Building Estimates in the Construction Industry

Building estimates prove to be the backbone of any construction business. The success of any project significantly depends on the budget plan made for the project. Construction is somewhat a trickier process that involves many variables. Estimating the accurate cost of the construction project poses many challenges to the people associated with the construction industry. 

It is crucial to forecast a fair and probably precise cost of any project before it initiates. The cost forecast also helps in estimating the time required to complete the project without any delays. During building estimates, it is imperative to encounter variables like site locations, specifications, designs, and, most importantly, labor availability. 

There are two sides to an estimated cost that must be encountered. Firstly, the building construction cost estimate should not be too high so that the client backs off and choose some other bidder. Secondly, bidding too low will cause many problems, in the long run, leading to a severe financial crisis. So, building estimates must be carried out carefully to profit both the client and the construction company.

Costs Involved in Building Estimates

There are mainly two types of costs to be considered while carrying out building estimates in the construction industry. These are:

• Direct Costs
• Indirect Costs

Direct Costs

The direct cost refers to the expenses that are solely related to the specific project under consideration. These costs include hiring the crew and the labor, equipment rentals, erection expenses, ordering of materials, and installation. 

Indirect Costs

While indirect costs are not specific to the particular project, they are generally associated with many tasks like management, quality control, insurance, and other overheads. 

Moreover, there is a space to re-use a successful building estimate by making the required changes according to the new project. In project management terms, the example project comes from the organizational process assets. But this is not recommended as the experience may differ in each case. Also, the track record of two contractors may vary in terms of constraints, internal organization, and capabilities. 

To understand building estimates, let’s dive into the topic and start with a fundamental question that is, “What is a building estimate?”

What Are Building Estimates?

Building estimate is a process of forecasting the costs and expenses encountered while constructing a physical structure. It is one of the essential parts of any construction process. Estimating a project’s price requires a deep understanding of the building cost estimates and the phases related to it. It helps calculate the cost of a new structure to build or even redesign the existing system. 

The construction industry is subjected to a lot of risks in terms of cost. Both the contractor and the client are concerned with the overrun or shortfall of a project’s expenses. Therefore, it is essential to research thoroughly and estimate the best possible costs for a construction project to avoid any unwanted event during the operational phase. Some clients prefer multiple building estimates for big projects. In this case, prices are estimated by contractors and independent estimators. 

A building estimate is a type of project management technique that encounters the project’s efficiency in terms of the total time required to complete the project and the total cost. The cost estimate is for both the project owner as well as the contractor. The project owner carries out building estimates to find the feasibility and scope of the project. Whereas, the contractor uses the building estimate process to decide whether it is a potential project to bid or not. 

The engineers and architects play vital roles in estimating the budget to make sure scope requirements are in accordance with the budget specified. A perfect building estimate will benefit the contractor as well as the project owner. The contractor will earn from the project, whereas the owner will be safe from over budgeting. 

Importance of Building Estimates in Construction

Estimating the cost is a vital part of any construction project. The success of the project highly depends on the estimated costs and time. However, development projects are problematic in terms of assessing the accurate value of the complete project. The development projects that have time and budget limits according to reimbursing loans and require a quick revenue generation can be crucial to handle and estimate building costs.

Construction estimation is also trickier for mega-projects and massive civil constructions financed from the public funds. A minor mistake at the cost estimation end will prove to be a big one while implying the physical construction strategies. So, it is vital to estimate accurate building costs for such a project to avoid public disgrace. Also, accurate cost-estimates will increase your credibility for qualifying for such mega-projects and lead to the whole process’s transparency. 

In reality, it is almost impossible to calculate a precise cost for a specific project. There are many factors responsible for the failures of projects, and some are unforeseen happenings in the market condition. A well-experienced building estimator will account for all those reasons that will affect the project’s cost in the long run, including the unstable market conditions.

Building estimates rely on the following factors:

1. The quality of the plans/drawings made for the project should be excellent. It must include essential items related to the project. 
2. Detailed project descriptions and understanding by the estimator are also essential.
3. The expertise and experience of the estimator play a vital role. 
4. The selection and quality of tools and processes selected by the estimator to forecast project costs are also important. 

Any project’s cost estimation can be carried out by a single estimator or a team of experts depending on its size and scope. Perfect cost estimates help contractors to win jobs. Also, the project owner gets their work done in a minimal amount with the best services.

How Are Building Estimates Prepared?

Building estimates are prepared using bottom-up estimating techniques. In this technique, the cost for individual project tasks is calculated and sum up to explain the overall project cost. The building estimate is prepared using the following process:

Calculate Quantities:

Different quantities, such as materials, resources, tools, labor, and other required services, are identified. 

