Construction cost estimating process

Construction Cost Estimating Process | ProEst

Cost estimating systematically forecasts all costs associated with completing a project within a defined scope. Regarding construction, construction cost estimating forecasts all projected costs needed to complete a project. The cost estimate serves as a roadmap for a project to be designed, bid, and built and can mitigate risk. It can be used to assess financial feasibility, budget for expenditures, oversee project spending, and flag costs that aren’t aligned with the budget.

When considering a development, numerous costs beyond just labor and materials directly impacting the total project cost must be examined and budgeted. For example, a client may be unaware of inclement weather’s role on a project’s bottom line or fail to consider the financial impact of necessary specialized equipment. A well-researched, accurate construction estimate will examine all these costs, including materials, labor, location, climate, project duration, building codes, equipment, and the availability of utilities. Even surface topography, soil conditions, and material lead times are considered.

Armed with an accurate cost estimate, you can determine the financial feasibility of the proposed project, make modifications if needed, finalize the scope, establish a budget and carefully monitor the budget as it progresses throughout the design phases. A construction estimate also enables you to price-check builder’s quotes and independently verify the accuracy of estimates and material costs. It can even help bring a project plagued by cost overruns back into alignment by correcting quantity and pricing errors and eliminating unnecessary contingencies and scope overlaps.

The principal benefit of a construction estimate is that it can significantly mitigate the level of risk. Each proposed project expenditure is accounted for, and costs that aren’t aligned with the budget can be flagged for further examination. Accurate cost estimating brings clarity, assurance, and peace of mind to large and complex construction projects.

A team of experienced cost estimators typically prepares cost estimates, generally Certified Professional Estimators (CPEs), engineers, quantity surveyors, and project managers who have a thorough understanding of the costs associated with all design stages and construction disciplines, including architectural, structural, civil, mechanical, electrical and plumbing. They use the latest project cost control techniques, estimating, and BIM (Building Information Models) technology to prepare detailed and accurate estimates.

Cost estimation is the process of predicting how much a project will cost by evaluating the work needed and the risks involved in starting and finishing the construction project. Costs vary based on; location, labor, raw materials, tools required, transportation, duration, and any additional supplies.

Why is it important?

Cost estimating is essential because it gives subcontractors, investors, and all stakeholders a reliable estimate of the entire project’s cost. Some of these costs include; labor costs and direct and indirect costs.

Cost estimate enables stakeholders to make the best decisions concerning the project. These details help them know whether to add, subtract, alternate, and adjust the costs needed to complete the project successfully.

Giving accurate costs before construction helps to gauge the performance of a project.

The Value of an Independent Cost Estimate

Taking on a sizeable construction project ultimately comes down to managing a considerable amount of complexity and risk. The bottom line is always at stake, timelines are tight, and disputes among the various project team members can occur.

Typically, an owner or developer will look to competing construction companies to obtain several estimates/bid proposals on how much the project will cost. These construction companies may provide cost-estimating services in-house or use a third party. Either way, it is prudent to turn to an independent cost-estimating firm that is in no way affiliated with your organization or the proposed project to conduct an unbiased cost estimate to achieve an objective view of the project budget. In addition, this third-party estimate helps serve as a basis for comparison and assists in determining the reasonableness or unreasonableness of the bid or proposal(s) being evaluated.

Consequently, it helps lessen your risk and brings greater assurance to the project.

For example, let’s say a client is considering a significant renovation to a healthcare facility and obtains an estimate from a construction firm on how much the project will cost and its duration. This client may then decide to have an independent cost estimate prepared to verify the accuracy and reasonableness of the projected costs presented by the construction firm. The client may proceed with the project if both estimates are reasonably comparable. If, on the other hand, the disparity between the two estimates is significant, the client may choose to renegotiate or seek out additional estimates from competing construction firms.

In either scenario, an independent cost estimate helps mitigate risk and provides considerable peace of mind during design. It can also help you tackle any cost-driven corrections early on, avoid conflicts during bidding and construction, and ultimately guide the design and construction phases cost-effectively.

Four Main Construction Estimating Benefits 

As we’ve discussed, obtaining an accurate estimate from an experienced construction cost estimator is fundamental to any commercial project. Let’s look at the four (4) main benefits of cost estimating.

More Accurate Budgeting

Commercial construction projects are bursting with complexities. If the project goes beyond the scope of the budget, you will have to find another way to pay for the additional expense or forgo a feature to save money. Obtaining a construction estimate is the best way to determine the project’s closest true cost and is essential for establishing a well-researched, accurate budget.

Improved Risk Mitigation

A principal benefit of a cost estimate, particularly an independent one, is that it can substantially mitigate your level of risk. Each expenditure is accounted for, and it helps serve as a basis for comparison in determining the reasonableness or unreasonableness of the bid or proposal being evaluated.

