Factors Affecting Construction Cost Estimation

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Various factors influence the cost estimation of a construction project. Preparation of a construction cost estimate for any project is a very complex process which consists of many variable factors. Every variable has to be correctly estimated based on proper study, past experience and research to calculate total project cost of construction.

Factors Affecting Construction Cost Estimation

There are many factors which affect the construction cost estimate and have significant impact on project cost and they are as following:

1. Similar Construction Projects

For the construction estimate, the best reference will be similar construction projects. The final cost of those similar projects can give the idea for the new construction project cost calculation. The final cost of past project needs to be factored with current construction cost indices.

2. Construction Material Costs

Construction material cost consists of material cost, shipping charges and taxes applicable if any. So, it is important consider all these variations while calculating construction material cost.

3. Labor Wage Rates

Labor wages varies place to place. So, local wage rate should be considered in calculation. If the project has to be started after several months of estimating the project cost, the probable variation in wage rates has to be considered in the calculation.

4. Construction Site Conditions

Project site conditions can increase construction costs. Site conditions such as poor soil conditions, wetlands, contaminated materials, conflicting utilities (buried pipe, cables, overhead lines, etc.), environmentally sensitive area, ground water, river or stream crossings, heavy traffic, buried storage tanks, archaeological sites, endangered species habitat and similar existing conditions etc. can increase the project cost during construction phase if these variations are not considered during estimation.

5. Inflation Factor

A construction project can continue for years before completion. During the construction period, the cost of materials, tools, labors, equipments etc. may vary from time to time. These variation in the prices should be considered during cost estimation process.

6. Project Schedule

Duration of construction project is affects the cost. Increase in project duration can increase the construction project cost due to increase in indirect costs, while reduction in construction cost also increases the project cost due to increase in direct costs. Therefore, construction project schedules also need to be considered during project cost estimation.

7. Quality of Plans & Specifications

Good quality construction plans and specifications reduces the construction time by proper execution at site without delay. Any vague wording or poorly drawn plan not only causes confusion, but places doubt in the contractor’s mind which generally results in a higher construction cost.

8. Reputation of Engineer

Smooth running of construction is vital for project to complete in time. The cost of projects will be higher with sound construction professional reputation. If a contractor is comfortable working with a particular engineer, or engineering firm, the project runs smoother and therefore is more cost-effective.

9. Regulatory Requirements

Approvals from regulatory agencies can sometimes be costly. These costs also need to be considered during cost estimate.

10. Insurance Requirements

Cost estimation for construction projects should also need to consider costs of insurance for various tools, equipments, construction workers etc. General insurance requirements, such as performance bond, payment bond and contractors general liability are normal costs of construction projects. In some special projects, there can be additional requirements which may have additional costs.

11. Size and Type of Construction Project

For a large construction project, there can be high demand for workforce. For such a requirements, local workmen may not be sufficient and workmen from different regions need be called. These may incur extra costs such projects and also for the type of construction project where specialized workforce is required.

12. Location of Construction

When a location of construction project is far away from available resources, it increases the project cost. Cost of transportation for workmen, equipments, materials, tools etc. increases with distance and adds to the project cost.

13. Engineering Review

Sometimes it is necessary to carry out technical review of construction project to make sure the project will serve the required purpose with optimum operational and maintenance cost. This review cost shall also be added to the project cost.

14. Contingency

It is always advisable to add at least 10% contingency towards the total project costs for unforeseen costs and inflation.