Estimate Costs of Each Task:

Different techniques, such as parametric or analogous, are carried out to calculate each task’s cost. 

Prepare Project Estimate:

These individual task estimates are then sum up to prepare the overall project estimate.  

The resources and quantities must be calculated to the best possible precision, including every single detail. Such a practice will help in minimizing estimated cost errors. The techniques for carrying out estimations are explained in detail below:

1. Analogous Estimating

In this technique, prices are estimated using the comparison technique. A project that seems similar to the one under consideration is picked. The cost analysis of the chosen project helps in estimating the costs. 

For carrying out detailed analysis, analogous estimating is performed at individual tasks level instead of the project level. Each task’s cost is compared to the price in the selected project, and overheads are added where required. 

Different projects can be selected for comparing the prices of other items. The selection of projects can be made according to their resemblance to the project under consideration. 

2. Parametric Estimating

In the parametric estimating technique, average prices referred to as unit price is considered. The unit price comprises an average value of different variable quantities picked up from various successful projects. Industry associations can also provide average costs of tasks as detailed costs of organizations are confidential. 

Improvements

Improvements in any estimate, whether analogous or parametric, are essential to make your estimate close to the market’s real value. 

Analogous estimate improvements are performed in terms of known cost differences between the selected project and the project under consideration. 

While in the parametric estimate, the improvement must be made wisely to encounter the difference in the project under consideration and the projects whose average costs have been selected. The prices are then increased or decreased based on the differences. 

Accuracy 

The estimated costs are generally in the range of -5% to +10%. Dividing the tasks into smaller subtasks and calculating the relative costs with -5% to +10% margin, there are chances to achieve accuracy. To carry out a detailed analysis, one must encounter all the available information related to design and structure. 

What is Included in a Typical Construction Estimate?

The success of any construction project is based on building estimation. There are some critical steps to follow to estimate the construction costs of projects. The typical construction estimate includes the following processes.

The Take-Off Process

The take-off processes highly depend on precision. To prepare a competitive and accurate bid for a project is impossible without considering even minor details of the project. So, a contractor must gather factual data through research and compile it to make it precise. Any misinformation can cause severe financial losses. So, authentic information is the core base of the estimating cost. Nowadays, some estimating softwares are also available in market that can help in the quantity take-off process.

Realistic Unit Cost Estimating

Estimations established from unit cost estimating or parametric estimating are not very precise. Therefore, a realistic approach is required to get an accurate assessment. The lack of precision mainly depends on the variables associated with the project. So, one cannot rely on parametric estimation alone. 

The Master Checklist

Organizing a master checklist is also an essential factor in building estimation. Mostly, some of the obvious things are overlooked. So, having a master checklist can save you from any wanted event. It is most effective in the construction estimation process. Moreover, the list helps you remember all the necessary steps and details in the cost estimating process. Having a master checklist will decrease the chance of forgetting any related price and help you manage your information in one place. 

Consider the Smallest Details 

The construction estimation spreads in a lot of phases. While dealing with mega projects in some other industries, you may overlook some stages and consider others. But this cannot be the case in the construction industry. Here you cannot avoid even the smallest details of the project. These small tasks can overrun the budget causing financial losses in the long run. You can take the help of subcontractors and architects to find out the costs of related jobs. 

Labor Specialization

In the cost estimation process, the regular benefits and wages of the labor are considered and the federal and state payroll costs. So, while deciding the specialty crew’s hourly rate, these costs must be considered to establish the final crew rate. 

Defining Cost Analysis

Every project is subject to risks. So, it is important to identify the project risks and costs associated with them. Past projects can help in determining the unknown expenses encountered in the project. Such data is useful for future estimating.

Considering Price Fluctuations

The estimation process is highly affected by market fluctuations. The costs of products linked to the construction industry are mostly fluctuating. So, it is highly advisable to be aware of the changing trends in the market and carry out the construction estimation while keeping these fluctuations in mind. 

Determine Major Costs of the Project

While calculating the overall cost of the construction project, one should list out the main prices. Identifying the cost centers will help in defining the tasks, the scope of labor, and the material required.

Operation Costs and Project Support

Other than the main costs of the project, there are some additional costs related to the project. For example, indirect labor, site offices, acquiring land, staffing, legal services, utilities, etc. refer to other costs.

Equipment Required

One must ensure the cost of equipment & machinery required for the construction process. The prices of the equipment rentals must be included in the construction estimation.

