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What is Construction Cost Estimating?

Construction cost estimating. It is one of the vital components of a construction process and entails a process of forecasting costs. The expenses expected for a building or a physical structure are an essential aspect of the construction process.

With that in mind, it is crucial to understand the role that a construction cost estimator plays. It is also essential to understand the phases of construction estimation. This information is especially vital to contractors and clients.

Every client should know how much a building will cost before embarking on the construction process. There are cost estimates for every kind of construction project.

Accurate Estimating

With cost construction, there are many risks involved, which is a cause for concern for contractors and clients. The financial turnover of a construction project is one of the determinants of the project’s success.

Therefore, it is best that each of the parties take a considerable amount of time in the cost estimation process. If you’re considering a large construction project, having multiple estimates is always a smart move.

Construction cost estimating cover the project scope and feasibility, project construction costs, and allocate these costs as well as project completion timeline for the project. For contractors, cost estimates determine whether or not they place a bid on the project.

Essentially, a reasonable cost estimate helps the contractor make profits and prevents the client from incurring extra costs. Earned value management cost estimates utilize a project management technique to track performance against time and cost estimate.

Why an Accurate Cost Estimate is Important?

Construction cost estimating is the best available method of determining costs for construction. However, the technique is not necessarily foolproof. The accuracy of estimates is very crucial and could determine whether or not a project succeeds or fails.

Projects that have set timelines and budgets primarily rely on cost estimation to expedite the construction process and begin revenue generation. Any slight miscalculation could magnify into a massive setback for a project.

That said, construction cost estimators must obtain accurate cost estimates. When it comes to public projects and projects funded by lenders and public monies, cost estimates help increase accountability and transparency.

It is next to impossible to have an estimate that is 100% accurate. Although many other unforeseeable factors could cause a project to fail, it is essential that the estimate is as accurate and precise as possible.

A cost estimate relies on components such as:

  • Experience and skill of an estimator
  • Quality of the project plan
  • Level to which the estimator defines a project
  • Quality of the tools and procedures utilized by the estimator.

A cost estimator does not always have to be a lone wolf; it could be a team or individual, depending on the type, scope, and size of the project. 

Some estimators work with clients; others work with contractors and others with architectural firms. However, qualified and independent estimators are also common.

Contractors rely on estimates to win jobs while the customer looks for the lowest bid that suits their project parameters and meets the standards.

What Does a Construction Cost Estimator do?

It is quite evident by now what a cost estimator is tasked with. It is also an open secret that an estimator is crucial to the success of construction projects. They are familiar with everything about a project and have skills to help them navigate the expenses associated with projects.

According to the US Department of Labor’s Bureau of Labor Statistics, there were 213500 cost estimators in the US in 2014. The Bureau also predicted that the numbers would grow exponentially in the next decade.

Identifying Types of Construction Cost Estimate Systems

There are new products and technology in the construction industry often. This is also true for construction

cost estimating tools. An estimator must, therefore, continuously identify methods, techniques, tools, and software that benefit them as well as improve their accuracy.

It is also important that an estimator creates multiple estimates during the pre-design and design phases of the construction process. As the project level of definition increases, and many other variables come into play, the cost estimates become more accurate.

According to the American Society of Professional Estimators, there is a five-tier system that classifies estimates. As the estimation process moves from one level to the next, it becomes more detailed and reliable. Here are the five tiers.

cost estimate

Level 1: Order of Magnitude estimate

This is an estimate formulated before the project design is done. The estimate determines the overall feasibility of a construction project.

Level 2: Schematic Design estimate

This is an estimate that is produced in line with the schematic design.

Level 3: Design development estimate

This is the estimate made during the design phase

Level 4: Construction document estimate

The estimate in this stage is based on the construction drawings and specifications.

Level 5: Bid estimate

The information in the construction documents informs this level of estimating. This estimate is prepared for contractors to use in their bids.

In a different system, classifying estimates entails three significant categories:

Design Estimates

These are estimates prepared during the pre-design and design phases of the construction process. They begin with an order of magnitude estimate (the screening estimate) to determine the type of construction methods and which of them are viable for the particular project.

