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An Overview of the Varied Approaches to Cost Estimation

To ensure accurate construction estimation architects must submit accurate plans, estimates, bills of materials, and details to scale. Several factors must be considered to create high precision construction estimation. One of the most significant important steps in project management is accurate cost estimating. It establishes the base line of the project cost at different stages of development of the project.


The cost estimate at each stage of project development reflects the estimate provided by the cost engineer or estimator on the basis of existing data. As per the American Association of Cost Engineers cost engineering is that area of engineering practice where engineering judgment and experience are used in the application of scientific principles and techniques to the problem issues of cost estimation, cost control and profitability. Cost estimation is generally performed as per the amalgamation of the following approaches:


  • Production function
  • The production function in construction can be expressed through the relationship between the volume of construction and a factor of production like capitol or labor. For instance, a production function for construction is the relationship between the size of a construction project, denoted in square feet, to the input labor, denoted in labor hours per square foot.


  • Empirical cost inference
  • Empirical estimation of cost functions need statistical techniques which relate the cost of construction to certain significant characteristics of the system. Statistical inference estimates the most suitable parameter values or constants in an estimated cost function. Usually, this is accomplished through the failure of analysis techniques.


    An Overview of the Varied Approaches to Cost Estimation
  • Unit costs for bill of quantities
  • A unit cost is allotted to each of the facility components as projected by the bill of quantities. The complete cost is the gist of the products of the quantities multiplied by the corresponding unit costs. The unit cost method is straightforward in principle but quite laborious in application. The initial step is to break down or disaggregate a process into a number of tasks. These tasks require to be accomplished for the construction of a facility. Once these tasks are classified and quantities representing these tasks are reviewed, a unit cost is assigned to each and then the total cost is determined by summing the costs incurred in each task. The level of detail in decomposing into tasks varies from one estimate to another.


  • Allocation of joint costs
  • Allotment of cost from existing accounts can be employed to generate a cost function of an operation. Through this method each expenditure item can be assigned to specific characteristics of the operation. Though the distribution of joint costs should be causally related to the category of basic costs in an allocation process, however, in many instances, a causal association between the allocation factor and the cost item either cannot be identified or may not exist at all. In construction projects, the accounts for basic costs can be classified according to the following which can be later allocated proportionally to various tasks which are subdivisions of a construction project:


  • Labor
  • Material
  • Construction Equipment
  • Construction Supervision
  • General Office Overhead


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