Research Paper

CEE 422 CONSTRUCTION COST ANALYSIS FALL 2009
AYUSS KUMAR
DEPARTMENT OF CIVIL & ENVIRONMENTAL ENGINEERING UNIVERSITY OF ILLINOIS URBANA, CHAMPAGIN
PROF. IBRAHIM ODEH
ACCURACY OF CONSTRUCTION COST ESTIMATING A DESIGNERS PERSPECTIVE.

AYUSS KUMAR
Department of Civil & Environmental Engineering, University of Illinois at Urbana Champaign. 61801. U.S.A. Tel No. 818.261.2869. E-mail:kumar29@illinois.edu
CEE 422 CONSTRUCTION COST ANALYSIS FALL 2009.
PROF. IBRAHIM ODEH
Table of Contents
A. A.I B. C. C.I D. D.I E. E.I Abstract Introduction Why is Accuracy in Cost Estimating so Important? Estimating Techniques Accuracy from Databases and Historical Data Range Estimating Estimate Accuracy Factors that affect +/- % Accuracy of Estimating Composition of Project Price Direct Costs E.Ia. Industry or Facility Approach E.Ib. Discipline or Trade Approach E.II Contingency Costs E.IIa Estimate Contingency E.IIb Owners Contingency E.IIc Designers Contingency E.IId Contractors Contingency E.IIe Items Included and Excluded in Contingency E.III F. F.I F.II F.III F.IV F.V F.VI F.VII G. H. J. Margin (Markup) Types of Estimates Feasibility Estimates Order of Magnitude Estimates Preliminary Estimates Baseline Estimates Definitive Estimates Fixed-Price Estimates Claims and Changes Estimates Error Prevention & Proper Work Habits Conclusion References 1 2 4 6 7 8 10 11 11 11 12 12 12 14 14 14 14 15 16 16 17 17 17 17 18 18 19 20 21
UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN Department of Civil and Environmental Engineering CEE 422 CONSTRUCTION COST ANALYSIS Fall 2009
Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu
A.]
Abstract As an architect, I see myself as a member of a project team whose prime responsibility may
not be cost estimating, but more as a designer. However, as a designer, it is essential to understand the dynamics of cost estimating so as to make informed decisions during the course of the project. The accuracy of cost estimating can determine the feasibility, scale and phases of construction of the project. Cost estimating is not an exact science. It is a heady mixture of art and science; of compiling historical records and data; understanding market trends; application of mathematical formulae and intuition / experience. It is therefore, necessary to understand - what is an accurate cost estimate? That in itself is could be a misnomer. How can an estimate be accurate? However through this research paper we will understand that we can predict a fairly accurate estimate of a project. The Designer of a project is a key player in the early (programming, conceptual, schematics and design development) stages of preparing Project Cost Estimates. It is the Designer who makes or grapples with the first decisions that affect the project cost. Decisions such as space planning, ratios of net usable areas to gross built-up areas, building volumes, choice of materials, aesthetics, etc. The Designer is often one of the first professionals to work on the project. He must be in a position to carry the project through its early stages with proposals that accurately conform to the Control Budget established by the Client / Owner / Developer. He must have a clear understanding of the factors that affect the accuracy of construction cost estimates long before construction drawings and documents are prepared, when accurate quantification becomes feasible. Even if the designer is fortunate to have a specialist Cost Consultant on his team from the beginning, he must be in a position to discerningly provide inputs to the cost consultant concerning design decisions (even at early abstract stages) that will affect the accuracy of costing. Hence, it is important as a designer, to understand aspects that influence accuracy of costing.
A.I]
Introduction Accuracy of Construction Cost Estimates depends on the extent, relevance and reliability of
information available. Importance of compiling and selectively using historical records and analytical data of completed projects. No two projects are absolutely identical. Even in the development of prototypes, the time factor and site conditions may vary. But comparisons are possible. These variations should be factored in the costing. The Clients feasibility study and Control budget is perhaps the first project cost estimate. This may not even be based on design or construction methodology. It maybe a financial model based on risk factors, equity and debt holding of entrepreneurs, market studies of sale / leasing potential, etc. Though not technically substantiated, this is perhaps the most important cost estimate and establishes the initial budget for the project. The project team needs to keep faith in the accuracy and veracity of the initial budget estimate or have an alternate acceptable to the stakeholders as early as possible. Accuracy of costing varies from stage to stage of the project development progressing from rough estimates at the Programming and Conceptual stages to more and more accurate estimates at Design Development, Construction Documentation, Tendering and Bid Evaluation and Construction stages. There are four primary methods used to estimate construction costs. Those methods are known as Project Comparison Estimating or Parametric Cost Estimating, Area and Volume Estimating, Assembly and System Estimating and Unit Price and Scheduling Estimate. Each :
Fig.1 - Source: From Concept to Bid Successful Estimating Methods by John D Bledsoe.
method of estimating offers a level of confidence
