While creative architectural designs might seem like an easy job, there is a lot going on behind the scene. Whether it is a simple house or a stadium, there is a lot of effort and teamwork behind every construction. The most important issue when it comes to construction management is determining the budget for a project. Cost estimation is critical in every project development, as it will define whether a project is affordable or not, and based on that forecast, MEP engineers and estimators can make budgetary and feasibility preparations to keep it under budget. Of course, Contractors and owners both worry about the financial impact of cost overruns and failing to complete a project. That’s why they devote their time and effort to estimating how much a project will cost before deciding to move forward with it. Cost estimation is also considered as a time-sensitive process because prices of materials and employees’ wages are constantly changing in time.
Cost Estimation Process
In order to estimate a project cost, MEP engineers must first know the scope of work, then it comes the traditional approach which is the following:
- Dividing up the work and breaking it down into defined areas, such as Mechanical, Electrical, and Plumbing. This is known as Work Breakdown Structure (WBS).
- Each of these structures will be further divided into cost items, with are measurable quantities of materials, labor and for some tasks; equipment cost is also included.
- MEP engineers assign a unit cost to each item based on the local prices.
- Unit cost is then multiplied by the required quantity to get the total, and the sum of the total cost for each department yields to the final cost estimation.
Levels of Estimate
A well-defined project plan can make the cost estimations more accurate, and having multiple estimations during the pre-design and design phases are standard practices. These estimations get more accurate when the level of definition of a project increases. There are five system levels of estimation that have been classified by the American Society of Professional Estimators.
- Level 1: Order of Magnitude Estimate:
The purpose of this level is to do a study based on the historical information, of course with some adjustments made to match the project specifications. That study will determine the overall feasibility of the construction when the project is still just at the design stage and has not yet been developed.
- Level 2: Schematic Design Estimate:
Based on the level one budget, this level helps make the cost estimation a little bit more accurate thanks to the provided schematics. At this level, the designer will have the opportunity to try various designs to find the perfect fit for the projects’ budget.
- Level 3: Design Development Estimate:
Design Development is the phase where budget conformance is confirmed thanks to the finalized design, the scope of work and the selected materials. At this level, a great amount of accuracy is added as design documentation get more detailed.
- Level 4: Construction Document Estimate:
At this level, funding allocations are confirmed and the construction cost is verified once again along finishing the design. Assessment of the project value is done taking into consideration such forgotten costs as permits or insurance. This final cost estimate will then be used to evaluate the subcontracting pricing during the bid phase.
- Level 5: Bid Estimate
This level estimate develops the probable cost of the project in order to prepare and submit a contract to an owner.
Elements of a Cost Estimate
- Quantity take-off: Cost estimator will define the necessary quantity of materials for the project. This element is critical as the cost can get really higher if it’s underestimated.
- Labor hours: Labor hours required are based on the estimator’s experience, and labor productivity variety should also be taken into considerations.
- Labor rates: Basic wages for labor rates will be estimated based on the local current data, and extra hours will be taken into considerations if overtime work appears.
- Price of materials: The material price is considered a big part of the total cost estimate, keeping in mind that depending on the market demand and supply, the material cost does fluctuate in time
- The cost of equipment: Some equipment installation might be required, and the cost will also include the capacity of the equipment and if they are going to be rented.
- Subcontractor quotes: Sometimes subcontracting is required and the estimator should take in considerations the material and equipment required for the contractor.
Methods of Estimation
- Benchmarking: This method occurs when a project is in its early stages. This method is based on looking for recent similar projects and estimating the cost based on that project data.
- Square foot/Assembly: Square foot estimates come in an early stage, and it also uses historical data to estimate the cost. This method is useful after the work scope is a bit more developed, projecting costs of equipment, HVAC, architectural systems, etc… Based on these, historical data can be more accurate than take-offs as it can be easy to forget an element.
- Unit take-off: This method requires a bit developed design, and is based on counting necessary quantities and applying the unit price on them to forecast the overall material cost.
- Experience: some things just can’t be accessible and can’t be estimated, in this case, an experienced contractor could easily provide a price cost estimate based on data from previous projects.
In conclusion, price estimation is extremely important and can be challenging for beginners and new engineers; however, MEP engineers can get better in time thanks to years of experience and hard work.