Construction Cost Estimating - The Estimating Process
Summary
TLDRIn this course, led by experienced project engineer Tim, participants learn the intricacies of construction cost estimating and management. The course covers the process of estimating direct and indirect costs, using software tools, and ensuring accurate budgeting for major infrastructure projects. With a focus on practical skills, the course aims to equip students with the expertise to excel in construction management, featuring comprehensive content and hands-on activities.
Takeaways
- 🏗️ The course is designed for those interested in understanding the budgeting process for major construction projects.
- 👨🏫 Tim, the project engineer with extensive experience, teaches fundamental construction management skills.
- 🎓 The course includes hours of content and practice activities to equip students with essential job skills.
- 💡 The video is an extract from a course on construction cost estimating and management, focusing on the estimating process.
- 🔍 Direct costs form the bulk of project costs, usually over 70%, and include labor, materials, and subcontract costs.
- 📊 Estimating direct costs involves understanding the scope, establishing delivery methodology, and estimating costs.
- 🔄 The estimating process is iterative, with results from one step potentially impacting previous steps.
- 🛠️ For indirect costs, which include preliminaries, overheads, and risk, a different estimating process is used.
- 💼 A project organization chart is essential for determining overhead costs, including staff salaries and insurances.
- 📈 Cash flow analysis is crucial to ensure the project remains cash positive and to strategically fill out the pricing schedule.
- 💻 Estimating is often done in purpose-built software like Caddy, but for this course, Microsoft Excel is used for demonstration.
Q & A
What is the main focus of the course mentioned in the transcript?
-The main focus of the course is teaching fundamental construction management skills, specifically construction cost estimating and management, to engineers and other construction management professionals.
Who is the instructor of the course?
-The instructor of the course is Tim, a project engineer with extensive experience in the design and construction of major infrastructure projects.
What types of costs are discussed in the course?
-The course discusses direct and indirect costs, including preliminaries, overheads, risk, and opportunity costs.
What is the first step in the estimating process according to the transcript?
-The first step in the estimating process is to determine direct costs, which typically form the bulk of the project costs.
How are direct costs estimated in the construction project?
-Direct costs are estimated by developing a work breakdown structure, determining the work required to complete the project, quantifying the costs for each scope item including labor, materials, and subcontract costs.
What is the importance of understanding the scope in direct cost estimating?
-Understanding the scope is crucial as it involves creating the work breakdown structure and identifying all the unique project deliverables, which are then summarized into work packages.
What is the role of the delivery methodology in the estimating process?
-The delivery methodology is essential as it involves how the required work will be completed, including developing the construction methodology, which is heavily related to procurement and the development of the project schedule.
How are indirect costs determined in the course?
-Indirect costs are determined by quantifying preliminary costs, estimating overhead costs by creating a project organization chart, and determining the contingency needed by developing a risk and opportunity register.
What is the significance of the cash flow analysis in the estimating process?
-The cash flow analysis is significant as it ensures the project remains cash positive, meaning revenue will cover costs, by strategically filling out the pricing schedule.
What tools are typically used for estimating in construction projects?
-Estimates are usually done in purpose-built estimating software like Caddy, but for the course, they will use Microsoft Excel due to its accessibility for building up cost estimates.
Why is it important to review and summarize the estimate before submission?
-Reviewing and summarizing the estimate is important to ensure accuracy, get approval from upper management, and have the estimate independently reviewed. This process helps to avoid underestimating costs which could lead to significant financial losses.
Outlines
🏗️ Introduction to Construction Cost Estimating
This paragraph introduces a course on construction cost estimating and management, led by Tim, a project engineer with extensive experience in major infrastructure projects. The course aims to teach fundamental construction management skills to engineers and construction management professionals. Tim explains that the course will cover the construction cost estimating process in detail, including direct and indirect costs, and the use of software tools. The video is an extract from a larger UdeMy course, and the content is designed to provide a comprehensive understanding of the estimating process, from determining direct costs through work breakdown structures and delivery solutions to combining these with indirect costs to form a total project cost. The process also includes applying a markup for profit margin and corporate overheads.
🔍 Detailed Process of Direct and Indirect Cost Estimation
In this paragraph, Tim delves deeper into the process of estimating direct costs, which typically constitute over 70% of the total project costs. The process involves understanding the project scope, establishing a delivery methodology, and estimating costs. For self-performed tasks, productivity and labor plans are estimated, while for subcontracted work, quotes are obtained. The paragraph also discusses the iterative nature of these steps, where outcomes from one stage can affect previous ones. Indirect cost estimation is also covered, including preliminaries, overheads, and risk and opportunity assessments. Tim emphasizes the importance of workshops for identifying risks and opportunities, and the use of checklists for preliminaries. Overhead costs are determined through a project organization chart, and insurances and securities required by the head contract are quantified. The paragraph concludes with a discussion on summarizing the estimate, including cash flow analysis and strategic pricing to ensure the project remains cash positive.
