Introduction to Construction Estimation

Estimation in construction is the process of predicting the cost required to complete a project. This involves determining the quantities and rates of needed resources. Accurate estimation is crucial for budgeting, planning, and managing construction projects effectively.

In this article, we will explain the concept of estimation and its significance, the roles of estimators and quantity surveyors, the differences between estimated and actual costs, and the various types of estimates used in construction.

What is Estimation?

Estimation is the art of finding the estimated cost required to conduct a project. It is a process that involves the determination of the quantity of resources required for the project and the respective rates of the resources. If this is obtained, in simple words, the estimated cost is the product of the quantity of resources and rates of resources.

Estimated Cost = Quantity x Rate    (Formula 1)

The estimated cost is actually anticipated or in other words a probable cost or anticipated courses. The subject in which this whole process is discussed is known as Estimation and costing or quantity, surveying, and costing. 

During any construction activity, a project engineer or manager focuses on the following goals:

• To reduce the cost involved ( To minimize the wastage of resources)
• To find out the optimum time for each construction activity

The two goals mentioned above are achieved by employing project management network techniques like CPM and PERT. But before working for cost minimization, we need to first determine the estimated cost for any project. This is where the construction estimation process comes into play.

Hence, estimation is a process that enables one to know beforehand the cost of the construction project. But this is not a fixed cost of a project. 

Who is an Estimator?

The person involved in estimation is known as Estimator.  A quantity surveyor is the person who determines the quantity required for a project. After which the QS person gives the details to the estimator. An estimator collects the rates of each quantity as per the schedule of rates (SOR) of the state. After which, the estimate is calculated using the formula 1. 

What is an Estimate?

An estimate is a written form of estimation. Estimate gives the calculation of the various items of engineering work, to know the approximate cost and the quantities of various materials required with the labor involved for its satisfactory completion.  Estimating is defined as the computation involved in arriving at the details of an estimate.   

The flowchart below shows the various resources whose costs have to be determined to come up with the estimate.

The sketch above shows the detailed analysis of the resources and the breakdown to determine the various estimates. 

Difference Between Final Cost and Estimated Cost

Aspect	Estimated Cost	Final Cost
Definition	An initial approximation of the total project cost based on preliminary plans and specifications.	The actual total cost incurred at the completion of the project.
Purpose	To provide a forecast for budgeting, financing, and planning purposes.	To determine the actual financial outcome and compare it with the estimated budget.
Components	Includes preliminary costs such as materials, labor, equipment, overhead, and contingencies.	Includes all actual expenses such as materials, labor, equipment, changes, delays, and unforeseen costs.
Timing	Prepared before the project begins, often during the planning or design phase.	Determined after the project is completed, based on final accounting and invoicing.
Accuracy	Based on assumptions, SORs, historical data, and preliminary designs; may have a margin of error.	Reflects the true costs, providing an accurate financial picture.
Adjustments	Can be adjusted through value engineering, scope changes, or budget modifications before construction starts.	Includes adjustments due to scope changes, unforeseen conditions, or errors during construction.
Influence Factors	Influenced by market conditions, material availability, labor rates, and economic factors.	Influenced by actual project execution, weather, site conditions, and contractor performance.
Use in Analysis	Used to set budgets, secure funding, and evaluate project feasibility.	Used to assess project performance, financial outcome, and cost control effectiveness.
Risk Factors	Subject to uncertainties and potential cost overruns.	Reflects the actual risk realized and managed during the project.

The difference between estimated and actual costs often depends on the estimator's experience; a highly skilled estimator typically produces more accurate estimates, resulting in a smaller variance compared to a less experienced individual.

Types of Estimates in Construction

The two main types of estimation are:

1. Preliminary or Approximate or Rough Cost Estimate
2. Detailed or Item Rate or Unite Price Estimate

A project involves various stages. During the initial stages of the project, we perform a preliminary estimate. But after some time, we perform a detailed estimate for the same project. Hence, there are chances detailed estimates can be higher than preliminary estimates. So in detailed estimates, we considered factors in more detail considering new contingencies learned and expected. 

Let's understand the difference between preliminary and detailed estimates:

Preliminary or Approximate or Rough Cost Estimate	Detailed or Item Rate or Unit Price Estimate
It is done on the basis of past experience and involves approximate calculations.	It is calculated in a Detailed Manner
Low Accuracy	High Accuracy
Contingencies are given at 5 to 10 % of the estimated cost	Contingencies are given at (3 to 5%) of the estimated cost
It is done to obtain Administrative sanction or approval	It is done to obtain technical approval or sanction

Preliminary and detailed estimates again have various other classifications. Which is beyond the scope of this article. You can read it in our article: Construction Cost Estimation Methods and Objectives