that is directly related to the amount of time required to prepare the estimate as illustrated. Estimates at the early stages should be factored for contingencies and unknowns. They should be enumerated and listed with appropriate values. These factors will reduce as the project progresses; but at no stage should the factors be eliminated altogether. Aspects that influence accuracy of Construction Cost Estimates include: Veracity of the Developers feasibility studies and Control Budget. Cost of financing and amortization. Deviations from original concepts and proposals. Reliability of background information and historical data from prototypes and case studies used in preparing estimates with factors for variation. Understanding of government policies and taxation. Understanding of development control rules of the local government. Logistics of transportation and storage. Veracity of technical information such as geotechnical surveys of the site, seismic and weather conditions, infrastructure, etc Application of project planning, project management and cost control tactics. Quality Control. Safety and Health during construction. The technique / method used for estimating costs vary at each stage of the project development. Whatever the method used, the estimate should be appropriately accurate for each stage and be appropriate to the expectations of the stakeholders. The cost estimates prepared at different stages have different uses and should be relevant and accurate to serve the intended purpose.
B]
Why is Accuracy in Cost Estimating so Important? The owner may develop the initial cost budget of his project, during the programming phase,
with the help of an accurate cost estimate. Often this budget is prepared by the design firm, a consultant, or the construction contractor. It helps the owner determine the feasibility of the project and answer fundamental questions regarding the onset of the project undertaking. Whether this project is affordable or not? Do the anticipated revenues justify the investment in constructing the project? The owner may use this initial cost estimate to secure financing for the project. Accurate cost estimates taken through the project at various milestones ensure that the construction is within affordable means of the owner. The owner also has a greater control over the flow of funds for the project and can determine where to be more extravagant and where to be more economical. It is at this stage where the design teams choose the building systems for the project. The building systems reflect on the cost estimate. Based on the financial strength of the owner the design team formulates various systems to make the project a reality (structural, MEP, Faade etc..) Cost estimates are prepared by construction contractors to determine their bid amounts for a bid procurement process. Construction contractors justify their cost proposals in a negotiated procurement process. Change orders are a frequent occurrence in projects. An accurate estimate is used by the contractor to predict the cost impacts of the scope modifications. The cost impact factor is mathematically determined by dividing the difference between the low and high figures for each item by the total estimated project cost. The larger the resulting percentage, the greater the impact of the item (because the estimator does not know enough about it to tie down a probable cost). The estimator can then pick out these portions of the job which by virtue of their cost uncertainty will greatly impact the accuracy of the estimate, and monitor them through subsequent design / project activity. Estimates are used by contractors to negotiate adjustment to the contract value as compensation for any additional work. Contractors often submit claims for additional work due to
differing site conditions or incomplete design documents. Accurate cost estimates prepared help to support the contractors claim. Arbitrators use estimates in a court of law to resolve disputes that may arise between the contractor and the owner / architect in such cases. Cost estimates prepared by the contractor, during the course of the project, help justify progress payments to be released to him on a timely basis. Accurate cost estimating helps the contractor keep check of his flow of funds. It enables him to make informed decisions of borrowing loans from financial institutions, determining his profit margin, and the whether or not to subcontract a certain job activity of the project or not. At the termination of a project, many construction management companies create an as built estimate and store this as historical data. They use this data as future reference for similar projects that might occur, to accurately estimate projects.
C.]
Estimating Techniques As mentioned earlier there are primarily 4 estimating techniques. They are Project Comparison
Estimating or Parametric Cost Estimating, Area and Volume Estimating, Assembly and System Estimating and Unit Price and Scheduling Estimate. In general, the parametric technique is the least expensive, least time-consuming and least accurate, but requires the most experience. The unit price and scheduling estimate is the most expensive, most time-consuming, and most accurate, requiring the least experience. Project comparison estimating or parametric cost estimating is often used in early planning stages when little information is known about the program other than overall project parameters. This method is sometimes called a preliminary or ballpark estimate and has no better than 15% to 25% accuracy. This method uses historical information on total costs from past projects of similar building type. The estimating method requires the assumption of an approximate gross area