Mindmap
Keywords
💡Construction Cost Estimating
💡Project Engineer
💡Work Breakdown Structure (WBS)
💡Direct Costs
💡Indirect Costs
💡Risk and Opportunity
💡Markup
💡Quantity Takeoff
💡Construction Methodology
💡Pricing Schedule
💡Cash Flow Analysis
Highlights
Introduction to a course on construction cost estimating and management by Tim, a project engineer with extensive experience.
The course is designed for those interested in understanding how to budget for major infrastructure projects.
Tim has developed short courses to teach fundamental construction management skills to engineers and professionals.
Over a thousand students have enrolled in the courses, which are packed with content and practice activities.
The video extract discusses the construction cost estimating process and techniques for accurate cost estimation.
The basic structure of a cost estimate involves quantifying direct and indirect costs to derive total project costs.
Direct costs typically account for over 70% of total project costs.
Indirect costs include preliminaries, overheads, risk, and opportunity, which are quantified separately.
The estimating process begins with determining direct costs through a work breakdown structure and delivery solution.
Direct cost estimating involves understanding the scope, establishing delivery methodology, and estimating costs.
Quantity takeoff is essential for determining the amount of work required for each work package.
Delivery methodology development is closely linked to procurement and project scheduling.
Cost estimation requires estimating productivities, labor plans, materials, and subcontractor quotes.
Iterative steps in the estimating process may require revisiting previous stages based on new insights.
Indirect cost estimating involves using checklists, project organization charts, and risk registers.
Estimates are reviewed and formatted into a pricing schedule for client submission.
Cash flow analysis is crucial to ensure the project remains cash positive and covers financial costs.
Strategic pricing and logical distribution of indirect costs across direct costs are essential for a successful estimate.
Estimating tools like purpose-built software and Microsoft Excel are used to compile and review cost estimates.
The course transitions to section 2.2, which delves into the detailed calculation of direct costs.
Transcripts
have you ever driven past a major
construction project and seen cranes
concrete trucks earth-moving equipment
and multiple different trades or working
at a million miles an hour
have you ever wondered how anybody could
possibly work out a budget for a project
like this
well if you've answered yes to any of
these questions then this course is
designed just for you
my name is tim and i'm a project
engineer with lots of experience on the
design and construction of major
infrastructure projects i've been
building short courses to teach the
fundamental construction management
skills to engineers and other
construction management professionals so
far we've had over a thousand students
enroll in our courses
each course is loaded with hours of
content and practice activities to make
sure you're equipped with the skills you
need to excel at your job
this short video is an extract about
course on construction cost estimating
and management we will talk about the
construction cost estimating process and
how to accurately estimate construction
costs
if you find this video interesting and
useful check out the link in the below
description to our complete udemy course
on construction cost estimating and
management
now we have a better understanding of
what estimating is the types of
estimating and the types of costs we're
required to estimate let's revisit the
estimating process in more detail
in this section we'll go through the
estimating process how to estimate
direct and indirect costs and
summarizing the estimate finally we'll
look at the different software
estimating tools to do this
[Music]
let's go back to looking at our diagram
we introduced in the introduction of the
estimating process
the basic structure of our cost estimate
will be quantifying direct and indirect
costs combining these to get our total
project costs
we'll then apply a markup to cover our
profit margin and corporate overheads to
get the price we submit to the client
the first step in the estimating process
will be to determine direct costs
direct costs
will always form the bulk of the project
costs usually over 70 of the total
project costs will be direct costs
to determine our direct costs we need to
develop our work breakdown structure and
determine all the work required to
complete
develop our delivery solution so work
out how we're going to complete the
works
then quantify the costs for each scope
item so work out the labor plan
materials and subcontract costs for each
of these
next we need to determine our indirect
costs
these will consist of preliminaries
overheads and our risk and opportunity
we'll quantify our preliminary costs
based on identifying all of our
preliminary cost items quantifying them
we'll determine our overhead costs by
creating our project organization chart
and estimating staff salaries and
finally we'll work out what contingency
we need to allow for by developing a
risk and opportunity register
we'll then combine all these costs to
get our total project cost apply a
markup to this cost to cover the
business profit margin and corporate
overheads
review our estimate fill out the client
pricing schedule and then submit it to
the client
let's now look at direct cost estimating
in a little bit more detail direct cost
estimating can be broken down into three
simple fundamental steps number one
understand the scope
number two establish the delivery
methodology and number three estimate
the costs
in step one we need to work out
everything we need to accomplish to
complete the project
what is everything we need to do to
