ConstructIQ

1. Understand the drawings and specifications

Before we can even begin to think about doing any sorts of fancy calculations or actual “estimating”, we need to know what we are pricing. The first step in the process is to simply understand the drawings and specifications. We need to know what we are being asked to price. Often, this is the most time-consuming and difficult part of the whole process.

Begin by reading through the scope of works and specifications. Then slowly start aligning this with the engineering drawings. Always begin with the scope of works, as this will tell you specifically what you are required to price. The scope of works will help the drawings to make more sense.

2. Create your Bill of Quantities/Work Breakdown Structure

The next step will be to prepare our bill of quantities. In some instances, the client may prepare a bill of quantities that they provide to us to price. If not, we will need to review the drawings, logically break down the scope and perform a quantity take-off.

Decomposing the project scope into component pieces is also referred to as creating the Work Breakdown Structure (WBS). A work breakdown structure is a hierarchical decomposition of the project scope. If the project is big enough, we may need to break our scope down into several layers. 

The important difference between a BoQ and a typical WBS, is in a BoQ we have also identified all of the important quantities.  Against each scope item we identify, we need to identify each of the important quantities that will drive our cost estimate. For example, if one scope item we identify is a concrete slab, we need to work out; how much concrete is required, how many m2 of formwork and how many tonnes of rebar are required.

3. Determine the delivery methodology

After decomposing the project scope, the next step is to determine the delivery methodology. For each component of the project scope, we need to understand how we are going to complete the works. This is referred to as the construction methodology. 

For any package of works, there is an infinite number of different ways we could choose to build it. Say we need to complete 1km of trenching, we could choose to pay social media influencers millions of dollars to dig it by hand, or we could hire a civil contractor under a lump sum price, or we could self-perform the works. The choice is ours.

By developing the construction methodology we explore how we are going to complete the works in the optimal way.

 4. Identify your resource requirements

So far, we’ve identified all the work that needs to be done and how we are going to do it. The next step is to identify the specific resources required. For each activity, we need to know our Labour, Plant, Material and sub-contract requirements. The cost of these resources will be what drives our cost estimate.

For example, if we are pouring a concrete slab, we will need concreters, a concrete pump and concrete as a minimum. We may need other resources like a concrete tester, or special tooling. 

We also need to determine the cost of these resources. Usually, this will be expressed in dollars per hour for labour and plant and for materials by quantity.

5. Determine your productivity rate

Now that we know the costs of our resources and the volume of work, all that is missing is how long we need these resources for. To calculate this we need a productivity rate. We simply divide the volume of work by the productivity rate to estimate the cost. 

Productivity rates will be individual for each activity. As an example, a steel fixer may be able to fix 2 tonnes of reinforcement per day, or a formworker may be able to construct 10m2 of formwork in a shift.

If we know these productivity rates accurately, calculating costs is easy. For example, if we need to estimate the costs of 200m2 of formwork, and a formworker can construct 1m2 per hour, then it will take 200 hours to construct the formwork. If our labour rate is $35 per hour, then the labour costs are $7000.

We need to do this for every activity in the project scope to calculate our direct costs.

6. Estimate your indirect costs

There is more to a project’s value than the direct costs; the costs to physically complete the works. Lots of other costs need to be incurred to successfully complete a project; we need security guards at night, site offices, management staff, toilets and traffic management. 

Costs that need to be incurred to complete a project but are not specifically attributable to an activity are referred to as indirect costs. 

These are also known as site running costs or preliminary costs. To accurately estimate our project costs we also need to estimate our indirect costs. The easiest way to estimate indirect costs is to first identify them through historical project data or using checklists, and then to estimate them in the same way as any direct cost.

7. Calculate your risk and opportunity

As you could guess from the name, an estimate is just an estimate. We are trying to foresee and pre-empt how much something is going to cost. Our estimate is going to be wrong! There is a 0% chance that what we estimate costs to be will exactly match the true cost to complete the works.

This is because whenever we try to see into the future there is always going to be some uncertainty. There are guesses and assumptions we need to make that will impact our estimate. Whenever there is uncertainty, we need to deal with it. Uncertainty that matters, i.e. impacts our estimate is either a risk or an opportunity. 

For any risk or opportunity, we need to determine the likelihood of it happening and the impact if it does (in dollars). We then need to adjust our estimate by the product of these two values.

8. Add on profit and corporate overheads

So far we have calculated our direct costs, indirect costs and risk and opportunity. All that is now left to do is to sum these together to get our total project costs. BUT if we are a construction company looking to stay in business, then the project costs are not what we will submit to our client. If we did that, we wouldn’t be in business long!

We need to add our corporate overheads, our ongoing non-project-specific business costs, and our profit margin to these costs to get our selling price.