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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