is to be accomplished by the labourers can be found out form project
documents i.e. from contract drawings and specifications. The labour cost is generally
expressed on hourly basis. Historical data from past projects can also be referred for
calculating the cost of materials, equipment and labor. For the contractors, the calculated
bid price (sum of direct cost and indirect cost) for the project must have a balance with
the associated profit margin such that the bid price should be low enough to be within the
owner’s budget and to win the bid and at the same time, it should be high enough to
complete the project with the expected profit.

Page 3

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 1 of 14
Construction Economics & Finance

Module 5
Lecture-1

Cost Estimating:-
The purpose of cost estimating is to forecast the cost of a project prior to its actual
construction. Cost estimating is a method of approximating the probable cost of a project
before its construction. The exact cost of a project is known after completion of the
project. Cost estimate is prepared at various stages during the life of a project on the basis
of the information available during the time of preparation of the estimate. Generally for
any construction project, three parties are involved namely owner, design professionals
and construction professionals. In some cases the design professional and construction
professional are from the same company or they form a team through a joint venture for
providing service to the owner in the project. It is the responsibility of each party
involved in the project to estimate the costs during various stages of the project. An early
estimate helps the owner to decide whether the project is affordable within the available
budget, while satisfying the project’s objectives. For cost estimating, work breakdown
structure (WBS) serves as an important framework for organized collection project cost
data and preparing the cost estimates at different levels. It is a technique that involves the
hierarchical breakdown of the project into different work elements at successive levels
and defines the interrelationships between them. For preparation of cost estimates, the
estimator performs quantity take-off to quantify each item of work by reviewing the
contract drawings and specifications. In cost estimation, quantity take-off is an important
task that is carried out before pricing each item of work and quantities should be
represented in standard units of measure. Before bidding for a project, the estimator
(along with his or her group) of a construction firm needs to determine the total cost of
the project in accordance with contract documents consisting of drawings, specifications
and all other technical documents and requirements. The total project cost consists of two
components namely direct cost and indirect cost. Direct cost includes cost of materials,
equipment and labor associated with each item of work and also includes cost of
NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 2 of 14
subcontracted works. Indirect costs are the costs which are not associated with each item
of work rather these costs are calculated for the entire construction work and includes
overhead costs (both job office or site office overhead and general head office overhead),
contingency i.e. cost for any unforeseen work and profit. It is important to accurately
estimate all the cost components of the project before bidding. The material cost for each
item of work can be calculated by multiplying required quantity of materials by its unit
price. The material quantity take-off or the quantity of materials for an item of work can
be easily calculated by using the information from contract drawings and specifications.
The current unit price of materials can be obtained from the material suppliers. In
addition, the estimator has to add a certain percentage for wastage of materials while
calculating the material cost. The equipment cost consists of two components i.e.
ownership cost and operating cost. Generally the equipment cost is expressed on hourly
basis. As already mentioned (in Module 4), equipment operator wages which vary from
project to project are normally calculated as a separate cost category and are added to
other components of equipment operating cost. The procedure of calculating hourly
equipment cost is already stated in Lecture-1 and Lecture-2 of Module 4. The hourly
equipment cost and production rate of the equipment are used to calculate the cost per
unit production of the equipment. The production rate of the equipment depends on its
rated capacity, production cycle time, efficiency and also on job site conditions. The
labour cost depends on the productivity of labourers which vary with the nature of work.
The productivity of labourers depends on various factors namely their skill, number of
working hours in a day, supervision, nature of job, job site conditions etc. The portion of
work that is to be accomplished by the labourers can be found out form project
documents i.e. from contract drawings and specifications. The labour cost is generally
expressed on hourly basis. Historical data from past projects can also be referred for
calculating the cost of materials, equipment and labor. For the contractors, the calculated
bid price (sum of direct cost and indirect cost) for the project must have a balance with
the associated profit margin such that the bid price should be low enough to be within the
owner’s budget and to win the bid and at the same time, it should be high enough to
complete the project with the expected profit.

