Chapter 1 Introduction to Cost Estimates

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Chapter 1Introduction to Cost Estimates
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What is an Estimate?

• An estimate is an evaluation of a future cost.
• A building cost estimate is an attempt to
  determine the likely cost of some building work
  before the work is done.
• To compile an estimate, you have to answer two
  basic questions
• How much work is to be done?
• What will it cost to do this work?
• The process of measuring work is called taking
  off.
• The takeoff is processed and priced in a number
  of different ways, depending upon the type of
  builder and the contract involved.

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Residential Builders

• There are basically three distinct groups of
  residential builders
• Those that build new homes for sale to home
  buyers
• Those that work under contract to the property
  owner to build a custom home or renovate an
  existing property for the owner
• Those that construct multi-unit residential
  buildings for owner/developers
• Each group has different estimating needs.

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Types of Contract

• Lump sum contract - The builder agrees to
  complete the project as described in the plans
  and specifications for a fixed sum.
• Cost plus contract - The builder is paid for all
  the costs of constructing the project, plus an
  agreed fee.
• Unit price contract - The builder does not bid a
  sum for the whole job instead, he quotes a set
  of unit prices for the work involved.

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What is the Purpose of Estimates?

• To determine the feasibility of projects
• To calculate an approximate price of a project
• To prepare a value analysis
• To set the sales prices
• To calculate a bid price
• To determine project budgets in cost control

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Estimates for the Spec Builder

• Spec builders use two methods of setting prices
• With cost-based pricing, the builder begins with
  the price of the lot, and then adds the estimated
  cost of construction together with markup to
  arrive at the sales price.
• Using the value-based approach, the builder first
  investigates the current market prices of the
  types of home it intends to construct. Then, the
  cost of a certain design of home is estimated to
  determine if it can be built for the market
  price.

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Estimates for Calculating Bid Prices

• Custom home and multi-unit builders use estimates
  to determine their bid prices.
• On larger projects, owners and developers often
  hire architects to prepare the plans and
  specifications used by estimators to determine
  the bid price.
• The type of estimating used here is very similar
  to that used in commercial construction.

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Cost Control Estimates

• Budgets are established from the project estimate
  to show the amounts available to build the
  project.
• As the work progresses, further estimates are
  needed each month to determine
• How much work has been done
• What it has cost to do that work
• What it will cost to complete the project

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Methods of Estimating

• There are two main estimating methods
• Preliminary estimating - price per unit, price
  per unit area, price per unit volume, and
  assembly methods used mostly at the feasibility
  stage
• Detailed estimating far more accurate used by
  most builders when complete drawings and
  specifications are available
• A detailed estimate is prepared in six steps
• Takeoff quantities
• Recap quantities
• Price the recap
• Price subcontractor's work
• Price general expenses
• Summarize

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Materials Estimates

• A bill of materials can be prepared from the
  estimators takeoff of the work for a detailed
  estimate.
• Bills of material are usually divided into
  categories that correspond to materials suppliers
  such as
• Gravel materials
• Concrete materials
• Carpentry materials

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Architects and Designers

• Architects and designers create designs for new
  homes and renovation projects.
• They are seldom appointed on custom homes these
  days, except perhaps for some lager and expensive
  undertakings, because the expense is usually
  beyond the means of homeowners.
• Architects are, however, employed as prime
  consultants on most large multi-unit developments
  where the project size justifies the expense.

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Drawings and Specifications

• On single-home residential jobs, all the
  information necessary to build the project is
  usually contained in a set of working drawings
  comprising
• A plot plan
• Plan views of each level
• Building elevations
• Cross-sections
• Additional sketches and information
• On larger projects, drawings and separately bound
  specifications are usually provided.
• On bid jobs, information about contracts and bid
  procedures should also be found in the
  specifications.