for the proposed work and a sufficient historical record of similar building types. The greater the number of prior project combinations for which scope and prices are known, the easier it is to perform project comparison estimating. Area and volume estimating is another method of developing both preliminary and intermediate budgets based on historical data. This method is effective in preparing fairly accurate estimates if the design is developed enough to allow measurement and calculation of floor areas and volumes of the proposed spaces. There are several historical databases available to support this method of estimating providing unit costs ($/S.F. & $/C.F.) that are adjusted annually and many of the large estimating firms maintain their own databases. More accurate estimates made with this method make adjustments and additions for regional cost indices, local labor market rates, and interpolation between available cost tables. Further adjustments maybe made to account for other unique aspects of the design such as special site conditions or design features being planned. Estimates made by this method can be expected to be within 5% to 15% accuracy.
Assembly and systems estimates are intermediate level estimates performed when design drawings are between 10% and 75% complete. Assemblies or systems group the work of several trades or disciplines and / or work items into a single unit for estimating purposes. An assembly and systems estimate prices all of these elements together by applying values available in assemblies cost data guides. These guides are based on historical databases, typically organized in Master Format. Estimates made with this method can be expected to be within 10% accuracy. In unit price and schedule estimating, the work is divided into the smallest possible work increments, and a unit price is established for each piece. That unit price is then multiplied by the required quantity to find the cost for the increment of work. Finally, all costs are summed to obtain the total estimated cost. This method of estimating provides the most accurate means of projecting construction costs, beyond which accuracy is more likely to be affected by supply and demand forces in the current market.
C.I]
Accuracy from Databases and Historical Data
There are several historical databases available that provide current values for estimating costs of the various units of work for a project. The databases are compiled from records of actual project costs, and on-going price quotations from suppliers, and are published annually in the form of books, CDs and even available online on the internet. The estimator must be cautious about using these historical data figures. They differ from region within a country. As they are based on labor laws, taxes, land value etc For accurate estimates, estimators use factors updated every year by published books to negotiate this price difference from one locale to another.
D]
Range Estimating Estimate Accuracy There is solid evidence that learning to control costs is a high priority of architects and
engineers, and if not overtaking programming and design ability in importance cost control and budget analysis are often an equal partner in the marketing of professional design services. Some firms make cost control the cornerstone of their marketing effort; the individuals within these firms are beginning to say that those professionals who do not emphasize cost control will eventually be working for those who do. One aspect of cost estimating range estimating is a popular tool amongst design professionals. Architectural Record, September 1977. Accuracy is the degree to which a measurement or calculation varies to its actual value; thus estimate accuracy is an indication of the degree to which the final cost outcome of a project may vary from the single point value used as the estimated cost for the project. Estimate accuracy should generally be regarded as a probabilistic assessment of how far a projects final cost may vary from the single point value that is selected to represent the estimate. Estimates reflect a range of possible outcomes and is represented as a +/- % range about a point estimate of a project. It can be represented as a probability distribution curve as illustrated in Fig.2. The point estimate has a value of $1
million. In this example, the point estimate has a greater than 50% probability of being exceeded by the final cost of the project, and thus a positive amount of contingency would need to be added to the estimate to reflect a 50%
Fig.2 Source: 2006 International Transactions, Is Estimate Accuracy an Oxymoron? Larry R Dysert
probability of under run or overrun of the expected
final costs. The accuracy range at an 80% confidence level is bounded by the cost of $0.8 million on the low side and $1.4 million on the high side. In other words, 80% of the area under the probability
distribution curve lies between these two values. When expressed as a +/- percentage around the point estimate of $1 million, the accuracy range would be -20% to -40%. When accuracy range is expressed as a percentage, it is always important to note whether it is the percentage range around the point estimate before contingency, or whether it is around the point estimate value including contingency. In Fig.3 the estimate probability distribution is
identical to that in Fig.2 and the same amount of contingency has been added to reach a 50% probability of under run or over run of the expected final cost. At an 80% confidence level, estimate accuracy is still bounded by
the values of $0.8 million and $1.4 million.
