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Building Better Cost Estimates

Achieving greater accuracy by filling your estimating toolbox
[ Page 2 of 5 ]        
Sponsored by Gordian
By Peter J. Arsenault, FAIA, NCARB, LEED AP

Step 1: Capture the Scope of Work

The foundation of any construction cost estimate is a clear understanding of the scope of construction work. To arrive at an accurate number, the specific construction work needs to be identified both in terms of what is included in the scope and what may not be included. This is a case where the adage of “never assume anything” is not only true but also critical. Failing to perform the appropriate due diligence to confirm the SOW may quite literally doom a project from the outset. Therefore, we will delve into this step in considerable detail due to its importance in the overall process.

Fully understanding the construction scope of work (SOW) is a critical first step in preparing any cost estimate. Beyond the SOW described in the A/E documents, the project context and construction process also need to be understood.

Types of Scope

When it comes to determining the total SOW of a project, there are actually three types of scope that need to be taken into account. The first and most recognized is the SOW called out by the architectural and engineering (A/E) construction documents. The specifications part of those documents identifies the specific products, materials and systems that are to be included and used as the basis of pricing. The drawings show the location and quantity (area, volume, number, etc.) of the items specified. As long as the drawings and specifications are complete relative to the phase of the project, a detailed cost estimate can be prepared accordingly based on that information. This A/E SOW is the objective basis for all cost estimates.

The second SOW has to do with the context of the project. This is defined by the general context or environment in which the project will be built. Such context can be physical in that the project may be located in a very dense urban location with restrictions on access, staging and storage of materials, or it could be in a very remote, rural location with terrain that is difficult. Either of these may require special considerations for delivery and construction. Similarly, the context of location could mean that specific local regulations need to be addressed that may not apply elsewhere. The local construction market could be stronger or weaker than another location with pricing of labor and materials being directly affected. Alternatively, the context could be defined by the building owner in the sense of requiring prevailing wage-labor rates, separate prime contracts for certain trades or other similar conditions. All of these context scope issues, and others like it, will impact the cost of the project and need for which to be accounted.

The third SOW type is based on the construction process. The physical scope as defined by the A/E and the context scope will inform this aspect of the scope but so will the experience of the construction teams involved. Some parts of the construction process may require addressing some special circumstances, such as specialized construction, long lead times, custom fabrication, or other atypical construction work. The makeup and availability of suppliers, fabricators, and trades in a particular location may also directly affect the construction process. If there is a shortage of availability of any of these and they need to come from longer distances, that will have a cost impact. Alternatively, if a single supplier is able to provide multiple spec items and install them while reducing the number of trades involved, that can improve efficiency and save on costs. Owner-imposed requirements should not be overlooked either as to their effect on construction process. Restricting the available hours or weeks when work can be performed is a classic example of this and applicable to many projects, especially when an existing building related to the project needs to remain functional or limits work time.

Scoping Challenges

Recognizing these different types of scope and their impact on cost estimating is important, but so is recognizing the challenges to the scoping process that need to be addressed and overcome. These could include any or all of the following:

  • Tight timeframe. Allowing enough time for a thorough scoping of the project helps avoid shortcuts and mistakes. The problem is that many projects don’t allow the luxury of time and instead create pressure to get things done quickly. In those cases, pricing can be thrown at a project from a data source with little thought given to the broader scope issues. That creates a condition where you get the accuracy out of it from the accuracy you put into it. Therefore, planning for adequate time to fully scope out the project will help improve accuracy.
  • Prioritizing a number. There is always someone asking, “How much is it going to cost?” This tends to push estimators to focus on getting a number out quickly rather than paying attention to the process to achieve accuracy.
  • Customer/client challenges. Sometimes the information needed for an accurate cost-estimate scope is hampered by the building owner or client. This could be the case when the estimator needs to navigate a government bureaucracy, for example, in order to determine the relevant scoping issues and requirements.
  • Predicting conditions. Part of the scoping process involves interpreting some of the conditions that will influence the construction process and thus impact the cost. These could include determining how much weekend or overtime work may be needed to accommodate scheduling requirements or restrictions. Or the physical conditions of the site, an existing building, or the surrounding environment may need to be more fully understood in order to develop an accurate estimate.

