5.

Project cost estimate

 5.1. Project Cost Estimation
General
Project Cost estimation is the process of valuing on
monetary expression, including the cost of all possible
entrants necessary for the planning, implementing and
monitoring stages of the proposed project under
consideration. The possible entrants are:
- Preliminary investigation (project appraisal costs)
- design and supervision (consultancy cost )
- construction works (contractor’s cost )
- land owning cost, and
- monitoring costs
 5.1. Project Cost Estimation (cont…)
• Cost due to construction is given special attention here;
it includes cost due to material, cost due to labor, cost
due to equipment, overhead costs and contractor’s
profit.
• In order to facilitate estimation of cost due to material,
it is important to know the quantities of various
elements involved in construction of various parts of the
building work i.e. material break down is essential.
• As an example material break down for 1m3 of plain
cement concrete of C-25 ([Link] mix) grade is given
below:
 5.1. Project Cost Estimation (cont…)
Materials required for [Link] cement concrete mix – a commonly used
grade of concrete for structural works.
 Wet (fresh) concrete mix ……….…… = 1m3
 Quantity for dry base analysis... = 1.55m3
 Volume of cement…………………= 1/6*1.55 = 0.258m3
(=0.258m3/0.035m3 per bag) = 7.4 bags of cement Sands
………………………….........= 2/6* 1.55 = 0.517m3 of sand
 Coarse aggregate………………...= 3/6 *1.55 = 0.775m3 of C.A
 Water ( assuming w/c 0.62)……….……..……….….= 0.16 m3

Note: - 1.5 to 1.6 times dry volume of the materials is required to get
1m3 of compact dense fresh concrete mix.
 5.1. Project Cost Estimation (cont…)
Purposes of Cost Estimation
The main purpose of costing or estimating are to:
– know the volume of work in reference to the fund available
– determine actual cost per unit of item
– identifying engineering estimate of the work for bidding
purpose
– work out economical use of materials , labor and equipments
– in cases of variations to determine the extra cost to be
incurred
– when there is escalation, to work out the escalation in cost
 Important information required for
cost estimation
The following information is required to define cost per
unit of work
 Correct information of the market price of the materials at the
time of need to be used as a basic price
 Correct information of the rates of various categories of skilled
and unskilled laborers as wage rates to be used for daily work rate
 Output of laborers per day for various types of items (productivity)
 Correct information of the rates of various categories of
equipments and tools as rental rates to be used for major items of
rates
 Up-to-date knowledge of the construction methods.
Factors affecting cost estimation
1) Type and documentation of the project
2) Construction scheduling
3) Bidding environment
4) Quality and availability of material and labor (given in
specification)
5) Construction facilities /tools and method of
construction
6) Location of the site: Transportation charges
7) Land charges (lease)
8) Nature of subsurface condition
 5.2 Types of Costing or Estimation
– Estimation can be broadly classified as preliminary
(approximate) and detailed
• Preliminary /approximate costing
– This type of cost estimation is required to know
the financial position of the client before costly
detailed designs are carried out.
– Such estimates are based on practical knowledge
and cost of similar previous works.
– Examples of approximate cost estimations are as
follows:
 5.2.1 Preliminary estimates
A. Cost per functional unit
– Hospital =cost per bed,
– Dormitory = cost per student,
– Cinema or theatre = cost per seat,
– residential buildings = cost per area,
– road works = cost per kilometer length,
– culverts or bridges = cost per meter span,
– water supply or sewerage projects = cost per head
of population.
 5.2.1 Preliminary estimates (cont…)
B. Plinth area method – cost per m2.
– This estimate is prepared on the basis of plinth
area of the building.
– The rate per meter square is deduced from the
cost of similar building projects in the locality.
– The plinth area shall be calculated based on the
roof area, by taking external dimensions of the
building at the plinth level.
– Courtyard and other open area shall not be
included in the plinth area
5.2.1 Preliminary estimates (cont…)
C. Cubical Content method – cost per m3
– The estimate is based on cubical contents of
various buildings, i.e. plinth area of the building x
height x cubic content rate.
– Height should be taken from the top of flat roof
(or halfway of the sloped roof) to the top of
concrete in foundation.
 5.2.2 Detailed cost estimate

