History and Evolution of Cost Estimating - Research Paper Example

The paper gives a detailed account of the cost estimating process. It traces the history of the estimating process right from the beginningof the construction process in the ancient times and discusses the various stages through which it passed as the construction industry progressed. The modern trends in cost estimating are discussed and various software programs with their brief functional capabilities and advantages are also mentioned. The various types of cost estimates have been classified on the basis of detail provided in them and their function. The purpose orientation of each type of the estimate with reference to the advantages each type provides to the various parties of a construction project has also been discussed. Introduction The process of predicting the total costs of materials, labor, capital and professional fees required to construct a proposed project is called as cost estimating. The estimate is based on an approximation of the probable cost of the materials, labor and other services required for the construction of a project and it can never be said to be hundred percent accurate and varies with the fluctuating prices of the construction materials and services. The accuracy of cost estimation is of vital importance of the success of a project for the owner as well as the contractor. Estimates are important for developing the feasibility of the projects and the owner’s decision to carry out the project depends upon the preliminary estimates. Accurately estimating the construction costs lies at the heart of a construction company’s success. There may be two scenarios; too low estimate can win bids to the construction company but results I ultimate loss of money to the construction company. On the other hand if the estimates are too high, the chances of getting the work are very less. A good estimate is the one which also incorporates the costs which are not apparent but are likely to occur during the course of completion of the project. Such predictive expertise is the distinguishing characteristics of a good estimator. The main objective of cost estimating is cost control which is very important in construction industry because inappropriate cost control results in the over-budgeting of the project which can ultimately result in the bankruptcy of the construction company. Over the years the methodology adopted for cost estimating has changed and new techniques have evolved. The evolution of the current methodologies and techniques employed in cost estimating is discussed in the following paragraphs. History and Evolution of Cost Estimating The history of construction dates back to the early days of civilization and as other construction techniques and methodologies have evolved over the years cost estimating has also developed with the advent of new technologies and computation devices. The history of cost estimating and cost control dates back to the ancient Greek times and the Greek architects were also concerned about cost control in building their structures and sculptures (Jenkins, 2006). The construction industry has undergone rapid changes over the last 200 years with the technological development. The construction in the medieval ages was not very cost effective and very primitive methods of cost estimation were used with no proper planning resulting in project costs beyond the initial estimates. In the estimates made during those days the indirect costs were never taken into account with only the apparent costs of material and labor calculated on simple cost per unit quantity basis. The estimates were usually made by the construction contractors and the client never relied on any type of estimates while there was no concept of the role of consultants in construction projects. With the industrial progress the importance of cost estimating increased as the investors were more concerned about the return they were getting on the invested capital. With the industrial revolution the importance of economical use of resources increased resulting in the birth of cost engineering with the objective to practice maximum cost control (Patrascu, 1988). Cost engineering began with the foundation of Association for Advancement of Cost Engineering (AACE) and it has replaced quantity surveying because cost estimating is a very vast subject. With the foundation of AACE the development of standards and codes and contract procedures for the estimation process started and replaced the traditional methods of estimation which were based on cost per unit quantity. Total Cost Management (TCM) framework which outlines an integrated process for applying the skills and knowledge of cost engineering was formulated and published in 2006 by AACE (AACE International, 2006). AACE also publishes various other certification study guides and journals which provide standard procedures for cost estimating. In 1969, Project Management Institute was formed to serve the interests of Project Management with emphasis on cost control. With the foundation of PMI the use of software programs for project management and cost estimating started and gained popularity. Some of the organizations made it mandatory for the construction companies and consultancies to have professional cost estimators for prequalification in order to bid for construction contracts. There were a total of 198,000 cost estimators in 1996 of which 58% worked in the construction industry (US Department of Labor, 2007). Traditional Cost Estimating In traditional methods of estimation the project drawings and specifications are used to produce an itemized list of the tasks, services and materials required for the execution of the project. The rates of various construction materials, labor and equipment used in construction are noted down and the final cost of the project is calculated by multiplying the rates with the quantities calculated according to the project drawings and specifications. All this work was done manually. Estimation Software Programs With the increase in the magnitude of construction projects it became very difficult to handle large amounts of data manually. With the introduction of computers the use of spreadsheet applications began and the same tabulation and computational work which was carried out manually was done with the help of spreadsheets. It provided the advantage of easy data handling and computer aided arithmetic calculations. The most common spreadsheet applications used were Microsoft Excel, VisiCalc and Lotus1-2-3. The use of spreadsheet applications was the first step in estimation software development. The next step was the use of programming languages like C++ and Visual Basic for creating applications for use in estimation. The spreadsheet applications were also improved to incorporate various new features through which data could be reused and item-specific applications were also added. Some of the applications also provided the option of drawing charts for understanding and presentation of estimation data. In the next step software applications were developed with building type specific resource database incorporated in them. The software programs now available are specifically formulated for residential buildings, road