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 3 of 14
Lecture-2
Types of Estimates
As already stated in the previous lecture (Lecture-1 of this module), there are different
types of estimates which are prepared at various stages during the life of a project starting
from the initial phases to its final phase on the basis of the available information at the
time of preparation of the estimates. The range of expected accuracy is more in the
estimates which are prepared during initial stages and it narrows down as the project
progresses with the availability of more detailed information and increase in the level of
project definition. In addition to the project parameters, the degree accuracy of an
estimate also depends on the experience, ability and judgment of the estimator.  The
construction cost estimate is broadly classified into two types approximate estimates and
detailed estimates. The approximate estimates are prepared during initial stages of the
project life cycle. These estimates are also known as preliminary, budget or order-of-
magnitude estimates and are prepared to determine the preliminary cost of the project.
From the approximate cost estimates, the owner of the project can be able to know
whether the project can be undertaken within the available budget. There may be more
than one design alternative for a project depending on the location, site conditions, type
of structure etc. The estimator can determine the approximate cost of various alternatives
for the project by taking preliminary design information from designer and can obtain the
economical alternative that is affordable within the available budget for the project.
Detailed estimates are prepared in accordance with the complete set of contract
documents. As already stated, the contractors prepare the detailed estimates before biding
for the project by thoroughly reviewing the contract documents. Project site visit by the
contractor personnel may be required to identify the parameters that can influence project
cost and accordingly the estimate can be adjusted. The detailed cost estimate showing the
bid price of the project is important to both the project owner and the contractor, as the
bid price represents the amount the contractor will receive from the owner for completing
the project in accordance with contract documents. The different types of cost estimates
which are prepared during various phases of a project are described below.

Page 4

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 1 of 14
Construction Economics & Finance

Module 5
Lecture-1

Cost Estimating:-
The purpose of cost estimating is to forecast the cost of a project prior to its actual
construction. Cost estimating is a method of approximating the probable cost of a project
before its construction. The exact cost of a project is known after completion of the
project. Cost estimate is prepared at various stages during the life of a project on the basis
of the information available during the time of preparation of the estimate. Generally for
any construction project, three parties are involved namely owner, design professionals
and construction professionals. In some cases the design professional and construction
professional are from the same company or they form a team through a joint venture for
providing service to the owner in the project. It is the responsibility of each party
involved in the project to estimate the costs during various stages of the project. An early
estimate helps the owner to decide whether the project is affordable within the available
budget, while satisfying the project’s objectives. For cost estimating, work breakdown
structure (WBS) serves as an important framework for organized collection project cost
data and preparing the cost estimates at different levels. It is a technique that involves the
hierarchical breakdown of the project into different work elements at successive levels
and defines the interrelationships between them. For preparation of cost estimates, the
estimator performs quantity take-off to quantify each item of work by reviewing the
contract drawings and specifications. In cost estimation, quantity take-off is an important
task that is carried out before pricing each item of work and quantities should be
represented in standard units of measure. Before bidding for a project, the estimator
(along with his or her group) of a construction firm needs to determine the total cost of
the project in accordance with contract documents consisting of drawings, specifications
and all other technical documents and requirements. The total project cost consists of two
components namely direct cost and indirect cost. Direct cost includes cost of materials,
equipment and labor associated with each item of work and also includes cost of
NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 2 of 14
subcontracted works. Indirect costs are the costs which are not associated with each item
of work rather these costs are calculated for the entire construction work and includes
overhead costs (both job office or site office overhead and general head office overhead),
contingency i.e. cost for any unforeseen work and profit. It is important to accurately
estimate all the cost components of the project before bidding. The material cost for each
item of work can be calculated by multiplying required quantity of materials by its unit
price. The material quantity take-off or the quantity of materials for an item of work can
be easily calculated by using the information from contract drawings and specifications.
The current unit price of materials can be obtained from the material suppliers. In
addition, the estimator has to add a certain percentage for wastage of materials while
calculating the material cost. The equipment cost consists of two components i.e.
ownership cost and operating cost. Generally the equipment cost is expressed on hourly
basis. As already mentioned (in Module 4), equipment operator wages which vary from
project to project are normally calculated as a separate cost category and are added to
other components of equipment operating cost. The procedure of calculating hourly
equipment cost is already stated in Lecture-1 and Lecture-2 of Module 4. The hourly
equipment cost and production rate of the equipment are used to calculate the cost per
unit production of the equipment. The production rate of the equipment depends on its
rated capacity, production cycle time, efficiency and also on job site conditions. The
labour cost depends on the productivity of labourers which vary with the nature of work.
The productivity of labourers depends on various factors namely their skill, number of
working hours in a day, supervision, nature of job, job site conditions etc. The portion of
work that is to be accomplished by the labourers can be found out form project
documents i.e. from contract drawings and specifications. The labour cost is generally
expressed on hourly basis. Historical data from past projects can also be referred for
calculating the cost of materials, equipment and labor. For the contractors, the calculated
bid price (sum of direct cost and indirect cost) for the project must have a balance with
the associated profit margin such that the bid price should be low enough to be within the
owner’s budget and to win the bid and at the same time, it should be high enough to
complete the project with the expected profit.