– This is the most reliable and accurate type of

estimate which can be done based on item rate
– The quantities of items are carefully prepared
from the drawings and the total cost worked out
from up to date market rates.
– A detail cost estimate thus requires quantity
surveying and analysis of the different rates for
the quantities prepared.
 Rate Analysis
Rate Analysis is the process of fixing cost per unit of
measurement for the different item of works.
– Cost due to construction (contractor’s cost) is given
special attention here.
– Total cost per unit of work (TC) may be grouped into
two components; direct cost and indirect cost.
– The direct cost (DC) includes,
• cost due to material,
• cost due to labor,
• cost due to equipment,
 Rate Analysis (cont…)
• whereas the indirect(IC) cost covers
– overhead costs, and contractor’s profit. Overhead costs are
expenses for general office facility, rents, taxes, electrical
light, water, and other miscellaneous items.
• In order to facilitate estimation of cost due to
material, it is important to know the quantities of
various materials involved in construction of various
parts of the building or construction work i.e.
material break down is essential as shown above.
 Rate Analysis (cont…)
• Example:

– Calculate the Unit price for C -25 concrete per m3

of work (formwork and reinforcement rated
separately). Assume 15% overhead and 20 %
profit.
 Solution
– Total cost (TC) = Direct Cost (DC) + Indirect Cost(IC)
– IC = (15% + 20%) of DC = 35 % of DC
– Direct Cost (DC) = Material Cost (MC) + Labor Cost
(LC) + Equipment Cost (EC)
– Material cost (MC) – using the material breakdown
shown above:
 Material breakdown
Materials required for [Link] cement concrete mix – a commonly
used grade of concrete for structural works.
 Wet (fresh) concrete mix ……….…… = 1m3
 Quantity for dry base analysis... = 1.55m3
 Volume of cement…………………= 1/6*1.55 = 0.258m3
(=0.258m3/0.035m3 per bag) = 7.4 bags of cement
Sands ………………………….........= 2/6* 1.55 = 0.517m3 of
sand
 Coarse aggregate………………...= 3/6 *1.55 = 0.775m3 of C.A
 Water ( assuming w/c 0.62)……….……..……….….= 0.16 m3

Note: - 1.5 to 1.6 times dry volume of the materials is required to get 1m3 of
compact dense fresh concrete mix.
A) Material cost

Cement =7.4 Bags/ m3 * 250/2 = 925.00 Birr/

Birr/Bags m3
Sand = 0.517 m3 * 175 Birr/ m3 = 90.48 Birr /
m3
C. 0.775 m3 * 180 Birr/ m3 = 139.50 Birr/
aggregate m3
Water = 0.16 m3 * 0.25 Birr / m3 = 0.04 Birr/
m3
Total MC ( Birr/ m 3 ) of concrete) = 1155.02
Birr/ m3
B) Labor Cost
Labor cost (LC) Assuming the crew consists of a site engineer, foreman,
mason, and four daily laborers and a productivity of 0.50 m 3 per hr:
Salary per hr Utilization LC/
Factor (UF) hr
Site = 4,000 Birr/ Month / ( 22 days * 8 = 1/10 = 0.1 2.2
Engineer hrs/day) = 22.73 Birr/hr 7
Foreman = 60 Birr/Day * 1/8 Day/ hr = 7.50 Birr/ hr = 1/4 = 0.25 1.8
( 8
Mason = 45 Birr/Day * 1/8 Day/ hr = 5.63 Birr/ hr = 1 5.6
3
Daily = 4 * 20 Birr/Day * 1/8 Day/ hr = 10.00 =1
laborers( Birr/ hr 10.
4)
00
Mixer = 40 Birr/Day * 1/8 Day/ hr = 5.00 Birr/ hr = 1 5.0
Operator
0
Total LC ( Birr/ hr) ( i.e. for 0.5 m 3 of =
c) Equipment Cost
Salary per hr LC/ hr
Mixer = 20 Birr/hr * 1/0.5 m3/hr = 40.00 Birr /
m3
Total EC ( Birr/m3) = 40.00 Birr /
Total Cost calculation m3
DC = MC + LC +EC
DC = 1155.02 + 48.56 + 40.00= 1243.58 Birr/m3
IC = 35/100 * 1243.58 = 435.25 Birr/m3
TC = (1243.58 + 435.25) = 1,635.78 ≅ 1, 1640.00 Birr/m3
 ANALYSIS SHEET FOR DIRECT & INDIRECT UNIT COSTS

PROJECT: CONCRETE WORK LABOUR HOURLY OUTPUT: 1.75 m3 / hr.

