Simple Guide to Construction Cost Estimating

Every construction project has its own unique set of requirements, features, and challenges. They however also have common characteristics of scope, schedule and budget that help guide work. Accurate cost estimation is instrumental to ensuring a project progresses smoothly. 

Construction Cost Estimation and Its Importance

This is an essential component of project planning where costs are forecasted. By estimating costs, the project owners can then determine if the scope of work and budget are feasible. 

More often than not the projected cost of a project will often differ from the actual final cost. However, despite this common discrepancy, there is still value in drafting these estimates for the following reasons; 

  1. Aids project owners in deciding if a project is feasible
  2. Enables builders to determine the level of profit possible
  3. Informs the design and procurement team on what financial constraints they are working within
  4. Allows the project team to make optimal decisions on various aspects, such as contractor selection and materials purchasing based on the impact they will make on the project cost

Before you can arrive at a total project cost estimate, you need to break down the components that are needed for the execution of the project, such as labour, materials, machinery, and so on. This is the work of professionals called Estimators. They are knowledgeable in the expenses associated with the design and execution of construction projects and how to allocate budgets to the construction schedule. 

An estimator can focus on each component and factor that may influence price fluctuations. Research also needs to be done into quality standards, market trends, and emerging technologies to ensure the best value is secured. For instance, when considering power supply to a building, it may be worth factoring in investment in solar panels that would be eco-friendlier and reduce energy bills.

Cost estimation is an ongoing process. Even after cost estimates are approved, the figures will be continually updated by the cost estimator over the course of the project to reflect current information. 

How Construction Cost Estimating Works

The cost estimating process must be carefully and deliberately undertaken so that it offers effective guidance and delivers the best results possible for the project. There are different techniques used to estimate costs including:

  • Unit cost estimating
  • Empirical cost inferencing
  • Stick estimation
  • Production function

Costs can also be classified in different ways. Some will use the basic groupings of labour, plant, materials and overheads & profit. Others will use classifications of direct costs, indirect costs and mark-ups. 

Whichever technique and costing classifications are used, these are the basic steps you will need to follow in providing construction estimates. 

  1. Consensus On the Need for Cost Estimation

All relevant stakeholders must agree that cost estimation of the project is necessary. This buy-in ensures their vested interest. The cost estimator can then move forward with sourcing information and data on earlier developed scopes, schedules and budgets. This can be used to draft initial cost estimates. With any new information, the cost estimator should add notes that allow for tracing the reasoning behind any adjustments to estimates made. 

  1. Base Estimation

Base estimates are the established estimated costs of a project that exclude anticipated future escalations. The scope, size and complexity of the project are factored in. 

Here, detailed estimates that pertain to the different phases of the project are forecasted. This happens alongside design development and includes critical details such as scope details, unit costs, market conditions and inflation. Construction take-offs are used to inform clients of material costs. 

The cost estimator delves deeper into the project scope to establish direct costs and factors that may affect base estimates. Base estimates are used as a reference during the rest of the project. 

  1. Review of The Base Estimates

Base estimates must be reviewed to ensure they reflect the scope and schedule of the project. There also needs to be confirmation that the basis of the project is being met, duplication has not occurred, and that there are no omissions. Checks also need to be done on indirect and overhead costs. Productivity and location factors also need to be reflected in the estimates.

  1. Risks and Contingencies

Minimising threats and maximising opportunities can only happen when you can also plan for the unexpected. Developing a risk and contingency plan requires accounting for the cost of such eventualities. The cost estimator needs to figure out the impact of potential threats and how this will affect the project cost. 

  1. Communication Plan

Cost estimate data cannot be revealed to everyone on a project. A communication plan needs to be developed to determine what information should be accessible to who and how. Information channels need to be established and what kind of privileged access various stakeholders should have. 

  1. Peer Review

Cost estimators need to engage with fellow professionals for peer review. This means having another cost estimator check on their work to determine if there are any mistakes, omissions and make verifications. It may result in corrections that could result in reduced costs and clarify assumptions. 

Once reviewed, the document can then be forwarded to management for consideration and approval. From there it is forwarded to the project management team who incorporate the estimates into their project cost baselines. 

Benefits of Construction Cost Estimating

  • Precise Planning 

During cost estimation, work is broken down into subtasks that give more details as to how tasks will be carried out. This level of detailed pricing will ensure work is more efficiently guided and that timelines are better adhered to. 

  • Protected Profit Margins

When the work to be done is accounted for, there is less room for errors. Contingencies can also be better planned for, ensuring that whether costs are expected or unexpected, there is something in the budget to cover it. This is more likely to lead to the expected profit margins being met.  

  • Better Resource Management

By planning for the resources that will be needed, arrangements can more easily be made to make them available as and when needed. This allows work to carry on smoothly as resources are brought in according to the established timelines. 

  • Repeat Business

When a builder adheres to the budget and timelines of a project, fulfilling their work as the client expects, it helps build trust and grows their reputation in the field. This can attract repeat business from the same client and good referrals they can share with others. 

Tips to Improving Costing Accuracy

Use Templates

Every niche sector has templates you can use to identify all line items that fall within the scope of the project you are working on. Depending on your knowledge of the work being undertaken and/or upon the advice of contractors, you can add to or remove certain lines where not required. 

Review Past Projects

Chances are there has been a similar project undertaken before. You can use information gleaned from such projects to better understand what needs to be included and mistakes to avoid, this will help to develop more accurate estimates. 

Use Technology

There are types of construction management software you can use to improve the accuracy of your take-offs, ensuring better cost estimates. Consider making use of this to better outline different areas and lengths faster. Also, review your use of formulas on tables and spreadsheets. Miscalculations here can prove costly to the estimation process and reflect poorly on your professionalism. 

Dig into Labour Costs

Labour costs are a huge contributor to the overall project cost. Try to establish the productivity of work crews and how well they meet deadlines. Consider mitigating factors such as weather conditions and level of training that may affect productivity and how this will impact your cost estimates. But, do not just focus on hourly rates and salaries. 

Review Contractor Proposals

During the bidding process, ensure that you properly review competing proposals. Focus on those that meet or surpass the scope of work required and offer competitive pricing. 


Multiple factors and considerations go into cost estimation. The more accuracy an estimator or project manager can ensure during the process, the better acquisition, allocation, and utilisation of resources applied will improve the chances of a project’s success and limit the risk of failure. 

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