Compare Sub-Contractor Quotes

Comparing different sub-contractors based on material and labor availability & pricing is an essential practice. Selecting the best-suited contractor to carry out the potential work is necessary. 

Communicate with Material Supplier

Proper and excellent material is the base of the entire construction process. So, it is vital to have healthy communication with your material supplier. This relationship benefits both the supplier as well as the contractor. Having an excellent professional relationship will lead to many successful projects together. 

Track Your Progress

A perfect construction estimation is just one part of the whole process, but it soothes the project’s track. Executing each part of the project requires a lot of attention and resources. So, it is imperative to keep track of the whole progress carried out during the construction process. For this purpose, a tool can be used to keep track of the gain against the cost. The resulting sheet can be used in the future to create successful bids and can become part of organizational process assets. Primavera P6 can be used for tracking the costs and schedule.

Things to Keep in Mind While Preparing Estimate

There is nothing more critical to your project than preparing accurate estimating costs. With the right guessing, you can make a good profit on your project, or you can end up losing money if the estimation goes wrong.

It’s a tough thing to do, right? Not every building construction project is the same, and there are many pitfalls waiting for you if you make a wrong move.

While preparing building estimates, you can take help from construction management software, but if you are not careful, the most experienced person can end up losing money or making inaccurate estimates. But you need not worry!

To help you avoid those pitfalls, we have come up with some tips that can help you while preparing estimates of your projects.

Make Sure You and Your Customer are on the Same Page

The commonest and huge mistake made while preparing estimates is that the customer’s idea, when provided in the form of the final product, is entirely different from what was discussed. We recommend you note down diligently every idea, plan, and detail of the project provided by your customer-an actual plan, no drawings.

Now why we recommend actual plans?

An actual plan outlines every facet that your customer has in mind. This allows you to prepare almost accurate estimates, and you don’t go doing expensive do-overs or other things not provided by your customer (avoid gold-plating).

After planning the outline, have it checked from your customer and ask him/her to sign.

Get Help if You Need

Most of the time, contractors ignore the fact that they lack expertise in certain areas and miss the mark while estimating.

Accepting your lack in a certain area and taking help is not a bad idea, especially when you have to do an estimation of big projects such as preparing building estimates of commercial plazas and multi-story buildings. When you create a detailed plan, you have to take care of every nook and corner of the project. You need to flesh out the estimates, and you can do this in a number of ways, including the use of pre-defined templates or modules to fill in your expertise. But this alone is not enough to fill your gaps or lower the chance of encountering hidden costs.

To make your estimate look great, you can take help from subcontractors or consultants who are experts in the required field.

A Heart to Heart with Suppliers

Heart to Heart? Yes! You read that right. Having a heart to heart with suppliers is the most important thing to keep in mind while preparing estimates.

The cost of materials is difficult to pin down because the market fluctuates and with that fluctuates the price of materials. If you are about to estimate a huge project, reach out to the material supplier that will help you in defining the costs.

The supplier helps you by giving you insight or alert about the expected fall or rise of the material costs, which in turn helps you save dollars.

Labor Costs

Labor costs can also put a red line on your estimate if you ignore their rate. You have got to consider the experience level of the laborer that will work for the project.

You might need to hire workers or sub-contractors, and you need to define an hourly rate while hiring an experienced craftsman or labor. Moreover, you need to take into account other costs such as payroll costs besides, benefits and wages.

How to Come up with Accurate Estimate for House Construction?

House construction might come up as a big upheaval if one is not aware of the process. People who are looking to construct a home don’t know exactly how much the whole project will cost, how the things will add up, and how much will the material cost per square foot. Such queries are not easy to answer, and there are many steps that need to be done so one can come up with an accurate estimate for house construction.

That’s why to make the things look easy for you, let’s breakdown the process of how one can do accurate estimation for the construction of the house.

The Right Builder-Your Ultimate Savior

The builder you choose has a great impact while you are about to prepare estimates. Choosing the right builder who regularly constructs homes and knows the ins and outs is directly proportional to making accurate estimations. This also helps to maintain a proper timeline, cost, and execution of the project. Moreover, you can also get an idea of how much it is going to cost to build a home.

We recommend you ask the builder about what the costs include, i.e., the landscaping, site work, or other items beyond the bricks.

Determine Customer Plans

You can work with an architect to build the home according to the requirements of your customer. Understand the size, floor plan, and entire design. If you are starting from scratch, the choices will impact the overall cost and estimate. Therefore, an architect or designer who has an understanding of the items is important. This will also prevent you from falling in the pit of making wrong estimates.