However, when expressed as a percentage around the point estimate including contingency ($1.1 million), the accuracy range is now -27% to +27%. In Fig.3, although the absolute values of the estimate range at an 80% confidence level are unchanged from Fig.2, the range expressed as a percentage is different. Unfortunately, many estimators fail to note whether a +/- accuracy percentage is applicable to the point estimate before contingency, or the estimate including contingency. Estimate accuracy tends to improve as the level of the project definition improves. Increasing levels of project definition are associated with moving from Class 5 estimates, to Class 4 estimates and eventually Class 1 estimates Fig.4 illustrates this concept.
Typical Class 5 Estimate: High range of from +30% to 100%. Low range of from -20% to -50% Typical Class 4 Estimate: High range of from +20% to +50% Low range of from -15% to -30% Typical Class 3 Estimate: High range of from +10% to +30% Low range of from -10% to -20%
D.I]
Factors that affect the Percent % Accuracy of Estimating As discussed earlier many factors affect the determinant of estimate accuracy other than
percentage of project completion. These factors include the quality of reference cost estimating data (material pricing, labor hours, labor ware rates, etc.) the quality of assumptions used in preparing the estimate, the state of new technology in the project, the experience and skill level of the estimator, the specific estimating techniques involved, the desired use of the estimate, the level of effort budgeted to prepare the estimate, as well as extraneous market conditions (such as periods of rapid price escalation and labor climate factor). In addition, other factors that affect estimate accuracy are the project teams capability to control the project, the capability to adjust the estimate for changes in scope as the project develops. These various factors contribute to the ranges of a typical project estimate. It is possible to have a Class 5 estimate with a very narrow estimate range, particularly for repeat projects with good historical costs upon which to base the estimate. Conversely, it is possible to have a Class 3 or Class 2 estimate with a very wide accuracy range, particularly for first-of-a-kind projects or those employing new technologies.
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E.]
Composition of Project Price For accurate estimating purposes, a construction project estimate is split into three main parts.
The sum total of these three parts makes up the Project Price. They are direct costs, contingency costs and margin. Direct costs are the labor, material, equipment costs of project construction. The effects and probability of occurrence of each contingency event cannot be accurately predicted. However, the total effect of all contingencies on project cost can be estimated with acceptable accuracy. Margin (sometimes called markup) has three components: indirect, or distributable, costs; company-wide, or general and administrative, costs; and profit.
E.I]
Direct Costs: Methods for preparing an estimate of direct costs may be based on either or
both of two approaches: industry or facility approach, and discipline or trade approach. For any project the approach that maybe selected depends on user preference and client requirements. If used properly, the two approaches should yield the same result.
E.Ia]
Industry or Facility Approach: Industry in this case refers to the specific commercial or
industrial use for which a project is intended. For example, a client who wishes to build a factory usually is more concerned with the application to which the factory will be put than with the details of its construction, such as bricks, mortar, joists and rafters. The client is interested in the specific activities that will be carried out and the space that will be needed. When information about these activities has been obtained, the designers convert this information into a total building design, including work spaces, corridors, stairways, restrooms, and air-conditioning equipment. After this has been done, the estimator uses the design to prepare an estimate.
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E.Ib]
Discipline or Trade Approach: This takes the point of view of the contractor rather than the
client. The job is broken into disciplines, or trades, of the workers who will perform the construction. The estimate is arrived at by summing the projected cost of each discipline, such as structural steel; concrete; electrical; heating and ventilating; and plumbing.
E.II]
Contingency Costs: These are the costs that must be added to the initially calculated costs to
take into account events that are highly likely to occur sometime during the course of a project and that will affect the project cost. Although the effect and the probability of occurrence of each contingency event cannot be predicted, the total effect of all the contingencies on the project cost can be estimated with a high degree of accuracy. In this respect, contingency allowances are much like insurance. Contingency costs are usually expressed as a percentage of direct costs but they also may be expressed as a dollar amount. These costs should not be considered a fund to compensate for inaccurate estimating. If the contingency allowance is underestimated, all parties to the construction contract can suffer financial loss. If the contingency is overestimated, the contract may not be awarded or the client may not be able to finance the project. Thus calculating the contingency to an accurate amount is crucial to the estimate of a project.
