Detailed Construction Cost Estimate Spreadsheet – How much is worth to execute a construction project? The million dollar question. For which we must estimate the costs. I think it is attributable to Tom DeMarco an appointment that seems to me magnificent, and which reflects the difficulty of answering the question posed:
“An estimate is the most optimistic prediction with a non-zero probability of being true”
Today we enter a subject that, although it is difficult to believe, I am passionate. The management of costs begins with the estimation of the same ones, which I personally consider, one of the most important processes that are carried out in the length of a project. Exaggerated?
In the next post we will reflect on the importance of cost estimation and the budgeting of a construction project.
The costs of the construction project
One of the most relevant of which usually affect the construction projects is the cost of execution. Undoubtedly, already before starting the project is the decisive factor, but even if it is … you have to predict! How difficult
The other day he thought aloud:
At the beginning of the life cycle of the projects, cost estimates are elaborated, which, as more information is obtained, will be refined and detailed. To determine the costs, you must simulate the project. It is necessary to quantify the materials indicated in the plans, check their availability on site, the personnel available, etc.
The cost estimate serves to give a close idea of the final cost of the work, but we have to wait until the end to know what has cost the project!
Cost estimation processes and budgets in projects under construction
According to the PMBOK Guide (Project Management Institute Project Management Fundamentals), the cost management of a project includes the following processes:
Estimate Costs: Develop an approximation of the financial resources needed to complete the project.
Determine the Budget: add the estimated costs to establish an authorized cost baseline.
Controlling Costs: Monitor the project situation to update the project budget and manage changes to the cost baseline.
These three processes could be grouped in two, since the estimation of costs and budgets in construction projects are carried out in a planning phase and control of costs is a more linear process, which is carried out along Of the entire project.
Focusing on the processes that interest us for the post, based on the definitions of the PMBOK guide, the main ideas of the processes in question are presented:
Cost estimation: this is a quantitative prediction, in the form of currency, of the resources needed to carry out the project activities. Costs are estimated for all resources required for the project, ie personnel, materials, services, facilities, equipment, etc. In order to obtain this cost estimate for all activities, different tools (parametric, upward, three-valued, reserve analysis, etc.) will be used and a basis must be available, such as knowing the project and its activities, its Schedule, risks, etc.
Budget Determination: consists of adding up the estimated cost of all activities or work packages and being able to establish a baseline or cost reference plan. The project budget constitutes the funds authorized to carry out the project. The cost control will be based on this authorized budget and its corresponding baseline. In this process, the financing requirements are also obtained, if any.
Depending on the needs, the type and volume of the project, the cost estimate and the determination of a base budget can be converted into a single process. The number of people involved in these processes will also vary.
The tools for estimating costs will also vary depending on, for example, the phase of the project or the degree of definition of the project in that particular phase. The PMBOK guide talks about these processes within the project planning, but they can also be given prior to the start of the project, as could be the case for the budget determination for a tender. It would have to be seen, depending on the structure of the organization and the project entity, whether or not the preparation of the bidding is part of the project or future project, or are, on the contrary, a project in itself, or They do not even enter into any of these assumptions.
Let’s see two examples to see some of the casuistics exposed. Let us confront two construction projects of very different entity in which the clients, respectively, have requested an offer for the realization of certain services. We will see it with a simple work, both projects have as objective the renovation and sanitation floors in different buildings, both are in the same phase and in both an offer is needed for its execution:
Renovation of floor of an office building and with commercial premises, with a total of 10,000 m2 of work. Company “R-Soils” specializing in flooring and finishing of floors, with a fixed workforce of 20 workers. The degree of definition of the project is high, but the required solution is still open and there is a wide variety of soils and techniques. The offer is prepared within the department of studies. In this case two solution variables are offered. In the process of estimating costs of activities will be made by 3 people. This estimate will be reviewed by a department head to give approval or make modifications. Finally you get an economic offer that will be presented to the client.
Renovation of the floor of a detached house, with a total of 160 m2 of work. Alberto is a technical architect and works as a liberal professional in the construction sector. The degree of definition of the works is high and the solution that the client wants is unique. An estimate of costs will be made that will constitute the budget and economic offer that will be delivered to the client.
