Construction cost management steps

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Iman Alimi March 03, 2021

Cost estimating is the process of calculating the costs involved to deliver the project—an approximation of costs likely to be incurred. Accuracy is dependent on the information available. Cost estimating depends on many elements, including labour, materials, financial expenses and other allowances.

Breinz Cost Estimating

There are many different methods of estimating costs, which are dependent on the information available:

1. Preliminary estimates (Sales Estimate)

There are several ways to approach this type of estimate. They include the following:

  • Benchmarking (using historical project cost)
  • Unit rates (using sqaure meter rates to estimate)
  • Factoring (% or prorate of another project)

Examples of using unit rates are using $1200 cost per square meter to build a 230m2 of a house to calculate the approximate cost to build $1200/m2 x 230m2 = $276,000. The markups, contingencies, and taxes will be added to this figure later.

Sales Estimate

2. Detailed estimates (Production estimate)

Developing a detailed estimate is as much a skill as it is an art. First and foremost, this is subject to the information provided to the estimator. Second, when developing a detailed estimate, it is essential to understand that the assessment is an “accurate” estimate that will have an accuracy of about -5% to +10%

This estimate will be used to send orders and be compared with the actual costs of the project.

The level of detail depends on how you are going to order. For example, if you buy soffit sheets to give them to your carpenter to install, you need to be accurately measured and estimate the number of each kind of sheets you need.

A bottom-up estimation technique requires to get to the project budget. Generally performed during the planning phase and maintained through the remainder of the project. This is the most time-consuming estimation effort of the two listed.

Breinz Production Estimate

Costs to consider

There are some costs to consider when preparing a cost estimate. They include the following:

  • Labour
  • Materials
  • Plant and equipment (temp fences, scaffold hire, generators hire)
  • Transportation (freights and delivery fees)
  • Fees and charges (council and DA)
  • Insurance
  • Temporary works and services (site clean)
  • Foreign exchange

Direct costs are costs usually directly related to the work. Indirect or preliminary costs are those to support the work.

Cost estimating structures

When preparing the cost estimate, having a clearly defined Work Breakdown Structure (WBS) and a Cost Breakdown Structure (CBS or Cost Codes) will help make sure costs are not overlooked.

CBS and WBS should be linked to ensure the Actual Cost and the Budget (Estimate) can be compared.

A perfect estimating software will allow you to have multiple structures for your costing. Also, the software should allow you to integrate with your costing system (accounting software - XERO, for example) always to be able to provide you with the ability to check costs against the budget.

Breinz Cost Estimating Software allows you to map your WBS with your cost codes in Xero to export POs and Invoices to your accounting software.

Profit and Loss reports and Budget Comparison reports in Breinz can be used to smartly manage your jobs and make sure the defined profit is achieved.

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