The characteristics of a good cost estimate, or how to properly estimate construction costs
Commencing works on a construction site, regardless of the vision and size of the planned project, should be preceded by a series of activities aimed at optimising the subsequent process of its creation. Applying the right weight to a professionally prepared estimate is key to minimising the risk of investment shutdown at a later stage of the project, for example due to underestimating the construction costs. There are legal regulations describing in detail the requirements for cost estimates, but they only apply to the public procurement sector. Nevertheless, investors operating in every market segment should make sure they have a professionally prepared cost estimate for a building. Disregarding this aspect may seem like saving time and money at first, but in the long term it can have serious consequences for the profitability of the investment.
“The preparation of a building cost estimate, contrary to popular opinion, does not amount to a bland calculation of the costs of purchasing the necessary materials,” explains Bartosz Dąbrowski, President of the Board at Techbud Kosztorysy, a company specialising in the cost estimation of construction investments present on the Polish market for more than a decade. “Experienced cost estimators, thanks to their extensive knowledge and understanding of trends and the situation on the construction market, can advise how to optimise a project, verify the materials used and propose the use of alternative, cheaper technological solutions, without an adverse affecting on quality or end results.”
The contents of a cost estimate must be clear
A professional cost estimate constituting a measurable added value for all parties involved in the construction investment should be distinguished not only by its contents, but also by the simplicity and understandability for employees from every branch of the construction industry. A meticulously prepared cost estimate should be clear to the architect, the investor and the general contractor, and their subordinates.
“A high quality document on the costs of a construction must not be too complicated,” – continues Dąbrowski. “Subsequent columns of numbers and complicated calculations will not make it easier for the investor; on the contrary, they might make it more difficult. Therefore, it is the responsibility of cost estimators to present the results of their calculations in the simplest and most understandable form.”
A well-executed cost estimate facilitates the general contractor selection
The situation in the construction industry has been changing in a very stable manner for years. The price of materials and labour costs are growing every month making the market dynamic and at times quite unpredictable. As a result, the valuations prepared long before the start of construction very quickly become outdated. Despite excellent knowledge of the market, even a perfectly prepared estimate may, after a few months, have little to do with reality. Entrusting estimations to experienced cost professionals, however, reduces the time necessary to select a general contractor, and thus minimises the risk associated with the meticulously calculated expected costs becoming outdated.
“The impact of price fluctuations on the accuracy of the prepared cost estimate cannot be completely avoided,” explains Bartosz Dąbrowski. “Each estimate loses its relevance after a few months, this is how the construction industry works. Nevertheless, with help of a properly prepared table, the investor will choose a general contractor with more ease and in a shorter time. Owing to that, construction works can begin sooner.”
One of the main advantages of using external cost estimate offices is the ability to verify the actual value of planned construction works. Using the precisely prepared estimates and calculations, based on the current market situation, material prices and labour costs, the client is able to plan the budget well before successfully completing the investment.
“When the investor obtains a ready cost estimate, he is actually handed a very important bargaining chip, which he can, for example, use when negotiating with a potential contractor,” argues the CEO of Techbud Kosztorysy. “It can easily be verified whether the offers submitted by the contractors are appropriate to the items and cost estimates. This allows our colleagues from the industry to sift insolvent and unprofessional companies from those that can safely be entrusted with the investment”.
Cost estimate tailored to construction plans
“A cost estimate of a building is not a universal concept,” claims Dąbrowski. “What this means is that the contents of a cost document must be considered and adapted to the nature of the planned object, its size, as well as the future use of the property and area in question.”
The final shape of the cost estimate is influenced by many factors related to the investment itself as well as the expectations of the clients. Experienced cost estimators will pay attention to different aspects when estimating the costs of building an office building in the centre of a large city, and for others when preparing cost estimates for a shopping centre fit-out in a small town.
“The goal is not just to present everything that can affect the building. It is equally important to indicate the key information for profitability and the future of the planned investment. Cost estimates serve as proof that quality is of highest importance. Cost estimators with many years of experience have the advantage of knowing what can be decisive for a given investment, and they will focus on it in their work. It is extremely important to indicate those aspects and elements where savings can be made without adverse consequences for quality or to the benefit of the end result,” sums up Bartosz Dąbrowski.
A properly carried out process of calculations and estimates when creating a cost estimate results with a document whose substantive content is adapted to the requirements of the investment in its preparatory stage. This allows us, cost estimators, to provide investors with a tailor-made document, not only dry calculations, but a document helpful during the construction process.