WORK ITEM: ( 3.3 ) C-20 Concrete (Mechanical Mix) [Link] EQUIPEMENT: Mixer & Vibrator

TOTAL QUANTITY OF WORK ITEM: 1 m3 RESULT: 510.32 Birr/m3

Material Cost (1:01) Labour (1:02) Equipment Cost (1:03)

** Indexed
Cost per Labour by Hourly Hourly Type of Hourly Hourly
Type of Material Unit Qty * Rate Unit Trade No. UF Cost Cost Equipment No. Rental Cost

Cement Qnt. 3.35 60 201 Foreman 1 1 5 5 Mixer 1 36.37 36.37

Sand m3 0.43 95.00 40.85 Mason II 2 1 3.75 7.5 Vibrator 1 5.24 5.24

Gravel (02) m3 0.86 120.00 103.2 D/L 45 1 1.25 56.25 0

Water m3 0.19 0.75 0.143 0 0
0 0 0
0 0 0
0 0 0
0 0 0

Total (1:-01) 345.1925 Total (1:02) 68.75 Total (1:03) 41.61

C= Equipment Unit
A= Materials Unit Cost 345.19 Birr/m3 B=Manpower Unit Cost 39.29 Br./m3 Cost 23.78 Br./m3

Total of (1:02) 68.75 Total of (1:03)

Hourly Output 1.75 Hourly output: __________________

Direct Cost of work item = A+B+C = 408.26 Birr/m3

Overhead Cost: 10% 40.83 "

Profit Cost: 15% 61.24 "

Total Unit Cost : 510.32 Birr/m3

Remark ________________________________________________________

UF: UTILIZATION FACTOR

*: INCLUSIVE OF WASTAGE, TRANSPORTING, HANDLING, ETC.
**: INCLUSIVE OF BENEFITS, TRAVEL SUBSIDES AND COST OF OVERTIME RELATED TO TARGETED OUTPUT.
 5.2 Project Valuation
• Valuation is the art of determining present value of
a property such as a building, a factory or other
engineering structure.
• By valuation the present value of property is fixed.
The present value of property can be determined
on the basis of rent, or income it may fetch.
• It is determined or decided by its selling price. The
value of property depends on its structure,life,
maintenance, location, etc.
 Purpose of Valuation
1. For rent valuation – valuation of a property is done to fix the
rent. Rent is fixed on the basis of certain percentage of the
valuation. It is generally 6% to 10% per annum.
2. For buying or selling – every seller or buyer is willing to sell or
purchase the property up to certain limiting price and that is
only arrived at by valuation
3. For Security of loans or mortgage – when it is required to have
loan against the security of any property or when the
property is to be used for collateral for security like
performance or advance payment bond, valuation is
necessary.
 Purpose of Valuation (cont…)
4. Acquisition – when a property is compulsorily acquired by
government, compensation is given to the owner for the
valuation is necessary.
5. For Tax assessment – to determine the property tax. House
tax, etc., valuation is necessary.
 Valuation of Building
• Valuations of a building depends upon, the type of
building, its structure, shape, size, locality, the quality of
material used and present day prices of the materials. It
also depends upon the height of the building and plinth
area.
• Building in market area will have higher value than
building in residential area.
• The valuation of a building can be determined after
knowing the contents of each item of work,
specifications and physical condition of the building. It
can also be calculated on its cost of construction at
present day rate after deducting a suitable depreciation.
1. Rent Return Method: based on the net rent
value, capitalized for the future life of the building.
2. Valuation on land and building basis: in this method
the cost of land is added on the depreciated cost of
the building.
3. Valuation on profit basis: suitable for commercial
buildings like hotels, cinemas, etc. In such cases the
net profit is calculated after deducting all outgoings
and interest of capital invested. The net profit is
multiplies by future life of the building.
4. Valuation on cost basis: in this method the actual cost incurred
in construction of property with due consideration of
depreciation, is taken as the basis to determine the value of
the property.
5. Development method of valuation: this method is used for
properties that are underdeveloped or partly developed or if
the building require renovations by iteration. The anticipated
future net income is renovated and multiplied with the future
life of the property to get the value.
6. Depreciation method of valuation: the property value is
determined based on the book value for the year by deducting
the deprecation
 End of the chapter

Many Thanks for your attention!