Throughout my 30+ years in the construction industry, many of those in the cost estimating field, I met great estimators as well as estimators who lack the confidence to say:
Yes, I calculated this cost, this is how I did it, and this is the benchmark data to prove it.
My curiosity was always to why some otherwise experienced cost estimators ,when faced with the dilemma of documenting a price, were lacking the confidence to explain the calculated costs fully.
What I found is somehow surprising:
Some cost estimators did not build a solid foundation on detailed cost estimating, more precisely on man-hour cost estimating. It is like building a bridge on temporary piers, thinking that the day will come when the permanent piers will be installed. The thing is, it is very unlikely that this will ever work.
Let me explain why I strongly believe that the true path to a great cost estimating career starts with detailed cost estimating, including estimating labor using man-hour methodology.
Let’s take a look at how we define detailed cost estimating.
Detailed Cost Estimating – Definition
Detailed cost estimating can be defined in a few ways, depending on the end purpose of the cost estimate. A detailed cost estimate might not mean the same thing to a contractor bidding on construction work as for an EPCM company preparing the project control estimate. The common denominator between both estimates just mentioned is the quantitative analysis of the work required by the project documents.
We could define the detailed cost estimate as the process of predicting costs of a construction project through quantitative analysis of all resources required for a complete project, as required by the design documents. The ability to play the mental movie of how the project will be built and to relate design documents and details to cost are key factors in developing a quality detailed cost estimate.
To determine the detailed cost estimate for a project, we can use the man-hour and/or unit rate cost estimating methods. Both methods could lead to achieving the projected accuracy, as costs are concerned. The unit rate method has limitations in regards to breaking the costs down by type: material, labor, equipment, construction equipment and temporary materials. The sources used for determining the costs have the most impact on accuracy, and not the method we use.
Construction Costs Breakdown
To better understand the use of detailed cost estimating methodology and the structural difference between the unit cost and man-hour, let’s look at how construction costs are broke down on a typical project.
Regardless of the end use of the cost estimate, the construction costs are broken down in similar formats:
- Prime Contractor/CM markup and general conditions
- Subcontractor markup and general conditions
- Purchase cost
- Shipping & handling
- Base wages
- Taxes & insurance
- Operating costs
- Equipment rentals
Man-hour vs. Unit Rate Cost Estimating
Now, let’s look at what differentiate the unit price from man-hour detailed cost estimating.
When we employ the man-hour detailed cost estimating methodology, we are determining the costs at the level of detail shown in the section above. The opposite is true for unit rate cost estimating. A unit rate could be a wrap-up of costs of items 2,3 and 4, or 1, 2, 3 and 4, or 2 and 4, depending on the inclusions/exclusions of the unit rate.
It is common practice to develop a cost estimate using a combination of man-hour and unit rate methodologies. All construction companies, except some specialty contractors, outsource some part of the work to subcontractors, therefore, will use unit rates in their cost estimates.
The point I am trying to make in this article is that all cost estimators need to have the ability to use both methods with the same level of confidence. It goes without saying that using unit rate cost estimating is by far more accessible to the cost estimators. It takes years of practice and multiple types of projects to gain the knowledge and skill of man-hour cost estimating. Some cost estimators will never enter this area of cost estimating, or build enough confidence to practice it.
The level of detail we have on a project is a direct indicator of project future performance. If we think of a detailed cost estimate as the source of essential data for a project, then having the level of detail required to plan and measure performance is key. A cost estimate feeds the construction schedule, the project risk matrix, the resource planning, etc. If all we could extract from a cost estimate is quantities and costs, there is not much we can analyze. Imagine a cost estimate that gives us detailed reports on man-hours by trade, construction equipment hours by type of equipment, project management resources by type, etc.
Imagine a cost estimate that gives us detailed reports on man-hours by trade, construction equipment hours by type of equipment, project management resources by type, etc. Now picture the cost estimate that produces reports using the two dimensions: quantity and cost. Besides limitations on details, a cost estimate that uses unit rates it cannot be optimized regarding price performance from a constructability point of view.
I am a big advocate of learning the man-hour cost estimating methodology. It is unfortunate that most cost estimating training available does not dedicate the man-hour cost estimating the importance that it deserves. If these programs would teach the students the base principles of man-hour cost estimating, I am sure the construction world would only benefit from it.
One might argue that it is pointless to teach man-hour cost estimating when each company has its way of doing things: they might use variations of crew composition, of productivity, size, and type of equipment, etc. And this is all true. But, armed with the knowledge, the cost estimator can learn to adapt such knowledge to specific conditions.
Having the ability to produce a detailed cost report showing the crew composition, production rates, labor and equipment hours, material and waste, etc. does beat a unit rate cost estimate anytime. If we add the ability to transfer data to the construction schedule and load and level resources, produce a cash flow curve based on data from the cost estimate, we can call it a day.
About the Author Doina Dobre
Doina is a Professional Engineer registered with APEGBC (The Association of Professional Engineers and Geoscientists of British Columbia, Canada) and a Gold Seal Certified Cost Estimator by The Canadian Construction Association.
She has worn many hats during her career, from site superintendent, project manager to cost estimator. She built a reputation within the EPCM contracting world for realistic and credible market cost estimating. She attributes her success in conceptual cost estimating to the many years of hands-on construction site experience, the strong, detailed cost estimating background, and the mentors she had the privilege to work with during her long and interesting career.
She can be reached at @doinad, [email protected], or her LinkedIn profile, https://www.linkedin.com/in/doinadobrecostestimator