EII.a] Estimate
Contingency:
Fig.5
Illustrates the potential variability of a single component of an estimate. In this example, the variability is shown as a normal probability distribution around the estimated value of $100. Since this is a normal probability distribution,
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the probability of under run (shown as the area under the curve to the left of the vertical dotted line) equals 50%, the same as the probability of over run (the area under the curve to the right of the dotted line). The estimate line item has an estimated cost of $100; however the accuracy range of the cost varies from $50 to $150, or an accuracy range of +/-50%. Unfortunately, most items of cost in an estimate do not exhibit a normal probability distribution in respect to its potential variability. Most of the time, variability is more closely associated with a skewed distribution. Fig.6 shows the variability of an estimate line item for which the accuracy range of the cost is skewed to the high side. In this example, the item has been estimated at $100; however the accuracy
range of the cost varies from $80 to $140, or 20% to +40%. With an estimated value of
$100, this example shows that there is only a 40% probability of under run, while there is a 60% probability of over run. In order to equalize the probability of under run and over run, an amount would need to be added to the original point value of $100. This amount would be considered contingency. Contingency would not change the overall accuracy range of $80 to $140; however it would increase the probability of under run while decreasing the probability (risk) of over run. Often in project estimates the cost of items are skewed to the higher side. Hence the probability of over run is higher than that of under run. Some items do fall with skewness to the low side. But on the whole most line items have a distribution curve skewed to the higher side. This results in a overall probability of the estimate being skewed to the higher side. Contingency is thus usually a positive amount of funds added to cover the variability surrounding the point value of the estimate, and to reduce the chances of over running the point estimate to an acceptable level.
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E.IIb] Owners Contingency: Covers the costs that the owner could incur during the course of a project. For example, if the project is delayed for any reason, there will be additional interest charges for the financing. If the city or state changes the building code during project execution, construction costs could increase. If an important commodity undergoes a sudden price increase, the overall cost of the project could be significantly impacted.
E.IIc]
Designers Contingency: Covers the costs that the designer could incur during the course of
the project, such as the cost of services that the designer renders and that were not originally anticipated and the additional costs due to changes in the design.
E.IId] Contractors Contingency: Covers the costs that the contractor could incur during the course of a project.
E.IIe] Items Included and Excluded in Contingency Items Included: Errors and omission in the estimating process. Quantity variability At the time of estimate preparation, the design may not be complete enough to determine final quantities of materials. Some items may defy precise quantification. Some items are generally computed by factored or other conceptual methods as opposed to precise measurement. Productivity variability Actual labor productivity may differ from that assumed. There is no such thing as an average tradesman. Labor availability and skill levels may differ from that assumed. Also weather may differ from that assumed. Wage rate variability Wages maybe uncertain due to labor availability. Or union agreements may expire during the project.
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Pricing variability Material pricing and purchasing policies may differ from that assumed in the estimate. Quite often materials of construction maybe substituted for estimated materials and changes in quantities may affect applicable discount rates.
Items Excluded: Significant changes in project scope. Major, unexpected work stoppages. Disasters Excessive, unexpected escalation or currency fluctuation.
E.III]
Margin (Markup): This comprises of three main components; indirect costs, company-wide
costs and profit. We use the same methods for calculating indirect costs as that of direct costs. That is parametric technique, area or volume technique, assembly and systems estimate or unit price estimate. Company wide costs and profit, sometimes called gross margin, are usually lumped together for calculation purposes. Gross margin is generally a function of the market conditions. Specifically, it depends on locale, state of the industry or economy, and type of discipline involved, such as mechanical, electrical, or structural. The estimator lists the gross margin as a percent of the project costs. He obtains this data from periodicals or standard handbooks such as RS Means. These percentages bear a relation to the geographic area and the industry within which the project is being executed.
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F]
Types of Estimates Typical types of estimates are as follows: feasibility, order of magnitude, preliminary, baseline,
definitive, fixed price, and claims and changes. These do not represent rigid categories. There is some overlap from one type to another. All the types can be prepared with an industry or discipline approach, or sometimes a combination of both. As the project gets more defined these estimates get fine tuned and the accuracy for construction cost increases. Design Process Schematic Design Design Development