In order to overcome these challenges, there are a number of best practices that cost estimators use to more thoroughly define the scope of construction work. These include:

  • Site visits. Drawings and photos are good, but they only tell so much. There is no substitute for actually visiting the site of the intended construction to scope out the context and perhaps the process conditions.
  • As-builts. For renovations to existing buildings, having a set of drawings that describes the construction that may not otherwise be visible in a site visit can be incredibly valuable. This is true not only for estimating any selective demolition but also for any conditions that would impact the renovations that connect to it.
  • Drawings and specs. This might seem obvious, but always use the latest, most up-to-date set of drawings and specs as provided by the A/E team. It is always disheartening to learn that a cost estimate was prepared based on a set of drawings and specs that were outdated and replaced with a more advanced design with a revised A/E scope.
  • Think like a contractor. Ultimately, a cost proposal is going to be prepared by contractors, and that will become the owner’s actual price. Therefore, the cost estimator is seeking to take into account all of the things that a contractor will consider, particularly when it comes to construction process.
  • Ask questions. Cost estimates should never be prepared in a vacuum but always be considered as a collaborative effort. Questions to verify any aspect of the scope should be expected and embraced by the design and construction teams in the interest of creating the most accuracy in the estimate.
  • “Build it before you build it.” This approach is commonly referred to in building information modeling (BIM) as a way to “build” electronically all aspects of a project in three dimensions before it is ever constructed in the field. Using the same approach in a cost estimate means that all aspects of the project are “built” conceptually so that all scoping aspects are covered.
  • Gather vendor input. Vendors or suppliers play a key role in pricing materials and systems. They are usually the first to know if there are any upcoming changes or trends in the market, in pricing structures, or similar issues that might impact costs in the near future. Keeping a pulse on what is happening in those markets will help more accurately predict costs once construction is started.

All of these scoping best practices should become routine for anyone who is professionally involved in preparing construction cost estimates on a regular basis.

Scope Characteristics

With all of the foregoing as a basis, it is clear that the scope is extremely important in establishing the baseline or benchmark information from which all cost estimates are prepared. If any aspect of the scope changes along the way, that should ripple through the rest of the cost estimate. It is the common denominator across all levels of the cost estimate that allows a final project cost number or budget to be determined. When done well, the scope should thoroughly define the project, including any existing conditions and changes to those existing conditions. It should also be a dynamic, interactive tool with both verbal and graphic aspects to it to help communicate with others the full basis for the cost estimate.

Among the things that should be clearly communicated, the quality as well as the quantity of all items included in the A/E scope should be very evident. Where appropriate, the function of systems and assemblies should be clear as well. In terms of the context scope, any issues related to the environment or site should be identified with their impact on the cost explained. In regards to construction-process scope, assumptions about time schedule and any time restrictions should be spelled out. From there, identifying how the work is to be carried out (i.e., assumptions about major tasks to be performed) and who is to provide different parts of the work (i.e., roles and responsibilities of different trades, construction managers or others) need to be stated. Any other relevant aspects of the scope should also be clearly communicated, such as performance evaluations or the contract terms and payment methods as they relate to pricing.

Preparing a clear and thorough scope document as described has a number of direct advantages to everyone involved with the project. First, it eliminates debates over interpreting what is covered in the project and the cost estimate. That helps the project move along more efficiently and collaboratively. Next, it increases accuracy in estimating, allowing for better control over the factors that can increase or decrease the cost of a project. Ultimately, a well-prepared, collaborative scope leads to fewer surprises during construction, such as change orders, cost overruns or time schedule delays. That all means less paperwork for everyone and a smoother construction process overall.

On the flip side, there are some equally direct consequences of using a poor or incomplete SOW as the basis of a cost estimate. The most obvious is that the estimate will be inaccurate. There will also be less definition when trying to compare different options against the scope, which is typically used as the benchmark for such comparisons. Without clarity in the scope, there is room for different interpretations of the work or the conditions surrounding it, which opens the door for disagreements and disputes. Ultimately, all of these shortcomings set the stage for problems during construction, including cost and time overruns, change orders and differences in the quality of the work. Clearly, this all-important first step of defining and communicating the full and complete SOW can pay dividends all throughout the project or, if done half-heartedly, be a leading cause of problems all along the way.

 

[ Page 2 of 5 ]        
Originally published in Engineering News-Record

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