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Accurately Estimating Construction Costs: A Comprehensive Approach
Steve Dell’Orto • 04 Jan 2024

Accurately Estimating Construction Costs: A Comprehensive Approach

How do you go about estimating construction costs? Read this article to learn more about the various contributors to cost estimation, primary factors to consider when estimating construction costs, how software aids in the process of cost estimation and the most common errors to avoid in estimating construction costs.

Envision starting a construction project and already being uncertain about the cost estimates used to commit to the project. In the complicated world of construction, comprehensively planning the project and accurately estimating the costs are key to staying on track and budget in any project.

When estimating construction costs, there are many factors to consider and many mistakes that can be made. Planning a project and estimating requires great skill, attention to detail and a full understanding of the project. If you are new to construction estimating or if you are looking to refresh your estimating process, this blog post was written to help you better understand the intricacies of developing construction costs.

The Various Contributors to Cost Estimation

The members of a construction manager’s team may vary based on the size of the company, the size of the project or the delivery method. In the growing use of collaborative deliveries such as CM at Risk, Design/Build, Progressive Design/Build and IPD, the preconstruction phase involves many different efforts beyond just estimating. However, the estimating effort is one of the most significant efforts and is the core barometer in incorporating all scope, time and risk-related inputs into the budget of the project. 

All members of a Construction Manager’s team have an important responsibility to collaborate with estimators on the initial budget and continuously monitor all project costs throughout the preconstruction journey. To properly estimate costs, a thorough scope analysis, schedule analysis and site analysis must be performed. A scope analysis is conducted to understand the requirements of a project, including the drawings, specifications and other important documents related to the project. The schedule analysis is used to understand the client’s timing objectives, phasing needs and overall schedule to build and activate the project. The site analysis allows you to understand the conditions of the land, accessibility to the site, underground conditions, topography and other challenges that may affect the project’s budget or timeline. 

Not only are construction managers responsible for the scope, schedule and site analysis, but they are also in charge of reviewing market conditions and optimizing project costs without compromising on the quality of the products or services. Along with this comes assessing contingency and risk regularly. Construction managers are increasingly turning to construction software solutions to help them streamline cost estimation, preconstruction planning, and enhance collaboration among all members of the team. 

Primary Factors to Consider When Estimating Construction Costs

The number of costs to consider on a construction project can be difficult to manage. When estimating construction costs, considering historical data (data from past projects) is crucial. Not only does this give you a workable template for the costs you need to consider, but it can also give you a general idea of what your next project could cost. These costs will change from project to project due to things like material price escalation and inflation, however having a general understanding of the cost of materials, labor, equipment, etc. readily available makes the construction manager’s role much simpler. This is also crucial to guide the other stakeholders’ understanding of the likely range of the cost of the project within market norms.

On top of historical cost data, construction managers need to consider overhead costs as well as profit margins on each project. When factoring in the schedule, determining whether a project will be worth it or not and how much money is needed up front to put shovels in the ground is part of the job. 

How Software Aids in the Process of Cost Estimation

Presenting information to owners and stakeholders through various spreadsheets is challenging to understand and, frankly, unengaging. When you use construction software specifically developed for the unique needs in preconstruction to display your progress and collaborate in real-time with other project team members, not only is your information going to be up-to-date, it’s going to be easier to comprehend and visually interesting to your audience. 

The benefits of using construction software specifically developed for preconstruction, allow the structuring and unification of all of your data, from past and current projects, to ensure you are bringing forward data that is as current and accurate as possible. By holding all of this data in one platform, you are promoting collaboration and enhanced communication among team members and standardizing workflows from project to project. All stakeholders can rely on this common platform as the single source of truth for the project. By integrating all of your data, you are staying on top of project risks and developing a more precise contingency plan. Having a platform that includes all elements of the preconstruction process including but not limited to cost trending, target value design, a strategically developed purchasing plan and a bid package development system, construction managers can easily stay on top of each of their projects from inception to conclusion with real-time updates and ultimately win more work.

If you take away anything from this blog post, remember this… 

The most common errors to avoid in estimating construction costs as a construction manager include:

  • Using drawings or specs that are incomplete or inaccurate without including budget to fill in the gap
  • Disregarding construction site conditions — I.e. topography, accessibility to the site, soil quality and challenges with the land
  • Not adequately planning for unforeseen events — I.e. developing a contingency plan with a buffer of funds that is too big or too small
  • Not factoring in inflation or market conditions — I.e. the cost of materials, labor, etc.
  • Overlooking crucial costs and time  — I.e. permitting regulatory, equipment and inspection costs
  • Failing to leverage construction software to optimize collaboration and workflow

Accurately planning a project comprehensively and estimating construction costs can make or break your next project. From conducting a thorough analysis to bringing in historical data, construction managers play a vital role in making sure projects are on time and within budget. With the implementation of construction software, construction managers can take their projects from good to great by unifying data, streamlining collaboration and presenting real-time updates to engaged stakeholders. Don’t let potential projects or profits slip away due to cost miscalculations resulting from your team’s resistance to adopting technology, that could ultimately optimize your entire operation.

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