Learn the cost estimation in ten easy-to-do and practical steps. With the listed steps you can estimate the cost for a multi-storey building.

1. 1/7
Civilverse Admin 27 June 2021
10 Powerful Construction Cost Estimation Steps
civilverse.org/construction-cost-estimation-steps
Table of Contents for Construction Cost Estimation Steps–
1. Introduction
2. Construction Cost Estimation Steps
2.1 Collection of Inputs
2.2 Enlisting of Specifications
2.3 Work & Material Take-off
2.4 Resource Estimation
2.5 Estimation of Cost
2.6 Consideration for Statutory Charges
2.7 Overheads and Profits
2.8 Contingencies
2.9 Presentation of Project Budget
2.10 Monitoring & Control Measures
3. Conclusion
1. Introduction
A project manager has to complete the project within the boundaries of scope, cost, time
and quality. The boundaries are well defined in the contract. Variation in any of the
boundary affects the other. Cost is one such boundary that directly involves the monetary
aspect. It is the key factor to decide the viability of the project, payback period, financing
method etc.

2. 2/7
Since cost is such an important factor in project management. I have dedicated this article
to the steps to determine the cost of a construction project. The steps of construction cost
estimation have been detailed to provide an understanding of each of them. The examples
have been included in each of the steps so you can relate to them.
I have got to learn about project budgeting in the year 2020-21. Due to pandemic, the
budgeting became much difficult due to high risks. The greatest challenge to control the
budget was absorbing the project risks and making it resilient. I have prepared the
budgets, failed, learned and revised. So, it got me interested in writing the whole process
into 10 steps for estimating construction project budget that I have mostly learned from
my failures.
Let us get started.
2. Construction Cost Estimation Steps
The cost estimation for a construction project starts with the collection of inputs,
proceeds with the analysis, interpretation and estimation, passes through checks and
finally represented in prescribed formats. An Estimator estimates and pens the whole
project expenditure in papers before making any actual spending on the project.
The Estimator may have the enterprise guidelines to prepare the cost estimates. He / She
may also use their experience to set up the standards for cost estimation.
The cost estimation depends upon a number of factors like organisational standards, type
of project, stakeholders’ expectations, constraints, type of contract etc.
The general steps for construction cost estimation that I have followed for my projects are
mentioned below-
2.1 Collection of Inputs-

3. 3/7
The project charter is referred for an initial cost estimate. The scope is compiled and the
works are grouped. A site visit is done to ascertain the working conditions to take the
consideration into the estimation. Site visit considerations include access to the site,
distance from the nearest market, site conditions, terrain, space for material storage,
space for workmen accommodation, water & power connection etc. The site visit brings
the consideration of the above-mentioned aspects and each one of them has a cost
associated with them.
The collection of inputs sets the foundation for cost estimation. As we say, a building
cannot rest on a weak foundation. The same is true for input collection and cost
estimation. The unclear and incomplete inputs lead to incorrect estimation. A lot of
projects fail due to incorrect cost estimates.
A market study is one such aspect that has a significant impact on the project cost. The
local market prices of the material and workmen required for the project must be
determined.
2.2 Enlisting of Specifications-
The specifications for material, machinery and quality requirement of works are listed to
consider in the cost estimation. For example, the grade of rebar, grade of concrete, make
and model of equipment, design & operating parameters of equipment etc.
The prices change with the specifications. The higher-end specifications have higher
prices. Also, the requirement of an item with rare specifications also lead to higher prices.
2.3 Work & Material Take-off-
The work and material calculations are based on the thumb rules or drawings (if
available). Historical data of other projects of similar nature can be used as a reference for
an initial estimate of work and material.
Initially, the detailed drawings are not available hence the broad idea of quantities is
taken and the overheads are justified as per the work quantum. Also, as the detailed
drawings are made available during the execution stage, the work and material take-off
workings are detailed for every line item. This process keeps ongoing throughout the
project stage.
2.4 Resource Estimation-
The manpower required to complete the project is estimated. The requirement is
calculated for each work. The productivity of resources is generally known from historical
data, it is beneficial to estimate the manpower and the project duration in conjugation
with each other.
The estimation of the resources is followed by the grouping of resources of similar nature.
For example, the masons required for each activity are added and represented on the
project timeline. This helps in preparing a mobilisation plan for the workmen. The

