Cost estimating basics

A cost estimate predicts what a project will cost, and its accuracy improves as the design develops. Early on, an order-of-magnitude estimate based on similar projects may be off by a wide margin; a definitive estimate built from detailed quantities is much tighter. Cost engineering bodies classify estimates by maturity so everyone knows how much to trust them.

Estimates are built from direct costs, the labour, materials and plant consumed by each item of work, and indirect costs, such as site supervision, temporary facilities, insurance, finance and head-office overhead. Contingency covers known unknowns, and escalation covers price rises over time. The contractor adds a margin for profit and risk.

Unit rates come from schedules of rates, past projects, supplier quotations and rate analysis. A rate analysis breaks one unit of work, say a cubic metre of concrete, into each resource and its output, then prices them.

Good estimates state their basis: which drawings, which rates, which date, what is excluded. That makes them checkable and updatable.