construction, bridge construction, industrial plant construction etc. These software programs can also devise future strategies in case of fluctuations in cost and other economic variations. Some examples of the estimation software programs used are MasterBuilder, HCSS HeavyBid, SharpeSoft Estimator etc. With the help of estimating software programs, the whole cost related information of the project is saved as a database which can be used to judge the productivity of the various equipments, components and construction procedures. Another advantage of these software programs is that they can automatically generate the cost estimates by using the computer aided drawings of the project. The reporting formats are flexible and the data can be exported to other analyzing and construction management software programs. Types of Construction Estimates Cost estimates are of substantial importance in any construction project and optimization in cost control can only be achieved if costs are estimated properly. The accuracy required in cost estimation depends upon the purpose for which the estimate is made. As the design and feasibility decisions at the start of the project are provisional and are subjected to change according to the conditions, the estimates at the initial stages of the project are less accurate as compared to the ones which are made at the final stages of design and bidding process. The construction estimates can be classified on the basis of the amount of information available and also on the basis of the institutional requirements. The estimates required by the owner of a project have fewer details as compared to the ones developed by the construction company. Based on this criterion, the estimates can be classified into Design, Bid and Control estimates. On the basis of the technique or methodology adopted for estimating the estimates can be classified as unit quantity estimates or total quantity estimates. The various types of estimates are discussed in the following pages: Approximate Estimate Approximate estimates or conceptual estimates are prepared to realize the concept and idea of the owner in order to have an idea about the required investment for the project. Such estimates help in designating the budget for the project. These estimates are prepared at the start of the project to check whether the designs prepared by the architects and engineers are within the budget designated to the project. Detailed Estimate The detailed estimates are prepared using the detailed project drawings and technical specifications. The quantities of all the items, equipments and services are determined with the help of the drawings and specifications and the rates of every item are obtained through market surveys. The detailed estimates can be prepared by adopting one of the following two methods: 1. Unit Quantity Method: In this method the total quantity of a particular work (brickwork, excavation, slab concrete etc) in a project is calculated using the drawings. The cost per unit work is determined by considering all the costs involved for carrying out the work which include the required materials, labor and services, insurance cost, equipment rent etc. The total cost per unit work is multiplied with the total amount of work which gives the final cost of that particular work. Using this approach a comparison between various types of works can be easily drawn. It also facilitates the editing of the cost estimate in case of any variation due to changing conditions (Helyar, 1978). 2. Total Quantity Method: In total quantity estimates the total quantity of each item (materials, labor and services, equipment etc.) is calculated separately from drawings and technical specifications. In case of materials the quantity of each material e.g. bricks, cement, crush etc are calculated separately. The unit price of each item is determined and multiplied with the total quantity of item to get the total estimated cost for that particular item. The total cost is determined by summing up the cost of each item. Design Estimates The design estimates are produced by the design consultants for the owner of a project. These types of estimates undergo various changes during the design process of the project. The first stage is the production of screening estimates which are made to calculate the magnitude of budget for the required construction project as per the owner’s requirements. After the approval of the owner details are added to the estimates as the design process continues and the final detailed product is known as engineer’s estimate which is based on complete project plans and technical specifications. The estimates also include the expected amount of overheads to be added by the contractor to aid the comparison of bids during the bidding process (Sears, Clough & Sears, 2008). Bid Estimates These estimates are prepared by the contractor for submission to the owner during the bidding process. The bid estimates are generated by carefully carrying out field surveys to analyze the actual conditions and the services required during the construction process. The overheads and indirect costs like head office running expenses are also added in the estimate in addition to all the quantities of material, labor, equipment and service as per the project drawings and specifications. In some of the projects the main contractor uses subcontractors for various providing various services and procurement. In such a case the estimate of the items and services to be provided by the subcontractors are prepared by the subcontractors in order to reduce the cost of estimating procedures. Control Estimates Control estimates is an instrument which is used for monitoring and supervision of the finances of a project (Ward, 1992). The objective of such estimates is to establish budgeted cost after contracting prior to construction to compare it with estimated cost to completion. Control estimates facilitate cost control during the project. Discussion Cost estimating is a very vital component of construction project management and cost control is totally dependent on the quality of the estimates produced. The estimates fulfill various functions at various stages of the construction project and are equally important for owner, consultant and the construction contractor of the project. The importance of cost estimating has resulted in the formulation of various estimating techniques and methods and with the advances in technology, many estimating software programs which can handle and compute a lot of data very easily have been developed which has made estimating process very fast and high levels of accuracy can be achieved now. References AACE International. (2006). Cost Engineering: a publication of American Association of Cost Engineers (Vol. 46). AACE International. Helyar, F. (1978). Construction Estimating and Costing. McGraw Hill Ryerson. Jenkins, I. (2006). Greek Architecture and its Sculpture. Harvard University Press. Patrascu, A. (1988). Construction Cost Engineering Handbook. M. Dekker. Sears, K., Clough, R., & Sears, G. (2008). Construction Project Management: a practical guide to field construction management. John Wiley and Sons. Ward, S. (1992). Cost Engineering for Effective Project Control. Wiley-Interscience Read More