Cost estimation is a critical process that can be instrumental in winning bids, managing costs and creating a positive client experience. However, care must be taken with releasing estimates to ensure that they remain accurate and are understood in their context.
Major projects often require a comprehensive construction traffic management plan for work zones. Additionally, environmental mitigations and a performance bond may be required.
Cost Estimates
Cost estimates are important for evaluating the costs of infrastructure rehabilitation options and developing long term funding strategies. These estimates are also useful in tracking projects throughout the various phases of their life cycle. The information in cost estimates should be clearly documented, including changes and assumptions. Estimates should clearly state which phase of the project they are estimating for (Feasibility Study, NEPA, Preliminary Engineering, Design or Construction). This documentation will allow users to track changes in cost projections as the project progresses.
Preparing a cost estimate requires that the unit costs of individual elements in the project be assessed. This can be done using compiled indices or through the use of field investigation and engineering judgment. The estimate is also prepared by establishing expected amounts for contractors’ overhead and profits.
Inflation is another factor that must be taken into consideration. The increased demand for labor and materials results in higher prices for these items. This is especially true if the project requires specialized skills. Inflation must be accounted for in the cost estimate through an adjustment to the proposed year of expenditure dollar figure. The adjustment should also consider the duration of project planning and development, as well as the estimated construction period. It is also necessary to include a contingency for schedule slippages. This will allow for an accurate projection of the project completion date.
Preliminary Estimates
A preliminary estimate is a rough calculation or estimation that is made early in the project planning process, before detailed information becomes available. The goal is to provide an overall understanding of the cost, time and resources required for a task or project. During this phase, the use of a range may be appropriate, especially if there is considerable unknown information.
Preliminary estimates are often used in feasibility studies to determine whether a project is viable. They can also help to identify potential risks and to align the project with overall goals and objectives.
The accuracy of a preliminary estimate depends on the availability of reliable and accurate information, including resource requirements, environmental impacts, and construction management costs. Inadequate or inaccurate information can lead to a costly overestimate, and errors in calculations or judgment can contribute to an underestimation.
It is also important to consider the impact of the construction project on local economic conditions. For example, large construction projects may require substantial quantities of construction materials and increase demand for labor in the area. In addition, the influx of workers and equipment can lead to higher operating expenses.
A final consideration is the need to account for inflation in the estimates. The estimating process should include a risk-based assessment of all the unknown and uncertain costs, as well as an inflation rate that is escalated to year-of-expenditure dollars for each element of the project.
Conceptual Estimates
Creating an accurate conceptual estimate in the early stages of a project is critical. Failure to do so can result in cost overruns, budgetary challenges and delays. A well-documented pricing database, such as an in-house construction cost data book, can help with this process. A thorough review of the cost estimates by a competent, unbiased team is also important.
A major construction project can have a significant economic impact on the local geographical area. For example, material manufacturers that would normally compete with each other may need to pool resources to meet the needs of a large construction package. This can drive up material prices and cause bids to be higher. Bidding climate should also be considered when preparing a conceptual estimate. If the market is weak, contractors will be less willing to take risks and will offer lower markups.
The conceptual estimates should include costs for all phases of the project. This includes planning, environmental mitigation, construction engineering and administration, contract management and contingencies. The cost estimates should be accompanied by a comprehensive list of items and quantities from which the estimate is derived. This allows the engineer to verify that the estimate includes all required project work.
The estimate should include a cost for preconstruction hours. The amount of these hours is a key factor in the overall cost of the project. This can be estimated from the primary bid items used in the estimate. For pavement rehabilitation projects, this can be estimated using the primary unit prices solicited from bidders or through the use of models developed from a combination of data and experience.
Final Estimates
Once the engineer’s estimate has been prepared, it is often referred to as the letting estimate and used for project letting. It is prepared by a team of experts including the engineering, NEPA, environmental, right-of-way, construction and management staffs, and includes all costs and values associated with the work. It should include the value of the resources needed to complete NEPA work, design and engineering activities, right-of-way acquisition, construction activities, public outreach, and overall project management plans. It should also include appropriate reserves for unknowns and costs and resources paid to others for work related to the project such as utility adjustments, railroad relocations and environmental mitigation.
This final estimate is also known as the bid estimate for contractors. It includes direct construction cost, including field supervision, plus a markup for general overhead and profit. The unit price information for the bid estimates should be based on cost data collected for similar projects. The cost data should be compiled, reviewed and validated by a review team. The team should be composed of Federal, State and consultant personnel and should include a person who is accomplished in reviewing major project cost estimates. The team should be proficient in identifying risk factors and their impact on the cost estimate.
Inflation rates should be factored into the final estimate. These rates should be based on a reasonable time period, taking into account project planning and development durations as well as construction.