Construction Cost Engineering

• Construction cost engineering encompasses cost estimation, control, management, and optimization in construction projects.
• Aims to deliver projects on time and within budget.

Key Components of Construction Cost Engineering

• Cost estimation is the process of forecasting costs for a construction project.
• Cost control aligns real costs with the estimated budget, making necessary adjustments.
• Project budgeting sets a financial plan, forecasting resources and costs.
• Profit margins for horizontal projects are 30% of the project cost.
• Profit margins for vertical projects range from 5% to 15% of the project cost.
• Value engineering optimizes project design and materials to reduce costs without compromising quality.

Importance of Cost Engineering

• Financial management helps keep projects within budget, preventing cost overruns.
• Resource allocation uses labor, materials, and machinery efficiently to maximize productivity and minimize waste.
• Schedule control involves accurate cost estimation to plan and schedule tasks effectively, avoiding delays from unexpected costs.
• Risk management identifies cost-related risks early and mitigates them through contingency planning.
• Real-world applications in large-scale infrastructure projects address issues like fluctuating material prices and weather delays.

Roles and Responsibilities of a Cost Engineer

• Cost estimation involves developing preliminary and detailed cost estimates using historical data, industry standards, and project specifics.
• Budget management includes preparing cost breakdown structures (CBS) and budgets.
• Budget management includes tracking expenses and comparing actual costs to estimates to identify variances.
• Cost control monitors project expenditures, manages cash flow, and prevents cost overruns.
• Cost control involves implementing cost-saving strategies during project execution.
• Risk management identifies potential financial risks, such as price fluctuations and project delays.
• Risk management implements strategies like contingency allowances to address risks.
• Reporting and communication provides regular reports to stakeholders on cost performance.
• Reporting and communication advises on necessary adjustments to stay within budget.

Skills Required

• Analytical skills are required for cost breakdown and forecasting.
• Strong knowledge of construction processes and materials is important.
• Familiarity with cost estimation software like ProEst, Buildertrend, and PlanSwift is needed.

Stages of the Cost Estimation Process

• Preliminary estimates (feasibility study) provide initial figures based on available project information, using historical data or conceptual drawings.
• Detailed estimates are precise, based on detailed designs, drawings, and specifications.
• Detailed estimates include quantities of materials, labor hours, equipment costs, and overheads.
• Bid estimates (tender process) are final, competitive estimates submitted for project bids.
• Bid estimates include exact costs plus a markup for profit and risk contingency.
• Post-project evaluation compares actual costs to initial estimates.
• Post-project evaluation analyzes variances and identifies areas for improvement in future projects.

Techniques Used in Estimation

• Analogous estimating uses historical data from similar projects as a reference.
• Parametric estimating applies statistical relationships between historical data and project variables.
• Bottom-up estimating estimates costs for each individual work package and sums them.

Types of Construction Costs

• Direct costs are directly linked to construction activities.
  • Labor costs consists of wages for construction workers, subcontractors, and engineers.
  • Material costs consists of items like concrete, steel, bricks, and plumbing fixtures.
  • Equipment costs consists of rental or purchase of machinery, such as cranes and mixers.
• Indirect costs support the project but are not directly involved in construction work.
  • Overhead costs consist of office space, utilities, and administrative support (7-11% of EDC).
  • Supervision costs consist of project management and supervisory staff.
  • Insurance and taxes consists of ensuring the project and compliance with regulations.
• Fixed costs remain constant regardless of project size or scope.
  • Site office expenses consists of renting office space and equipment.
  • Project manager salary is fixed for the project duration.
• Variable costs change based on project scale and duration.
  • Material costs' prices change with the amount of materials used.
  • Labor costs depend on the hours worked or the number of workers employed.

Overhead Expenses

• Overhead expenses range from 7-11% of the EDC and include items like engineering and administrative supervision, transportation allowances, and office expenses.
• OCM and profit cannot be applied to items such as mobilization/demobilization, provision of service vehicle, and permits/clearances.

Construction Project Lifecycle

• The construction project lifecycle is a framework outlining the stages of a project from start to finish.
• Cost engineers ensure financial resources are allocated effectively and costs are kept under control, estimating, managing, and controlling costs throughout the project lifecycle.

Construction Phases

• The design phase involves developing the concept and plans for the project with architects, engineers, and planners.
• The design phase includes obtaining necessary permits.
• The planning phase includes detailing how project will be executed, including timelines, resources, and a detailed budget.
• During the construction phase, the construction team follows plans, managing on-site work, labor, and materials.
• The operation phase involves the handover of the building with ongoing maintenance, repairs, and operational activities.

Cost Management through the Project Lifecycle

• Budget estimates are created based on project scope and initial design plans
• Cost management focuses on value engineering to minimize costs without compromising quality.
• In the planning phase, detailed cost breakdowns are created for materials, labor, and equipment.
• In the planning phase, contingency planning for potential risks and cost overruns is considered.
• During the construction phase, there is ongoing cost tracking to monitor project expenses and prevent budget overruns.
• The construction phase involves adjustments made for changes in scope or unexpected delays.
• The operation phase includes post-construction costs, such as facility maintenance, upgrades, and repairs.

Cost Estimation Process

• Cost Estimation is a forecast of project costs based on data, scope, and objectives.
• Its a dynamic process that requires careful planning to ensure financial success.
• Prevents budget overruns
• Accurate Cost Estimation is essential for project planning and decision-making

Types of Cost Estimation

Preliminary Cost Estimation

• Provides an early cost assessment with limited project information Provides a general sense of the project’s expected costs
• Used often during the conceptual stage to determine a project’s feasibility

Detailed Cost Estimation

• Provides a specific and precise estimate using exact project details
• Usually conducted following the development of project specifications
• Results in more accurate project estimates

Methods in Cost Estimation

Unit Rate Method

• Estimates project costs based on known cost per unit metrics (e.g., cost per square meter)
• Uses the formula: Total Cost=Unit Rate×Quantity of Units
• Commonly used and very well-known

Quantity Survey Method

• Determines total costs based on the quantities of materials and labor

Steps

• Measures the quantities based on the drawing plans
• Applies local pricing for the quantities
• Accounts for the costs of equipment, and labour separately

Detailed Take-Off

• Very thorough assessment that measures all project components meticulously for an accurate cost estimate

Parametric Estimating

• Uses historic project data in order to estimate potential costs based on parameters
• Formula: Cost = Parameter x Quantity

Analogy-Based Estimating

• Compares potential project with similar ones in order to best derive an estimate
• Useful when historical data is available

Factors that Affect Cost Estimation

• Labor prices
• Material prices, particularly if newly required
• Required equipment

Estimating Material Costs

• Types of material in construction include Raw Materials, Finished Materials, and Specialty Materials
• Factors in material costs include quantity estimates, material delivery costs, and material waste.
• It is normal to order 5 - 10% more building supplies to account for breakage or defects.

Estimating Labor Costs

• Direct labor costs, such as technicians, goes to the overall cost.
• Indirect labor costs, such as employee payment, goes to the overall cost.
• Estimating labor hours is based on the complexity and individual tasks.
• Task-based estimates, workforce efficiency, and crew staffing, are all also factors.

Contingency Allowance

• Contingencies protect against price increase issues and risk.
• A risk assessment plan is useful to find contingency percentages.

Challenges in Material and Labor Costing

• Prices may fluctuate due to unexpected supply change issues, or global market trends.
• Lack of materials may drive up costs.
• Weather or difficult site conditions may also lead to increased costs.
• Use long-term supply chain agreements, or monitor potential markets to find out true cost proactively.