finish and hand over the project to the
client
this involves creating the work
breakdown structure and identifying all
the unique project deliverables
these will be summarized into work
packages
next we need to do a quantity takeoff
and determine for each work packaged the
quantum of work to be completed
for example if we have a work package
from a subsurface drainage patent
install how many linear meters of
drainage are required
in step 2 we need to establish our
delivery methodology
how are we going to complete the
required liberals
this involves developing our
construction methodology step 2 will be
heavily related to procurement and the
development of the project schedule
we'll put a lot of focus on the timing
and resource requirements needed to
complete the work by the end of step two
for each package we should know whether
we plan on subcontracting or self
performing the works and exactly how we
plan on delivering the work package
and finally
in step 3
now we know what has to be done and how
we are planning on doing it we can
estimate costs how much money do we need
to complete each work package
for our self-performed costs this will
require us to estimate our
productivities
our labor plan and materials
when using subcontractors to complete
the works we'll need to get quotes from
subcontractors and suppliers
it's worth noting that all these steps
are iterative meaning they won't exactly
occur in the order and the results we
get from each stage will impact the
previous step for example as we're going
through and establishing the delivery
methodology we'll probably realize we've
missed some scope and have to go back to
step one
whereas we're estimating costs we may
realize we can save a lot of money by
self-performing the works and go back
and change our delivery methodology
we'll go through a slightly different
process when estimating our indirect
costs and the process will vary
depending on the type of integros
indirect cost we're estimating
when trying to work out our risk and
opportunities and ultimately what
contingency funds we need to have we
need to complete workshops to identify
all the risks and opportunities and work
out what mitigations we're going to put
in place
not all mitigations will require us to
hold contingency for example we may have
commercial mitigations in place that
don't require holding contingency
contingency funds
for our preliminaries or working at our
site running costs we'll generally use
checklists
for example
most companies will have a site setup
checklist which will require us to go
through and check we've got everything
covered such as toilets crib sheds waste
disposal security power and so on for
our overhead costs we'll need to create
a project organization chart this will
tell us how many engineers we need
community and stakeholder managers
environmental managers and so on our
head contract will also tell us
what insurances and securities we are
required to hold so we can quantify
those
finally
to summarize the estimate we'll need to
go through the process of reviewing and
translating our estimate into a format
where we can submit it to our client
we'll need to get approval from upper
management and our estimate
independently reviewed as discussed
this will likely happen through top down
and parametric track checks the
management staff at our company they
want to be confident that the project
will generate a profit before they
submit anything to a client remember
attend a submission is contractually
binding
if we've underestimated costs we can
turn around in six months time when
we're losing millions of dollars
sorry if we're if we've underestimated
costs we can't turn around in six months
time when we're losing millions of
dollars and simply ask the client for
more money
we also need to understand our cash flow
if you've ever done any finance you'll
understand the concept of the cost of
capital basically what this means is
that if there is a delay between
incurring costs and getting paid we'll
have to make up this by sourcing capital
from somewhere
sourcing capital incurs financial costs
therefore we need to complete a cash
flow analysis
therefore we need to complete a cash
flow analysis to ensure we're going to
be cash positive meaning our revenue
will be coming in to cover our costs
we ensure we are cast cash positive by
strategically filling out the pricing
schedule we want to front load items
like mobilization to ensure our project
is always cash positive
we also need to logically fill out the
pricing schedule and spread our indirect
costs across
our direct costs
the pricing schedule may be used at a
base as a basis for including items or d
scooping these scoping items in the
future
finally let's look at some of the tools
we use to complete our estimates
estimates are usually built are usually
done in purpose build estimating
software
i've used candy before this is a special
type of estimating software
that has a structured process for
collating and building cost estimates
check out some youtube tutorials if
you're interested to see how it works
it's super useful
for this course as most people don't
have access to candy we're going to go
through and build up our cost estimate
in microsoft excel
excel works fine for less complicated
projects but the problem with it is
we'll have to set up a pricing model and
it's easier to make mistakes and
calculate things incorrectly
and with that we've now completed our
introduction to estimating let's now
move on to section 2.2 where we're going
to dive into the detail of how to
calculate direct costs
Voir Plus de Vidéos Connexes
MANPRO 7.1 Project Cost Management
Project Cost Management - Processes, Planing, Control Tools and Types of Costs in Project | AIMS UK
EDISS video series: Software Quality course at AAU
Lecture 01: Introduction to Project Management - I
Introduction To Healthcare Finance | Healthcare Management and Finance
001 What does the course cover
5.0 / 5 (0 votes)