Get an Idea of Cost per square foot price

Getting a ballpark estimation of constructing a home is possible. And there is a simple solution to this. You can take the total cost of the project, which the builder has already outlined. Divide the cost by the total number of square feet in your project.

Let us give you an example. If the builder estimates that the cost of your home will be $400,000 and your home is 3,000 square feet, then the cost per square of your home is $400,000 divided by 3,000.

However, the estimation of cost varies between buying an existing home and new construction. The estimates for new construction can not only skew higher but also include modern processes and materials. Also, the cost of land should be incorporated in the total cost of building a house.

How Much Does It Cost to Build a House?

It is a no brainer that when you think of buying a home, the idea of building it crosses your mind. This way, you can get all the musts, including layout, location, floorplans, and others, the way you want them to be.

According to the national association of realtors, the single-family home has an average sales price of near $300,000. And to build your home, it can cost between $150,000 to $450,000, according to the data by HomeAdvisor. However, this is not final, and the cost might vary depending on various factors.

The difference in costs can vary between a production build and a custom home, where there are planned subdivisions. Moreover, the difference also depends on the region, materials used, and the square footage of the area.

Whether you custom build a home or choose a lot that is already developed, it is necessary to get building estimates before starting a project to prevent yourself from the hassle.

Building Construction Cost per square foot

The footprint and location of the property impact significantly on the build cost per square foot. Mostly, the cost is around $100 to $200 per square foot, with the landing price of $150 square foot on average in 2021. The price which you will ultimately pay depends on the quality of products, the materials you select, and the location. If you want to build a house in an urban area, the costs might increase twofold.

Labor Cost

The estimates for who build your house varies as it represents 40% to 60% of the cost of your project. The cost of labor varies depending on;

• The complexity of your home,
• The size of your home
• Your ability to get labors who are reasonably priced
• And the buying power of contractors
• Houses that are large have more labor cost compared to small units.

Framing

Framing depends on the location, size, and other important features of rooms, such as roofing. The average cost of framing for a new build home is around $20,000 to $50,000. Additionally, framing includes the metalwork, trusses, and overall frame of the home. Moreover, framers also do the installation of subfloors, doors, and windows.

Major Systems

While building a home and estimating the cost, one should not forget the cost of major systems. These major systems include HVAC, electric, and plumbing systems, and the estimate might vary on the type and size of these installations. For example, a new HVAC unit costs around $5,000 to $9,000 when installed on a 2,000 square foot.

• Rough-in Plumbing costs: $1,500-$20,000
• Electrical wiring: $20,000-$30,000
• HVAC costs: $1,500-$13,000

However, you can cut down the costs if you install an energy-efficient solar system that connects with all the outlets, appliances, and fixtures in the house.

Cost of Foundation

Foundations include excavating, form setting, pouring concrete, and backfilling, and the cost varies anywhere from $4,000 to $25,000. The price can double if you add the cost of finishing the basement. Most of the homes require additional landscaping to prevent them from flooding or other problems related to foundation damaging.

• Slab costs: $4,000-$7,000
• Basements run: $10,000-$30,000 (excluding finishing)

Cost to Build a Home on Your Land

The cost estimate to build the home on your land varies per lot, and the average lot costs between $3,000 to $150,000. The $3000 value is for the rural areas while good urban locations may cost you much more. The value significantly varies depending on

• The size of the lot
• Location
• Any latest developments or upgradations needed to build the house
• Whether the utilities are at the site

And if the land where you want to build the house is not clear, you will have to pay an extra construction prep cost that is anywhere between $1,500 to $5,000. You might also need a pro to excavate or clean the lot.

Finished and unfinished lot

An unfinished lot is the one where no sewer or cable lines are pulled to the site. Usually, this issue occurs if your land is in rural areas. However, buying a lot in urban areas can save you from such hassle, and developers will have finished lots prior to listing.

Building a House on an Existing Foundation

Rebuilding a house on an already existing foundation might vary between $100 to $150 per square foot, and the cost depends on the condition of the already existing foundation. This will help you save around $5,000 to $25,000 of the total price of building a home.

But you need to be very careful and make safety checks before lifting the house. Always see if the foundation needs repairs.

Type of House and Costs

Be it single-family, multi-family, or detached, the cost varies for each type of homes and range from $50 to $400 per square foot. Again, the cost estimation depends on various factors, including the materials you choose, the labor you select, the size of the lot, and what features you require in your house.

The homes that are detached are standalone structures, and the construction of such homes is unique. Therefore, the costs vary drastically compared to a duplex or a townhouse.