After that, there is the preliminary estimate (Conceptual estimate) that is based on the schematic design. The detailed estimate (definitive estimate) follows and is based on the design development, and lastly, there’s the engineer’s estimate, based on construction documents. With a basic template, you can get the initial assessment of the project expenditure.

Bid Estimates

Before placing a bid for a construction project, contractors must extensively research and then prepare a bid estimate for the project. The data is usually drawn from various sources like direct costs, subcontractor quotes, quantity take-offs, and supervision costs.

Control Estimates

This is an estimate prepared after a contractor’s agreement with the client, but before the project commences. It serves as a baseline that the actual construction costs of a project are assessed and controlled. The estimate enables contractors to prepare plans to satisfy future costs while determining the project’s cost to completion.

Contact us for Construction Cost Estimating Services in Perth, Australia. Call us at 0498 202 445 or email us at

Key Terms to Know in Construction Cost Estimating


The cost estimating process is made up of many elements. There are terminologies that anyone in the construction industry should be familiar. These include:


Generally, a customer needs a contractor for the issuance of a performance bond in favour of the project owner. A bond is a form of guarantee of delivery; in case the contractor fails to complete the project as stipulated, the owner should receive compensation according to the terms of the contract.

Capital costs

Essentially, capital costs are the expenses associated with establishing a structure. These are:

  1.   Cost of land
  2.   Cost of feasibility studies and the pre-design phase

III.    Compensation for the architect, engineer, and members of the design team

  1.   The total cost of construction (labour, materials, equipment, etc.)
  2.   Cost of a commissioner
  3.   Cost of temporary equipment and structures

VII.    Cost of inspection


Even the most accurate estimate can be affected by factors outside anyone’s control, there are contingencies to deal with such a situation if and when it arises. Therefore, there is a sum of money set aside for unforeseeable factors.

Equipment cost

This is the cost of running and maybe renting heavy machinery for a construction project like cranes and cement mixers. Therefore, noting the effect of the equipment on the speed of completion for a project is essential. The use of equipment can impact costs outside the project scope.


This is the natural inflation of costs over time and is crucial for long-running projects. In some projects, there are escalation clauses to address how to address inflation.

Indirect costs

Indirect costs cover costs that are indirectly associated with construction work. For instance, administrative costs, transport, legal fees, permits, and other expenses depending on the type of the project.

Labour hour

This is the unit of work that measures the output of an individual per hour. It is also known as man-hour.

Labour rate

The labour rate is the amount paid to craftsmen per hour. This covers the hourly rate, benefits, and added costs of overtime payroll burdens. For example, unemployment insurance.

Material prices

Material costs are subject to fluctuations, depending on market conditions and seasonal variations. Historical cost data and phases of the buying cycle can inform estimators when calculating material costs.

Operation and maintenance costs

Operation and maintenance costs are a client’s headache. These are accounted for during the design team. Trying to lower the total lifetime costs of a project often results in more costs and losses, as well as delays. Operating costs include salaries and land rent and utilities, etc


It is important that a project turns profits. The contractor needs to add a margin to the actual costs of the project for their profits. Subcontractors also do this.

Quantity take-off

This is done during the pre-construction phase. The take-off measures the labour and material costs that are required for project completion.

Subcontractor quotes

For every construction project, a contractor requires the help of specialist subcontractors to complete different parts of the construction. Therefore, in the final estimate from a contractor, they should include the subcontractor quotes. Having a tracker in place can aid a contractor in recording all of the subcontractor information and documents in one place.


Usually, a customer will create a project budget that is greater than the cost estimates. Even an in-depth cost estimate could underestimate the actual construction costs. Many reasons could contribute to this like wage increases, which can be very difficult to predict.

Seasonal and natural events like heavy rains or strong winds could also affect the process. Many large projects also undergo regulatory issues. If a client begins construction without the final design, they are prone to going over the budget due to design changes.

To Conclude

Cost estimating plays a huge role in construction estimation. However, it is important to understand the various tiers or categories of the process, as well as the most commonly used words in the industry. For a successful project, all the rules that go into construction and cost estimating must be followed religiously.