Project managment

Estimating the cost of a project at design stage

As the design of a project is developed a more accurate estimate of cost is possible, based on cost parameters derived from analysis of recent priced contracts for similar work. The designs should show the layout and sizes of component works required. For each such component it should be possible to make an approximate estimate of the quantities of the key structural operations required, such as bulk excavation, main concrete in framework and floors, wall areas, and roof areas. Examination of recent priced contracts can then produce cost parameters that can be applied to the estimated quantities for the proposed structure.
For example, using a past priced contract, the total concrete costs (inclusive of formwork, reinforcement, finishes, joints, etc.) can be divided by the volume billed in framework and floors to give a parameter to apply to the proposed building. Similar all-in cost parameters can be produced for all excavation (based on the bulk excavation); for exterior walls and windows (based on area);
roof (based on area), etc. Having produced a total cost for these principal items,
all other incidental costs for a structure can be expressed as a percentage on. Pipeline costs can be expressed as per 100 mm diameter of pipe per metre laid, divided into supply and laying. Overall unit prices can also be developed for checking purposes, such as the cost of a building per m3 volume; or of a tank per 1000m3 storage capacity.
Before the cost parameters are derived from previous priced contracts the
following procedures are necessary.
• Preferably at least three priced contracts should be analysed. If possible not all should be for the lowest tenders received.
• Preliminaries and overheads (see Section 15.10) should be expressed as a percentage addition to the total of measured work.
• If a tender is being analysed, general contingencies and dayworks should also be expressed as percentage additions, or shown separately. If a final account is being analysed, then all non-identifiable payments for extras, dayworks and claims should be included in the percentage on.
• Special costs for special circumstances should be separately noted, to decide whether they apply to the proposed project.
• Prices obtained should be brought up to date by applying a suitable inflation factor. In the UK published indices of price fluctuation in UK construction costs are available (the Baxter indices) and overall price movements for different types of construction are tabulated in the government’s Monthly Bulletin of Indices. If these are not to hand, good indicators for updating costs are current dayworks rate for skilled tradesmen and current prices for C25 grade concrete and reinforcement, as compared with those in the priced contract being analysed.
The advantages of the method are that the costs are real (i.e. as tendered), oncosts are included, and the procedure facilitates checking of costs by different methods. The sum total cost derived needs checking to ensure it appears reasonable.
During the design stage it may be found that a previous estimate appears too low; but it is important not to take over-hasty action in reporting this to the employer. The problems causing the increase should be examined first to see if some savings are possible. If an estimate must be increased it is better to do this only once, because a series of increased estimates may cause an employer to lose confidence in any estimate presented to him.
As the design nears completion more accurate estimates can be produced using the quantities taken off to prepare tender documents. Such quantities can be priced from historical data derived from priced contracts as indicated above, or, if necessary, from various ‘Price Books’ published.
It is important that this estimate is produced before tenders are invited. This gives the employer an opportunity to decide whether the cost is acceptable and, if not, to make some deletion to reduce the cost before the contract goes out to tender. The estimate can also act as a guide when comparing tendered prices.

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