Programming
Construction Documents
Program Budget Estimate
Schematic Design Budget Estimate
Design Development Budget Estimate
Owners Final Cost Estimate
Negotiated Construction Procurement Process Preconstruction Services Construction Operations
Preconstruction Services Estimate
Guaranteed Maximum Price Estimate
Change order Estimate
Bid
Bid Construction Procurement Process Construction Operations
Detailed Lump-Sum or Unit-price Estimate
Change order Estimate
F.I]
Feasibility Estimates: These estimates are owner driven and usually begin even before a
design for the project is in the making, during the programming stage. It determines if the project is worth building from the owners view point. They are quick to calculate and inexpensive but accuracy depends on the experience of the estimator and the availability of a wide range of similarly executed projects used as historical data. They are not very accurate; it does not take into account creative
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solutions, new techniques, and unique costs. It can be prepared by the owner, the lender, or the designer.
F.II]
Order-of-Magnitude Estimates: These are more detailed than feasibility estimates, because
more information is available. These estimates are usually done by the designer during the schematic phase of the project and are inexpensive to prepare.
F.III]
Preliminary Estimates: These reflect the basic design parameters. For this purpose, a site
plan and a schematic design are required. The schematic should show plans and elevations plus a few sections through the building. Preliminary estimates can reflect solutions, identify unique construction conditions, and take into account construction alternatives. These estimates are prepared after about 5 to 10% of the design has been completed.
FIV]
Baseline Estimates: These are final preliminary estimates. These estimates identify all cost
components and are prepared during the design development phase of the project. The estimate provides enough detail to permit price comparisons of material options and is sufficiently detailed to allow equipment quotations to be obtained. The baseline estimate is generally prepared by the designer. It is made after about 10 to 50% of the design has been completed.
FV]
Definitive Estimates: From the definitive estimates, the client learns what the total project
cost should be and the designers overall intent. It is normally prepared during the construction documentation phase of the project. It is sufficiently detailed to allow for quotes to be obtained for materials, to order equipment, and to commit to material prices for approximate quantities. This estimate is generally prepared by the designer and represents the end of the designers responsibility for cost estimates. It is made after about 30 to 100% of the design has been completed.
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FVI]
Fixed-Price Estimates: Prepared by a general contractor, a fixed- price estimate or bid,
represents a firm commitment by the contractor to build the project. It is based on the contractors interpretation of the design documents. This estimate is highly accurate. It should be in sufficient detail to enable the contractor to obtain quotes from suppliers and to identify possible substitutes for specific items. It is made after 70 to 100% of the design has been completed.
FVII]
Claims and Changes Estimates: These are prepared when a difference arises between
actual construction and the project as specified in the original contract. This type of estimate must identify the changes clearly and concisely. It should specify, whenever possible, the additional costs that will be incurred and provide strong and compelling support for the price adjustments requested. Generally, the estimate is reviewed by all parties involved as soon as the need for change is identified. Claims and change estimates can be prepared by any or all of the parties to the contract.
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G]
Error Prevention & Proper Work Habits Bids maybe won in an undesirable fashion when errors and omissions are made in an estimate.
Conversely, other mistakes can cause a general contractor to submit a bid that is embarrassingly high. While the latter is not as damaging as the former, neither case is a desirable result. Error prevention should be the estimators foremost concern throughout the estimating process. Common estimating errors include the following: Incorrectly adding a column of numbers. Incorrectly calculating the prices. Incorrectly transferring numbers from one page to another. Making errors in dimensional conversions. Omitting a page of the estimate. Misplacing decimals. Probably one of the most important error prevention procedures is used in transferring figures from one page to another. A recommended technique is to mark checked values with a red pencil. When a column of numbers is summed and has been checked, the total would be double underlined with a red pencil. This signifies that the number has been checked and is ready to be transferred to the next page. Using decimals of feet eliminates a potential error by not making length, area, and volume conversions that involve compound numbers of feet and inches. Extensions will be automatically in feet, square feet, and cubic feet. After extending the calculations, decimals are dropped in favor of the nearest foot, square foot, or cubic foot. Larger units, such as cubic yard are shown to one decimal place. Scaling of drawings is discouraged because of resolution errors introduced when reproducing the drawings. Errors also occur when incorrect units are used and when they are converted to other units.
