Minimizing Risk through Estimating and Cost Control

The cost of any construction project is a major concern for any owner, yet details and information can be missed by an inexperienced team or if the estimating is performed in too general of a manner. An estimator is responsible for determining the costs for the amount and type of material required for a project infrastructure, the cost of equipment and labor and to predict the duration of the project. As the project progresses, the estimator can provide more accurate costs which allows the owner to make better decisions and keep the project on schedule and budget. If the estimator is involved too late in the design phase of the project, the benefits of the estimating process will be missed. These benefits include project feasibility, scope definition, budget development, input to the owner's and/or designer's decision making process, clarity of scope, format of the bid, and bid-ability of the project.


For some major projects, particularly those that are Design-Build or some using an alternative delivering method, the design, construction, and project control teams work together to develop the design, estimates, budgets and schedules in conjunction with each other if not concurrently. Integrated cost and schedule risk assessments can flourish in this environment. Estimating and risk assessment techniques can be applied to a project to provide more realistic assessment of the cost while identifying risks and providing the time and opportunity to mitigate those risks. It is necessary to know the costs and risks in order to control, mitigate or accept them. Proper estimating procedures combined with risk assessment provide the opportunity to identify and control costs during the development of the project.

Development of a Project Estimate

A construction project is typically broken out into several phases, one of which is the pre-construction phase. Pre-construction has the ability to set the tone and plan for the entire project. This phase includes the initial concept and scoping of the work, evaluation of the feasibility of the project, budgeting and conceptual through final design. Typically the owner is interested in achieving the lowest possible overall project cost that is consistent with its investment objectives.
It is important for owners to realize that while the construction cost may be the single largest component of the capital cost, other cost components are not insignificant. From the owner's perspective, it is equally important to estimate the corresponding operation and maintenance cost of each alternative for a proposed facility in order to analyze the life cycle costs.


Construction cost constitutes only a fraction, though a substantial fraction, of the total project cost. However, it is the part of the cost under the control of the construction project manager. The required levels of accuracy of construction cost estimates vary at different stages of project development, ranging from ball park figures in the early stage to fairly reliable figures for budget control prior to construction. Since design decisions made at the beginning stage of a project's life cycle are more tentative than those made at a later stage, the cost estimates made at the earlier stage are expected to be less accurate. Generally, the accuracy of a cost estimate will reflect the information available at the time of estimation.


Construction cost estimates may be viewed from different perspectives based on different requirements. In spite of the many types of cost estimates used at different stages of a project, cost estimates can best be classified into three major categories according to their functions. A construction cost estimate serves one of the three basic functions: conceptual, design and bid. The role of the estimator in the conceptual phase is to work with the owner, designer and project team to establish the scope of the work, the main elements of the likely design features, and determine any project restrictions or goals such as a mandated completion date, agreements to leave certain existing conditions untouched, any specifics concerning access or seasonal work, work hour restrictions, or any other influence on the project schedule or cost. These form the basis of the development of the conceptual estimate. The estimate establishes the feasibility of the project (Go/No-Go) and helps in determining the scope.


During the design development phase of the project the estimate should initially confirm the conceptual estimate or modify it as necessary based on changes in scope or additional design details or information. The estimate evolves as the design evolves. During design development, the estimator creates the estimates to be an integral part of value engineering, value analysis, and constructability.


Bid estimates can be used by the owner and the contractor to get competitive bidding or negotiations for construction costs. These bids are to ensure that the best subcontractors are chosen at a fair market price.


As the project evolves, so does the estimates. The estimator needs to participate in the design development phase of the project, which allows them to be an integral part of the value engineering process and value analysis. These tools provided by the estimator serves as a basis for the owner to review the successful progression and value of the project. The point of all of these cost management measures is to bring the job in on (or even under) budget.

Conclusion

At times, an owner may question the importance or the need for an estimator. However, proper estimating methodologies and an experienced team can provide the owner with mitigated risk and a more realistic project budget. The estimating process allows for the owner, design team and general contractor be better prepared for the overall project flow and an ability to manage and mitigate risk throughout the design and construction process. The estimating process is a powerful tool that provides identification and management of project cost. This process is likely one which owners will demand from their general contractors.