Why is Cost Estimating Essential to Ensure a Sound Business Decision?
In construction, cost estimating is a practice essential to developers in making sound investment and business decisions (for example, as inputs to the cost-benefit analysis), to project owners in preparing reasonable budgets and forecasts, and to contractors in ensuring profitability from bidding on and building the projects.
And, the very first step in estimating, quantity take-off (measurement), serves as the basis but yet critical for development of reasonable estimates. Leaving aside the importance of the unit prices and markups being appropriately applied, an accurate count of quantities is the foundation for establishing a realistic and defendable estimate.
Once the quantities become available, the material, labor and equipment costs can then be estimated. The construction means and methods, logistics, site conditions and geographical locations should be taken into consideration in estimating, as they could pose significant cost impacts. Thus, a thorough understanding of construction practices and their effects on the labor productivity are mandatory in the world of estimating.
Based on the aforementioned costs, other cost items should be determined for completion of the estimate. The remaining items to be established includes general conditions (general and temporary supportive activities, which typically are responsible for by general contractor), overhead (administrative expenses), profit, insurance, bonding fees, permit fees (if applicable), contingencies (to account for unexpected addition of expenses incurred) and any other special considerations (for example, project-specific insurance, commissioning, etc.).
The amount of efforts involved in estimating seems to be, and in fact, could be overwhelming. This blog is established to foster a better understanding of cost estimating by audience of all different backgrounds in terms of professions and degree of knowledge about the construction practice. Enjoy reading!