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H.]
Conclusion One definition of an estimate is the expected value of a complex equation of probabilistic
elements subject to random variation within defined ranges. The values assigned to each individual component of an estimate are uncertain, and therefore the estimate as a whole is also subject to variability. Estimates should be unbiased. Uncertainty should be reflected in the estimate range, and not in padding the costs of each element or component of the estimate. At each phase of the project,
the estimate should reliably predict the costs to deliver the project, given the scope and assumptions reflected in the estimate. Thus the estimate should provide sufficient accuracy to effectively support the decision at hand. So is Estimate Accuracy a misnomer? No. If we follow best estimating practices, if we accept that an estimate is a range of values (associated with a confidence level), if we associate a given point estimate with a probability of over run / under run, then we have defined an expected degree of conformity to the actual project result that is obtainable and repeatable.
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J.]
References Donald S. Barrie & Boyd C. Paulson, Professional Construction Management: Including C.M., Design-Construct, and General Contracting. Third Edition. McGraw-Hill Series in Construction Engineering and Project Management. Leonard Holm, John E. Schaufelberger, Dennis Griffin, and Thomas Cole, Construction Cost Estimating: Process and Practices. Prentice Hall, 2005. John F. Steffen Associates, Inc., Architectural Record 1977 September pg 62-63. Larry R. Dysert, Is Estimate Accuracy an Oxymoron? 2006 AACE International Transactions. http://www.directives.doe.gov/pdfs/doe/doetext/neword/430/g4301-1chp4.pdf. Types of Cost Estimates. http://www.pp.okstate.edu/arch/Chopshop/New%20Folder/A14.pdf. Cost Estimate Accuracy Colman J. Mullin, Research Paper - Construction Cost Estimating. Cost Engineering Terminology. Recommended Practice I0S-90, AACE International, April 2004.
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Summary The following research paper is on the Accuracy of Construction Cost Estimating. The paper focuses on importance of accurate cost estimating to various entities involved in a construction project. These entities include the owner / client, the architect / engineers, the contractors that bid for the execution of the project and the construction manager that supervises the execution, scheduling, resource management and cost of the project for the owner. The research paper further illustrates the various components of project pricing and the need for contingency to be added by various entities during the project estimate. These contingencies are revised as the project proceeds to completion. They help in funding the project if inaccurate estimates occur, thus they help in furthering the accuracy of the project estimate. It highlights certain fundamental methodologies of cost estimating depending on the project type. These methods are of cost estimating enable accurate estimating at various levels of the project depending on the scope of work. They give a range of accuracy and most often decrease with progress of the construction project. This is because the estimator has more information to substantiate his estimates. The formulation of proper work habits by the estimator is often the key to accurate estimating. Methodical procedures and classification of data is essential to prevent errors in cost estimating. Finally the paper attempts to establish that cost estimating can be a definitive science, that can aid a project to be completed with maximization of resources and funds while maintaining a high standard of quality.
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CEE 422 CONSTRUCTION COST ANALYSIS FALL 2009

DEPARTMENT OF CIVIL & ENVIRONMENTAL ENGINEERING UNIVERSITY OF ILLINOIS URBANA, CHAMPAGIN

PROF. IBRAHIM ODEH

ACCURACY OF CONSTRUCTION COST ESTIMATING A DESIGNERS PERSPECTIVE.

CEE 422 CONSTRUCTION COST ANALYSIS FALL 2009.

PROF. IBRAHIM ODEH

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

method of estimating offers a level of confidence

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Accuracy from Databases and Historical Data

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

probability of under run or overrun of the expected

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

the values of $0.8 million and $1.4 million.

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Program Budget Estimate

Schematic Design Budget Estimate

Design Development Budget Estimate

Owners Final Cost Estimate

Negotiated Construction Procurement Process Preconstruction Services Construction Operations

Preconstruction Services Estimate

Guaranteed Maximum Price Estimate

Change order Estimate

Bid Construction Procurement Process Construction Operations

Detailed Lump-Sum or Unit-price Estimate

Change order Estimate

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Fixed-Price Estimates: Prepared by a general contractor, a fixed- price estimate or bid,

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

Prof. Ibrahim Odeh iodeh2@illinois.edu Ayuss S Kumar kumar29@illinois.edu

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