Is it Worth Building a House?

Whether you want a new home or a customized home, building it as per your requirements comes with its pros or cons. The costs vary depending on your requirements, what you need, how much work you want to do, the customizations you require, the location you select, and an entire list of other factors. To get a better estimate of building a home, you can talk to your local builder, who will help you navigate through the process.

Building Estimate Templates to Follow (Excel Spreadsheets)

We know that you are tired-trying various building estimates but not getting hands-on accurate cost estimation for your construction project. If you are someone who wants accurate estimation, then keep on reading. We have come up with the latest building estimating templates to help the contractors, subcontractors, and project managers. These templates are accurate and help builders develop accurate estimates like never before.

Moreover, these templates allow you to save your money and time and increase accuracy.

If you have fear of missing items in your estimate then a checklist might be a useful resource for you. You can download the estimating checklist in excel format from the link given below;

This excel spreadsheet contains all the CSI divisions for construction works and the activities involved. Once you finish the estimate, it would be useful to go through this checklist to identify any missing items in your building estimate. The format is user friendly, so you don’t mess up things.

This template includes sections such as foundation, basement, superstructure, exterior enclosure, roofing etc. that prove to be helpful for creating detailed building estimates for construction Moreover, this spreadsheet comes with different columns, which include material cost, labor cost, equipment cost, etc. The template is handy and allows tracking tasks and update status or detect any overheads due to changes in the project, including the material cost or the extra labor costs.

Software Used for Building Estimates

Are you still pouring your construction project estimates on a piece of paper? Are you having difficulty in doing the accurate estimate of your complex construction project?

Look no further as we have handpicked for you the best software, which will allow you to make precise estimation and will never let you fall into the pothole of wrong estimates.

PlanSwift

It is the easiest and fastest software available that will blow you away. This software for all estimation purposes, from calculating the concrete to determining the amount of rebar and calculating the estimates of materials and labor. We consider this software the best because

• You can learn it very quickly, and it is easy to use. Just scale the drawings and with a few clicks, you will be able to measure quantities.
• It has the highest level of accuracy.
• You can estimate ten times faster compared to the traditional methods.
• It helps you save costs, including printing and shipping. You only have to email the plans, and that’s it!
• Its integration capabilities and Software Developers Kit allow you to have an integrated and positive experience.
• You can go paperless! No more writing everything and wasting your time.
• It is customizable. You can customize anything according to the demand of the project by using planswift extensions.

Must Read: 3 Best Estimating Books on Amazon

Estimating for Building & Civil Engineering Work, Ninth Edition 9th Edition

This book has all you need to know about construction estimates. It includes the rates of material and labor costs, which can be utilized anytime. The prices in the construction industry are changing with every passing day, but with the help of this book, you can take examples and a guide to calculate the substitution of prices.

Furthermore, this book,

• Consists of unique wealth for estimating data
• Has a comprehensive treatise when it comes to estimating.
• Is updated and based on the Standard Method of Measurement for Building Works (SMM7) 

Nail Your Numbers: A Path to Skilled Construction Estimating and Bidding Paperback 

Estimating and bidding are significantly detailed subjects when it comes to construction. You might be a great craftsman or a project manager, but you might not be able to bid on the right projects, make proper estimates, or calculate the overheads coming in the way of estimation.

Here’s when this book steps in. It lays out the procedures and helps you walk through the process so you can bid wisely and estimate precisely by taking logical steps-one at a time. This book helps you learn how to,

• select and bid on the right jobs
• mark up and overheads
• create an estimating spreadsheet
• figure out the cost of labor
• get reliable subcontractors

Besides, it imparts the steps methodically and helps you become successful in bidding and estimating.

Building Construction Costs with RSMeans Data 2020

This book continues to be the most quoted and used book as a price guide for construction cost estimates for projects based in the US. The Building Construction Cost Book comes with RSMeans, meaning that it contains costing data of over 23,000 lines that are up-to-date with the latest construction costs location wise.

It has become the first choice of estimators and is the most reliable source for estimating the cost for a commercial project. The advanced features of this book include;

• Best estimating costs for industrial and commercial constructions
• Large database of construction costs based on location
• Cost per square foot for commercial project configurations, localization, and cost indexes
• Updated wages, equipment, and material costs

Conclusion

This ultimate guide is your one-stop guide for building estimates in the construction industry. By leveraging the plans and tips in this guide, you can make your estimation game strong. If you find this guide helpful then don’t forget to share it with your connections. Happy Estimating!