What is a Cost Estimate? ASPE Standards

A cost estimate can be defined as the approximation of the cost of a operation, program or a project. It is the final product of a cost estimating process. It owns a single total value, which is a combination of identifiable component values. An accurate and reliable cost estimate prevents issues of cost overrun. 

What is a Cost Estimate

Who Finds the Cost Estimate?

The cost estimate of any project or operation are determined by a cost estimator. The possible designations of cost estimator in construction industry are:

  1. Building estimator
  2. Electrical estimator
  3. Chief estimator
  4. Quantity surveyors
  5. Cost Engineers
The United States Government Accountability Office (GAO) defines a cost estimate as:
"The summation of individual cost elements using established methods and valid data, to estimate the future costs of a program, based on what is known today". 

A cost estimate is necessary and conducted before the commencement of any construction project to check the project feasibility or the funding requirement to support the planning and work.

Elements of Cost Estimates As Per American Society of Professional Estimators (ASPE)

The important elements of a cost estimate are:

  1. Quantity takeoff
  2. Labor hours
  3. Labor rates
  4. Material prices
  5. Equipment costs
  6. Subcontractor quotes
  7. Indirect costs
  8. Profit amount

1. Quantity Takeoff

Quantity takeoff is the foundation of cost estimate. It involves the reliable identification of the quantities of the various materials that is involved in the project. 

2. Labor Hours

The labor hour elements are developed based on crew analysis. It is applied on a unit man-hour basis. With the project complexity, the production capability varies. The estimator must take allowance for this .

3. Labor Rates

Labor rate is the cost per hour for the craftsmen on the project ( Craft means pipefitter, carpenter etc. ). Any labor rate is determined with the basic wages and fringe benefits. To the basic wages and fringe benefits, few more payrolls must be added. They include:
  1. Payroll burdens, which include FICA (Social Security), FUI (Federal Unemployment Insurance), SUI (State Unemployment Insurance), WC (Worker Compensation) and others mandated by legislation and/or company operations. Basic wages plus fringe benefits and these payroll burdens, determines the hourly cost of a craft.
  2. Hourly rate can be provided for mixed crew. Mixed crew is where different crafts are included for the work.
  3. Overtime or lack of overtime is another factor to considered while determining the hourly rate.

4. Material Cost

As material prices fluctuates up and down based on market, an estimator must understand and anticipate the frequency and the extend of project variations and the timing of the buying cycle. The cost of material can vary based on the:

  1. Purchase during peak or slack time of the year of the manufacture
  2. The availability of material
  3. The size of the order
  4. The delivery timeframe requirement
  5. Physical requirements for delivery, transportation cost, site access etc.
  6. Payment terms and history on previous purchases
  7. Sole-source items
  8. Exchange rates

5. Equipment Cost

The cost of equipment is dependent on the type of equipment used for the project. The project conditions determine the correct size and capacity of equipment required. 
Cost varies if the equipment is owned by the contractor or it is rented.

6. Subcontractor Quotes

A subcontractor quotes for a given project includes general estimate, labor, material, equipment, indirect costs, and profit. It is dependent upon having the quantities, labor hours, hourly rate, etc., prepared in a reliable manner just like any other part of an estimate. 
The payment terms and the previous payment history, between the subcontractor and contractor decides the amount of the subcontractor quote. This also mentions the bonding costs.

7. Indirect Costs

Indirect costs includes labors, material, and equipment to support the overall project. 
For the owners, indirect costs includes design fees, permits, land acquisition costs, legal fees, administration costs, etc.
For the contractor and the subcontractor, the indirect costs are the costs for mobilization, staffing, on-site job office, temporary construction, temporary heat/cooling, and temporary utilities, equipment, small tools and consumables, etc.

8. Profit Amount

Appropriate or contracted profit rate must be applied uniformly to all the contractors , to original bids and change orders.

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