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 3 of 14
Lecture-2
Types of Estimates
As already stated in the previous lecture (Lecture-1 of this module), there are different
types of estimates which are prepared at various stages during the life of a project starting
from the initial phases to its final phase on the basis of the available information at the
time of preparation of the estimates. The range of expected accuracy is more in the
estimates which are prepared during initial stages and it narrows down as the project
progresses with the availability of more detailed information and increase in the level of
project definition. In addition to the project parameters, the degree accuracy of an
estimate also depends on the experience, ability and judgment of the estimator.  The
construction cost estimate is broadly classified into two types approximate estimates and
detailed estimates. The approximate estimates are prepared during initial stages of the
project life cycle. These estimates are also known as preliminary, budget or order-of-
magnitude estimates and are prepared to determine the preliminary cost of the project.
From the approximate cost estimates, the owner of the project can be able to know
whether the project can be undertaken within the available budget. There may be more
than one design alternative for a project depending on the location, site conditions, type
of structure etc. The estimator can determine the approximate cost of various alternatives
for the project by taking preliminary design information from designer and can obtain the
economical alternative that is affordable within the available budget for the project.
Detailed estimates are prepared in accordance with the complete set of contract
documents. As already stated, the contractors prepare the detailed estimates before biding
for the project by thoroughly reviewing the contract documents. Project site visit by the
contractor personnel may be required to identify the parameters that can influence project
cost and accordingly the estimate can be adjusted. The detailed cost estimate showing the
bid price of the project is important to both the project owner and the contractor, as the
bid price represents the amount the contractor will receive from the owner for completing
the project in accordance with contract documents. The different types of cost estimates
which are prepared during various phases of a project are described below.

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 4 of 14
Estimates during conceptual planning:
This estimate is prepared at the very initial stage i.e. during conceptual planning stage of
a project. It is based on little information and on broad parameters namely size of the
project, location and job site conditions and the expected construction quality of project
as a whole. The size of the project may be expressed in terms of its capacity namely
number of rooms for a hostel, number of beds for a hospital, length (km) of a highway
etc. Owner of the project provides adequate input for defining scope of the project and
this scope of the project forms the basis on which the conceptual estimate is prepared.
This estimate is prepared to establish the preliminary budget of the project and
accordingly project funding can be arranged. The degree of accuracy of this estimate is
lowest among all the estimates those are prepared during various stages of a project.
Estimates during schematic design:
During this phase of the project, the cost estimate is prepared on the basis of preliminary
design information along with required schematic documents. The designer may
incorporate different design alternatives and the cost estimate is prepared for these design
alternatives by the estimators depending on the available information. The cost estimates
of different design alternatives are reviewed keeping in view the project scope and budget
and the acceptable alternative(s) selected in this phase is analyzed in a detailed manner in
the next phase of the project. This cost estimate is prepared by calculating the cost of
major project elements by unit pricing from the available preliminary design information.
Subcontractors or material suppliers may be asked to furnish information while pricing
the major project elements. As the cost estimate is prepared using preliminary design
information, a contingency may be added in the estimate to accommodate for the
unknown design details. With the improved scope of the project, the expected degree of
accuracy in this estimate is more as compared to that in conceptual estimate.
Estimates during design development:
During design development phase of the project, the cost estimate is prepared on the
basis of more detailed design information and schematic documents. With the improved
level of information, the most of the major project items namely volume of earthwork
(m
3
), volume of concrete (m
3
), weight of steel (tons) etc. can be quantified and the cost
Page 5

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 1 of 14
Construction Economics & Finance

