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Cost Estimation in a Construction Company Under the guidance of Prof. K. Narayanan Department of Humanities and Social Science Indian Institute of Technology,

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Presentation on theme: "Cost Estimation in a Construction Company Under the guidance of Prof. K. Narayanan Department of Humanities and Social Science Indian Institute of Technology,"— Presentation transcript:

1 Cost Estimation in a Construction Company Under the guidance of Prof. K. Narayanan Department of Humanities and Social Science Indian Institute of Technology, Bombay Submitted by :- Deepak Garg ( ) Priyesh Wadhwa ( ) Saurabh P. Singh ( ) Mukesh S. Rawat ( )

2 Road Map Introduction Types of Construction Cost Estimates Approaches to Cost Estimation Unit Cost Method of Estimation Other Methods

3 Introduction Cost Estimation –Cost estimation is one of the most important steps in project management. –Why Feasibility study. Profit measures. –How Advanced software packages are available.

4 Costs in Construction Firm Initial Capital cost –Land acquisition –Planning and feasibility studies –Architectural and engineering design –Construction, including materials, equipment and labor –Insurance and taxes during construction Operation and maintenance cost –Operating staff –Labor and material for maintenance and repairs –Utilities –Periodic renovations –Insurance and taxes Unexpected cost during construction –Design development changes –Schedule adjustments –General administration changes

5 Types of Construction Cost Estimates Design Estimates –Screening estimates (or order of magnitude estimates) –Preliminary estimates (or conceptual estimates) –Detailed estimates (or definitive estimates) –Engineer's estimates based on plans and specifications Bid Estimates –As a contractor, a bid estimate is submitted to the owner either for competitive bidding or negotiation. Control Estimates –Budget estimate for financing –Budgeted cost after contracting but prior to construction –Estimated cost to completion during the progress of construction.

6 Approaches to Cost Estimation Production function Q = P(I 1, I 2,….. I n ) Empirical cost inference Unit costs for bill of quantities Allocation of joint costs

7 Unit Cost Method of Estimation Simple Unit Cost Formula Formula Based on Labor, Material and Equipment

8 Example Cost estimate using labor, material and equipment rates.

9 Other Methods Allocation of joint costs - Difficult causal relationship b/w element and associated costs - Joint costs are prorated in proportion of basic costs of elements For example : F being overhead associated with different elements F i = F * y i /y Then total cost can be written as :- L i = y i + F i Historical cost data - Widely used for forecasting / estimation future costs - Collected and organized for future use - Continuous updates - May effect cost substantially if relative prices change

10 Other Methods contd. Cost indices - Reflect price level changes for inputs and outputs - Weighted aggregate average of different components of selected element - Can be used for cost forecasting with historic data - General price indices are provided by govt. - Construction specific price indices are collected from industry sources - Screening estimates are generally made on single factor like constructed area, no. of rooms etc - Adjustments are made to these using - Inflation indices - Construction specific indices of detailed factors

11 Other Methods contd. Based on Engineer's List of Quantities - based on a list of items and the associated quantities - list is provided to contractor - costs for winning bidder is taken as starting estimates - progress payments are made to contractor depending upon the units of work done and unit prices listed - each unit defined the level of detail of measure - ex. Sample entries in bid table for engineers list- ItemUnitQuantityUnit priceItem cost Tilingsf Water Proofing sf Rs.19000

12 Computer Aided Cost Estimation Types: –Simple spreadsheet calculation software. –Integrated systems. Features: –Databases for unit cost items. –Databases of expected productivity for different components types, equipments, and process. –Version control, Flexible reporting formats, import and export utilities, archive of past projects. Advantages: Rapid cost estimation and with less efforts. Example : as will be shown

13 Estimation of Operating Costs Depends upon: maintenance policies and facility use. Minimized by: periodic repairs and rehabilitation at periodic intervals. Example: Maintenance cost on a roadway –C = V A –Where, C is the annual cost of routine maintenance per lane- mile. –V is the volume of traffic on the roadway measured in ESAL (equivalent standard axle loads) –A is the age of the roadway in years since the last resurfacing.

14 Case study Raheja builders Estd. in 1952 Uses simple unit cost estimation method Uses simple accounting tools In process of configuring ERP

15 Thanks Questions?

16 Allocation of Construction Cost over time Rate of work done during various time periods expressed in percentage of project cost per unit time. The value of work completed at a given time expressed as a cumulative percentage of project cost

17 Example Decomposition of a building foundation into design and construction elements.

18 Price indices in subsequent years show a proportionate changes due to price changes. Percent change in price indices for year t+1- j t+1 =((I t+1 -I t ) / I t )* (100%) - Measure price level changes


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