How to Estimate Construction Costs
Inaccurate estimates might not be the root of all evil, but they sure can derail a project. When projects go over budget, they result in frustration, delays, missed timelines, terminated relationships, and loss of reputation for companies.
As Runn reports, “budget and time limitations are the biggest cause of stress for project leaders, towering above the challenges of change management, meeting high expectations, and responsibility for helping other team members develop their skills.”
Even with that said, the number of projects that fail to hit their budget targets is rather shocking. According to the above source, “35% of project failures were related to budget problems in 2021” and “only 43% of organizations completed most of their projects within budget during 2020.” Plus, “as many as 86% of projects are found to exceed their initial estimate, each construction project costing an average 28% more than anticipated.”
Blown budgets result from many reasons, from poor communication and missing data to scope creep to external factors like material price increases. Far and away one of the most common reasons, however, is inaccurate budget estimates. When it comes to construction, estimating costs is a towering challenge.
That’s why it’s so important to understand what construction cost estimation is and how to do it. Let’s dive in.
What is construction cost estimation?
Construction cost estimating systematically forecasts all costs associated with completing a project within a defined scope. In other words, any cost incurred to see a project through must fall under this heading.
The cost estimate serves as a roadmap for a project to be bid on and built. Accurate construction cost estimates help determine if a project is feasible to build within a budget.
If a project is overestimated, a contractor may lose out on an important bid and tarnish a relationship with an owner. Underestimate, and a contractor is now open to the risk of additional expenses that could create significant project disputes that put their reputation and business on the line.
Accuracy is key and where construction cost estimating 101 comes in.
How to prepare a construction cost estimate
Understanding the project scope
First and foremost, an estimator needs to understand a project’s scope comprehensively. Therefore, they are responsible for determining the project scope and objectives from the beginning, including what the owner or client expects from the completed project, any future expansions (if planned), and how the facility will be used by the end user.
As a natural extension of this requirement, they must also identify key stakeholders upfront and determine the timelines needed to complete each phase of the project. The best way to ensure you capture all the details is to break down different tasks and deliverables into smaller tasks. This will make it easier to calculate costs and plan the project.
Preparing for cost estimation
The next step in estimating construction costs is to gather the information and documentation pertaining to the project. From there, you can analyze project designs, drawings, and specifications, then identify potential risks and challenges.
To do this, be sure to analyze all of the construction documents and factors like construction methods, materials, and more.
Conduct a construction takeoff
A construction takeoff is the “process of listing and measuring the materials required for the project to calculate the cost to complete it. The construction takeoff is the first step in the estimation process and involves quantifying the materials necessary to start and execute the job.”
Remember that in addition to listing the materials needed for the project, you need to know their respective quantities and costs too.
Identify and estimate construction costs
Construction cost estimates fall into two basic categories, and even the most hardened estimator is prone to miss details if they’re not careful. Let’s take a look at some of the common types of costs, then discuss tools and methods for estimating what the construction estimating costs would be for the project.
Direct costs
Direct costs include labor, materials determined from the construction takeoff, equipment, and subcontractor costs.
Indirect costs
It’s easy to forget about indirect costs when estimating construction costs. However, the cost of a project will include jobsite and trailer costs, admin costs, office personnel, insurance, taxes, permits, and personal protective and safety equipment.
Tools for estimating construction costs
So which technology and tools can you use to make estimating construction costs easier and more reliable?
Cloud-based estimating tools
Cloud-based cost-estimating solutions let you create more competitive bids in about half the time. For instance, solutions like ProEst offer a comprehensive cost database and automated workflows to streamline estimating and preconstruction tasks, all with the kind of accuracy and detail that results in more profitable jobs.
Cloud-based takeoff tools
Software like Autodesk Takeoff is another excellent cloud-based tool to help teams optimize their takeoff workflows. It can be used across 2D and 3D takeoffs, so teams can generate the quantities they need easily. Now you can generate figures faster from 3D models to save time and capture project scope with linear, count, and area takeoff in 2D, all in a single solution. Always stay on top of document version control to ensure all your estimators are working off the most up-to-date information.
Cost management tools
Cost management tools are particularly useful for costs once construction begins. However, they can help you improve cost control, gain real-time visibility of cost-related risks, and forecast accurately. They do this by centralizing all cost management activities in the cloud and within the context of the construction project.
Common questions about construction costs
Answering questions upfront is a great way to diminish the potential for confusion and budget overruns. Here are some of the most common aspects of construction cost estimating about which people have questions.
How do project size and complexity interact?
Neither size nor complexity is a complete answer in and of itself. Large buildings can prove simple if they’re low-complexity (hangars), while small buildings can be exceedingly finicky (medical clinics). That’s why understanding the project scope and design is critical. It’s important to approach size and complexity together to ensure good estimates.
Does location matter?
Yes, location matters greatly. Accessibility to the project site, local rules and regulations, and the cost of living in the area can all influence a budget significantly. Don’t forget to take them into account.
How do labor availability and cost factor in?
Consider the following when it comes to labor:
- Is labor readily available in the area? Is it expensive?
- If it’s not readily available or if it costs a good deal more than it does elsewhere (such as in big cities), how will you make room for it in the budget and still get the project done on time?
What are the material costs and availability?
Like labor, materials costs can hugely impact a budget. It’s important before you form any estimates to research the local cost of materials. Don’t forget to take into account tax breaks that might save considerable money – for instance, the domestic content incentive from the recently passed Inflation Reduction Act.
What building codes and regulations do you need to know about?
Not all cities and regions are alike. If a local regulation means you’ll need to change the way you normally approach a process, that can change costs by a healthy margin. Look into permitting rules, building codes, and so on before moving forward.
Which environmental factors do you need to keep in mind?
Environmental factors to consider include:
- How does the construction site’s location impact your environmental responsibilities?
- What due diligence must you complete upfront to pass federal, state, and local regulations?
- Will you have to pay for environmental consulting, reports, or permits?
What is the difference between an estimate and a bid?
In a nutshell, an estimate is a prediction of the expected costs for a construction project, while a bid is a formal offer to complete the project for a specific price.
How accurate are construction cost estimates?
The accuracy of a construction cost estimate depends on the quality of information available and the estimator’s experience and expertise. For that reason, it’s critical to get everyone on the same page upfront and get all the details you can before attempting the estimate.
Estimating construction costs: Final thoughts
Estimating accurate construction costs is a challenging feat. But, with the right tools at your disposal, you’re much more likely to efficiently create accurate estimates that enable you to bid competitively and fall within budget.
Ready to start estimating better? Learn more about how to create accurate construction estimates with Autodesk Construction Cloud.
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