Module 5
Lecture-1

Cost Estimating:-
The purpose of cost estimating is to forecast the cost of a project prior to its actual
construction. Cost estimating is a method of approximating the probable cost of a project
before its construction. The exact cost of a project is known after completion of the
project. Cost estimate is prepared at various stages during the life of a project on the basis
of the information available during the time of preparation of the estimate. Generally for
any construction project, three parties are involved namely owner, design professionals
and construction professionals. In some cases the design professional and construction
professional are from the same company or they form a team through a joint venture for
providing service to the owner in the project. It is the responsibility of each party
involved in the project to estimate the costs during various stages of the project. An early
estimate helps the owner to decide whether the project is affordable within the available
budget, while satisfying the project’s objectives. For cost estimating, work breakdown
structure (WBS) serves as an important framework for organized collection project cost
data and preparing the cost estimates at different levels. It is a technique that involves the
hierarchical breakdown of the project into different work elements at successive levels
and defines the interrelationships between them. For preparation of cost estimates, the
estimator performs quantity take-off to quantify each item of work by reviewing the
contract drawings and specifications. In cost estimation, quantity take-off is an important
task that is carried out before pricing each item of work and quantities should be
represented in standard units of measure. Before bidding for a project, the estimator
(along with his or her group) of a construction firm needs to determine the total cost of
the project in accordance with contract documents consisting of drawings, specifications
and all other technical documents and requirements. The total project cost consists of two
components namely direct cost and indirect cost. Direct cost includes cost of materials,
equipment and labor associated with each item of work and also includes cost of
NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 2 of 14
subcontracted works. Indirect costs are the costs which are not associated with each item
of work rather these costs are calculated for the entire construction work and includes
overhead costs (both job office or site office overhead and general head office overhead),
contingency i.e. cost for any unforeseen work and profit. It is important to accurately
estimate all the cost components of the project before bidding. The material cost for each
item of work can be calculated by multiplying required quantity of materials by its unit
price. The material quantity take-off or the quantity of materials for an item of work can
be easily calculated by using the information from contract drawings and specifications.
The current unit price of materials can be obtained from the material suppliers. In
addition, the estimator has to add a certain percentage for wastage of materials while
calculating the material cost. The equipment cost consists of two components i.e.
ownership cost and operating cost. Generally the equipment cost is expressed on hourly
basis. As already mentioned (in Module 4), equipment operator wages which vary from
project to project are normally calculated as a separate cost category and are added to
other components of equipment operating cost. The procedure of calculating hourly
equipment cost is already stated in Lecture-1 and Lecture-2 of Module 4. The hourly
equipment cost and production rate of the equipment are used to calculate the cost per
unit production of the equipment. The production rate of the equipment depends on its
rated capacity, production cycle time, efficiency and also on job site conditions. The
labour cost depends on the productivity of labourers which vary with the nature of work.
The productivity of labourers depends on various factors namely their skill, number of
working hours in a day, supervision, nature of job, job site conditions etc. The portion of
work that is to be accomplished by the labourers can be found out form project
documents i.e. from contract drawings and specifications. The labour cost is generally
expressed on hourly basis. Historical data from past projects can also be referred for
calculating the cost of materials, equipment and labor. For the contractors, the calculated
bid price (sum of direct cost and indirect cost) for the project must have a balance with
the associated profit margin such that the bid price should be low enough to be within the
owner’s budget and to win the bid and at the same time, it should be high enough to
complete the project with the expected profit.

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 3 of 14
Lecture-2
Types of Estimates
As already stated in the previous lecture (Lecture-1 of this module), there are different
types of estimates which are prepared at various stages during the life of a project starting
from the initial phases to its final phase on the basis of the available information at the
time of preparation of the estimates. The range of expected accuracy is more in the
estimates which are prepared during initial stages and it narrows down as the project
progresses with the availability of more detailed information and increase in the level of
project definition. In addition to the project parameters, the degree accuracy of an
estimate also depends on the experience, ability and judgment of the estimator.  The
construction cost estimate is broadly classified into two types approximate estimates and
detailed estimates. The approximate estimates are prepared during initial stages of the
project life cycle. These estimates are also known as preliminary, budget or order-of-
magnitude estimates and are prepared to determine the preliminary cost of the project.
From the approximate cost estimates, the owner of the project can be able to know
whether the project can be undertaken within the available budget. There may be more
than one design alternative for a project depending on the location, site conditions, type
of structure etc. The estimator can determine the approximate cost of various alternatives
for the project by taking preliminary design information from designer and can obtain the
economical alternative that is affordable within the available budget for the project.
Detailed estimates are prepared in accordance with the complete set of contract
documents. As already stated, the contractors prepare the detailed estimates before biding
for the project by thoroughly reviewing the contract documents. Project site visit by the
contractor personnel may be required to identify the parameters that can influence project
cost and accordingly the estimate can be adjusted. The detailed cost estimate showing the
bid price of the project is important to both the project owner and the contractor, as the
bid price represents the amount the contractor will receive from the owner for completing
the project in accordance with contract documents. The different types of cost estimates
which are prepared during various phases of a project are described below.

NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 4 of 14
Estimates during conceptual planning:
This estimate is prepared at the very initial stage i.e. during conceptual planning stage of
a project. It is based on little information and on broad parameters namely size of the
project, location and job site conditions and the expected construction quality of project
as a whole. The size of the project may be expressed in terms of its capacity namely
number of rooms for a hostel, number of beds for a hospital, length (km) of a highway
etc. Owner of the project provides adequate input for defining scope of the project and
this scope of the project forms the basis on which the conceptual estimate is prepared.
This estimate is prepared to establish the preliminary budget of the project and
accordingly project funding can be arranged. The degree of accuracy of this estimate is
lowest among all the estimates those are prepared during various stages of a project.
Estimates during schematic design:
During this phase of the project, the cost estimate is prepared on the basis of preliminary
design information along with required schematic documents. The designer may
incorporate different design alternatives and the cost estimate is prepared for these design
alternatives by the estimators depending on the available information. The cost estimates
of different design alternatives are reviewed keeping in view the project scope and budget
and the acceptable alternative(s) selected in this phase is analyzed in a detailed manner in
the next phase of the project. This cost estimate is prepared by calculating the cost of
major project elements by unit pricing from the available preliminary design information.
Subcontractors or material suppliers may be asked to furnish information while pricing
the major project elements. As the cost estimate is prepared using preliminary design
information, a contingency may be added in the estimate to accommodate for the
unknown design details. With the improved scope of the project, the expected degree of
accuracy in this estimate is more as compared to that in conceptual estimate.
Estimates during design development:
During design development phase of the project, the cost estimate is prepared on the
basis of more detailed design information and schematic documents. With the improved
level of information, the most of the major project items namely volume of earthwork
(m
3
), volume of concrete (m
3
), weight of steel (tons) etc. can be quantified and the cost
NPTEL – Civil Engineering – Construction Economics & Finance

Joint initiative of IITs and IISc – Funded by MHRD                                                               Page 5 of 14
estimate is prepared using the known unit prices. Detailed information from
subcontractors or material suppliers should be obtained and used in pricing the major
project items. During this phase, all the identified major systems of the project namely
structural systems (reinforced concrete vs. structural steel), masonry (clay brick units vs.
concrete masonry units), pile foundation (concrete pile vs. steel pile) etc. are priced and
then cost of each system is compared with that obtained from past similar projects. The
project elements costing too high or too low as compared to past data should be reviewed
and accordingly adjusted. With the availability of detailed design information and
improved system definition, the expected degree of accuracy in this estimate is higher as
compared to that in estimate prepared during schematic design phase of the project.
Estimates during procurement (i.e. estimates for construction of the project):
During this phase of the project, the cost estimate is prepared on the basis of complete set
of contract documents that defines the project. The contractors bidding for the project
prepare the cost estimate in accordance with contract documents by taking into
consideration the estimated project duration. As already mentioned in the previous lecture
(Lecture-1 of this module), the total cost of project can be divided into two categories
namely direct cost and indirect cost. Direct cost includes cost of materials, equipment and
labor associated with each item of work and cost of subcontracted works. Indirect costs
are the costs which are not attributed to each item of work and are calculated for the
entire project and include overhead cost, contingency and profit. The owner team also
prepares the cost estimate to check the accuracy of the bid prices quoted by the
contractors and negotiate a reasonable price with the contractor. As this cost estimate is
prepared in accordance with complete set of contract documents of the project, the degree
of accuracy of this estimate is extremely high.
Estimates for change orders during construction:
This estimate is prepared to cater the changes in the project scope as required by the
owner during construction phase of the project.

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