Construction project cost estimation is a complex endeavor that can change on a dime (or a dollar) depending on the size and anticipated scope of the project. Volatile market conditions such as fluctuating prices, and changes in the supplier environment and regulations can all be hard to predict and therefore difficult to incorporate into an estimate.
Experience with these and other factors impacting estimations is a way to bring certainty to an uncertain process; however, it nearly always involves robust collaboration between parties. Even with the benefits of hiring a third-party cost estimation service to act as an impartial voice, it is important for all stakeholders to understand how each of the different estimations are performed and why.
Successfully completing construction projects under budget requires a commitment to accuracy and transparency. Still, like other early-stage project steps such as the design stage, cost estimation can remain highly abstract until projects advance. These can be harder to trust and reliably interpret.
The following reviews how cost estimators go about using conceptualizations to develop both accurate and flexible estimations that incorporate uncertainty and change. These different types of construction estimates reflect the unique aspects of a project and its phases.
1. Design Estimates
This type of construction cost estimate is prepared during a project’s initial design phase and helps determine which construction methods are most feasible. This estimate type includes order of magnitude, screening estimates, and preliminary estimates.
2. Order of Magnitude
A type of design estimate, also known as a rough order of magnitude estimate (ROM) is considered the most basic conceptual estimate, often acting as a starting point for later estimates. It is also considered a type of screening estimate and is commonly used for the bidding process. Due to its role as a pre-construction estimate, a ROM is rarely itemized but is instead based on rough known values using available data and anticipated scale.
3. Preliminary Estimate
These are similar to ROM but contain additional analysis and detail that help discern the feasibility of various project elements. Preliminary estimates are used to determine whether project elements merit substitutes or need discarding.
4. Feasibility Estimate
Feasibility estimates are used to analyze the timing of a project launch and attempt to capture some of the variables that can impact cost over time. These also use similar projects to compare estimates.
5. Detailed Estimate
These types of estimates are produced using a more vigorous accounting of available data from similar projects and are just beyond ROM estimates in the level of data they include, containing more precise information about costs, rates and quantities of materials. Detailed estimates are produced as a project is further fleshed out and blueprints are ready to be shared. A detailed estimate often accompanies blueprints and other detailed project documents.
6. Definitive Estimate
What sets definitive estimates apart is that they contain actual prices derived from a more clearly defined scope of work. Quotes from contractors and suppliers are included to create a specified cost projection and mimic an actual budget. Definitive estimates incorporate other types of estimates such as three-point estimates and parametric estimates that combine conceptual formulas with available data to provide useful projections.
7. Expert Estimate
For large projects or projects with less experienced managers (i.e. the average homeowner), getting an expert estimate can be a great place to start in order to receive order of magnitude, feasibility and/or detailed estimates.
8. Parametric Estimate
These estimates focus on the cost per unit of specific items and forecast the full cost of materials based on the scope of work and project scale. The numbers often come from suppliers and publicly-available information rather than experts.
8. Analogous Estimate
When publicly-available data are inaccurate or unavailable and you aim to build on an expert’s projections, an analogous estimate is a good option. Analogous estimates involve cross-referencing similar materials, projects or economic environments to determine the cost of a new project. For instance, smaller projects are used as a reference point, with measurements, material units and budget scaled to fit the project at hand.
9. Supplementary Estimate
Supplementary estimates are used during the course of the project and involve updates to original budget estimates. These can be performed to reflect true costs rather than projections or to forecast based on an update to construction plans.
10. Annual Repair Estimate
Like buying a car, the full cost of ownership is often not realized until later, after long-term maintenance and repair costs are fully incorporated into the total cost of a project. It is important to consider these costs early in the estimate process especially when choosing between building materials and techniques. Cost-effectiveness is central to completing any project under budget but good project managers will consider whether they are reducing upfront costs by ignoring long-term costs.