4. 4/7
manpower required for the structural works is required initially and the finishing works’
manpower is required at later stages.
2.5 Estimation of Cost-
The material and resource estimated in the previous two steps are represented in
monetary terms. The cost of workmen, material, equipment, and work is calculated based
on the current market scenario.
For better estimation of cost, site landing prices should be considered. The site landing
price of the material is the total incurred cost. It comprises the sum total of item cost,
transportation, taxes/levies, overheads, etc.
For a longer project duration, the rates can be adjusted for inflation. A percentage of
inflation is to be considered to average the prices over the project timeline. Government
publishes the Wholesale Price Index data, Steel Price Change Data, Commodity Price
Change, price forecasts, inflation forecasts etc. that can be used to form a basis for cost
adjustment.
2.6 Consideration for Statutory Charges-
The projects operate under the applicable laws. The government imposes various charges
on the organisations and the projects to run their expenses.
Some charges are related to banking systems such as risk mitigation such as Letter of
Credit (LC) charges, Bank Guarantee (BG) charges, interest on the loan etc.
Some of the charges that should be considered in a construction project cost estimate
are-
a. Taxes like GST, VAT etc.
b. TDS
c. Customs duty for imported items
d. Company registration/renewal charges
e. Property taxes
f. Stamp-duties
g. Licenses for construction work, workmen etc.
h. Royalties
i. Other Statutory Permissions
j. LC Opening and Extension/Amendment/Renewal Charges
k. BG Charges
l. Interest on Loans taken for the project.
2.7 Overheads & Profits-
The overheads are the additional expenses for doing work. Some of the overheads are
covered in the material and work take-off step, some covered in cost estimation and the
rest in this step. Some of the examples of overheads are-

5. 5/7
a. Offices
b. Internet Charges, IT Equipment, License for software use
c. Office furniture
d. Accommodation
e. Free food for staff and workmen
f. Transportation for staff and workmen
g. Salaries of staff
h. Staff Welfare
i. Power and water for staff and workmen accommodation
j. Housekeeping Charges
k. Maintenance of Office Vehicles
l. Maintenance of work equipment like batching plant, concrete pumps, transit
mixers, vibrators, dewatering pumps etc.
m. Insurance Premiums of equipment and workmen, etc.
Some of the expenses are fixed on a monthly/annual basis, some are one-time capital
expenditure and some are as per the usage. The overheads change from company to
company and their size. They may range 10-25% of the project cost.
Profit for a construction contractor is generally added at 10% to the entire project cost. It
may vary depending upon the nature of the project.
2.8 Building Contingency into Project Budget-
The contingencies are uncertainties. It is a tricky part, as the estimator has to add extra
cost for uncertainties and also make the budget more accurate. So, a line of balance is
required. The decision on the % of contingencies should be done considering the clarity of
scope, quality, high market rate fluctuations etc.
Higher contingencies show the inability of an estimator to accurately estimate the project
cost. On the other hand, lower contingency exposes the project to the risks of cost over-
run.
In general, 3-5% contingency of project cost is taken. As the project progresses, the risks
become clearer, hence the contingencies can be adjusted in the budget update.
Some of the contingencies are listed below but not limited to-
a. A drastic change in raw material prices
b. Increase in overheads due to delay in project
c. Change in statutory charges rate
d. Increase in inflation
e. Change in forex
f. Increased Overheads due to force majeure conditions
g. Unforeseen ground conditions
2.9 Presentation of Project Budget-

6. 6/7
The project budget is the sum total of work and material costs, overheads, statutory
charges, interest and contingencies. The budget is represented in the prescribed format of
the organisation. The S-Curve is prepared. It allocates the cost over the project timeline.
The S-Curve is used to prepare cash flow.
Typical S-Curve for Project Budget Monitoring & Controlling
The various costs are grouped under heads. For example, separate heads can be made for
the following but not limited to-
a. Equipment Cost
b. Construction Material Cost
c. Contractor/Sub-Contractor Cost
d. Statutory Charges
e. Overheads
f. Contingency
2.10 Baselining, Monitoring & Control-
The project budget agreed between the stakeholders is called the baseline budget. The
monitoring is done in reference to the baseline budget. All the control parameters are
defined in reference to the baseline budget.
The monitoring of the project budget is the first step of control. The proven method of
project budget control is to prepare the baseline planned expenditures for a period and
then comparing them to the actual expenditure throughout the period. Some of the
techniques for project budget monitoring are-
a. Variance Analysis
b. Earned Value Analysis
c. Forecasting
d. Financial Analysis
3. Conclusion for Construction Cost Estimation Steps

7. 7/7
The effective cost estimation depends upon an estimator. His/ Her skills, experience,
understanding of the market trends, expertise over estimation software, etc. determine
the success rate of the project in the financial aspect. This lead to a reduction in
construction claims.
It is always fruitful to ask the right and more questions at the beginning of the cost
estimation. The ‘What’, ‘Why’, ‘When’, ‘How’ for each scope item can give a good start to
the cost estimation process.
The cost should be checked throughout the estimation and project execution process. The
involvement of the execution team in the process helps in building the details in the
costing of work. Expert judgement shall also be used to assess the cost of the project.
The cost of similar previous projects is a good check for the project cost. The cost
proportion of budget heads may slightly differ from each other but the overall cost
variance is not much. However, while comparing the cost with historical data, the scope
difference between the projects must be considered and the historical cost should be
adjusted for inflation if needed.
For more on cost estimation visit, the Wikipedia page here.
Did I miss anything to cover? Or want to share your insights about cost estimation? Let
me know in the comments.
Share with your engineer and managers friends and colleagues.