Objective fulfilled. Customers already have their offer. Now suppose that, in a later stage, in both cases, the offers are accepted (or chosen) and the commission is made official. To carry out the contracting of services, the client needs an official and detailed budget, which defines exactly what services will be paid and how much money will pay for them.
In “R-Floor” other departments come into play to be able to detail the costs and obtain a contracting budget. The technical department will evaluate the different solutions to execute the work. The purchasing department will talk with suppliers to get the most accurate prices possible. The department of studies, with the most optimal technical solutions, will see what means and resources it needs, what the company can do, what it should subcontract, etc. Finally, with the information worked, a detailed cost estimate is available. With this estimate, the project financing requirements are studied, which will become part of the cost baseline, distributed over time. With this cost reference plan, the final budget of the project can be provided, which will be contractual.
In order to obtain the detailed and exact budget for which he will undertake to execute the project, Alberto will be in charge of evaluating the technical solutions, talking with suppliers and contractors, and optimizing the price that will be taken to contract. This budget will serve as a cost basis to evaluate the project economically over time and will provide, if any, funding requirements.
As we have seen, according to the type of project, its entity and volume, and according to the organization or person who carries out, the processes of cost estimation and budgeting will have a number of people, will be two processes In themselves or will be unified and will be carried out in different ways. But they will have one thing in common: the importance of those numbers. The budget in contract will become, neither more nor less, the money that the client disburses and the money that the company or the professional receive for executing the work.
The importance of the first estimate and the influence on costs
If there was a phrase that was repeated in the classes of my university time, which was in the mouth of many teachers, it was “in the end, everything is reduced to euros”. In a project, wherever you want, cost optimization occupies a central and interrelated space. In 99% of cases, the project has a cost framework, within which it has to move. There is no project without these walls that form the economic limits, just as there is no project without temporal limits and resources. These three elements are related to each other to be able to act on the needs of the project at a given time.
The importance of a good cost estimate is not capricious. If the costs will be generated in their vast majority during the execution of the project, it is important to influence them before that phase arrives. To situate the concept of “influenceability” in the project costs, we can see the following graph:
Graphic: Cost idea along a construction project (v1.0)
The chart is not meant to be exhaustive, but you can, at a glance, shed ideas on costs in the construction project as well as help you weave a number of global concepts:
The project is divided into three main phases in which cost management will influence.
There is an overall amount of costs which tends towards a Gaussian function.
Three types of costs are summarized according to the phase to which they correspond: planning costs, execution costs and maintenance costs. The graph attempts to make the idea of cumulatives visible. Obviously, at the stage where the project is executed is the phase where more costs are incurred, precisely for this reason. The maintenance costs would continue to accumulate in the time after the graph.
The actual cost line (blue) is that of measured and certified costs, ie costs already incurred and is usually higher, with more or less constancy, to the budget line.
The budget line is the cost baseline (yellow), ie the expected and planned costs.
The level of cost uncertainty (red beam) is total at the beginning, when we do not know the project, and it fades away as the project progresses, that is, we are seeing costs (planned and then certified), so the uncertainty level at the end Of project will be null, we will, on the contrary, have a level of full certeaz.
The line of influence on costs (green), in my opinion the most important, is the one that indicates when the level of being able to act on the costs will be more effective or will be easier or will be more difficult or even useless. This means that in the beginning, when no cost has been incurred, the influence on them, not only on the first ones we are going to incur, but on all that will be undertaken throughout the project, is total. Then, throughout the course of the project, our “power” of influence on costs is reduced.
It is for this reason, by the line described by the cost influenceability, so a precise first cost estimation is of vital importance for the economic health of the project.
Notes: Examples just want to be that, simple examples. Companies and professionals do not all work the same, so they will be an approximation to an invented reality.
Guide to the Fundamentals for Project Management (PMBOK Guide). Fourth edition. Project Management Institut.
Bauprojekte erfolreich steuern und managen (BRZ Deutschland GmbH Hrsg.
Preliminary costs in building projects (Luis Antonio Rocha, Tarcisio Gama Ponce).