Stronger Client Relationships and Enhanced Team Collaboration,

Strong relationships between the owner, general contractor, subcontractors, and other project team members are essential to a successful project. Cost estimating brings clarity, consistency, accuracy, assurance, and peace of mind to help all parties build trust, foster confidence, and establish strong working partnerships.

Ensures Reasonable Contractor Pricing

An independent cost estimate gives you an accurate, unbiased, and objective view of the project cost and all projected expenditures. In addition, it establishes a basis for comparison, allowing you to price-check quotes and determine the reasonableness of the bid(s).

Finding a Qualified Construction Cost Estimator

As we’ve touched on, procuring a construction estimate from an experienced estimator helps ensure the success of your project. Let’s take a look at some of the requirements and qualifications to look for in an estimating firm:

  • An established track record with extensive cost estimating experience, particularly in the same market or project type.
  • A proven method for preparing accurate cost estimates using the latest project cost control techniques, estimating, and BIM technology.
  • A cost management team with a working knowledge of the costs associated with all design stages and construction disciplines, including architectural, structural, civil, mechanical, electrical, and plumbing. They should have expertise in the following areas:
  1. Architectural drawings.
  2. Construction methods, building materials, building codes, and market trends.
  3. Cost of materials, lead times, workers’ hourly output, and overhead expenses.
  4. The value of the service fee with the project cost.

Understanding the Core Estimating Stages 

Grasping the main stages or levels involved in the cost estimation process will give you valuable insight into how your project budget comes together.

Order of Magnitude. This is a preliminary estimate and the first serious attempt at forecasting the overall cost of the construction project and determining its financial feasibility. At this time, the project scope is discussed, construction methods are considered, and alternatives are explored.

Conceptual Design. In this phase, a complete cost estimate is prepared to compare with the budget and feasibility determinations. In addition, more detailed design criteria are explored, such as construction materials, drawings, renderings, conceptual plans, foundation requirements, utility requirements, etc.

Design Phase Estimating

The project scope and design are developed in this phase, and materials are selected. Information needed for this estimate may include floor plans, engineering design criteria, preliminary schedules, equipment layouts, etc. Estimates are typically prepared at design milestones—Schematic Design (SD), Design Development (DD), and Construction Document (CD).

BID Evaluations/Analysis

This estimate is used to evaluate contractor bids. Probable costs are developed for comparison with bids and used to determine the reasonableness or unreasonableness of the bid being evaluated.

Change Order Review

A change order is an amendment to the original scope of work. At this stage, an independent estimate is prepared and compared with the change order request.

Cost Estimate Classifications

Order of Magnitude Estimate

It is like a rough estimate of a project’s costs. Some of the methods used for these estimates include; experience, historical values, charts, factor estimating, and judgment., This estimate is created in the pre-design stage and has an accuracy level of – 25% to 50%. It should not be relied on as the final estimate of a project.

Schematic Design Estimate

It is the intermediate level created in the schematic design phase. The feasibility of this cost estimate is gauged to determine whether or not a contractor should continue with a project. To avoid incurring losses, a contractor should ensure that the cost estimate is balanced and manageable.

Cost is estimated from plumbing, electrical and mechanical needs, architecture, and fire alarm systems. It has a margin error ranging between 15-20%.

Design Development Estimate

Also known as the preliminary estimate, is also extracted from the project scope and design. Estimation is done after initial assessments have been made. It helps contractors predict an estimate close to your client’s budget.

Cost is estimated by calculating; substructure, preliminaries, internal and external superstructure, finishing, and any emergencies. Compared to the estimates mentioned above, it is more accurate with a margin error of 10%. 

Construction Document Estimate

A construction document has project design, drawings, key objectives, and building specifications used to derive the construction document estimate. In addition, it gives extensive information on walls, ceilings, floors, and furniture. This estimate helps regulate project costs with a margin error of 5% and eliminates cost overruns. 

Bid estimate

It is the most accurate cost estimate used by contractors and then given to the client as the final estimate. Bid estimates need to be easy to interpret, unambiguous and concise. Contractors should apply markups to their calculations to ensure no losses are incurred.

Methods to prepare construction cost estimates

The following are the two commonly used methods of calculating construction costs. They include; average industry pricing and historical cost estimates.

Average industry pricing 

This method analyzes cost guides to calculate the average price per unit of existing individual labor and raw materials needed in the construction. These estimates are based on; material costs, subcontractor rates, labor rates, indirect costs, contingencies, machinery costs, and operational costs. Therefore, prices may vary depending on the location and seasonal changes throughout the year. 

Historical cost estimates

These estimates are acquired from past projects and historical data found in databases, previous bids, commercial references, and periodicals. Historical cost data saves time as contractors can use data from credible sources to cost analyze similar projects.

Prior knowledge of cost estimating helps contractors mitigate any risk and contingencies in their construction work.


What costs should an estimator consider?

An estimator should consider; direct costs, indirect costs, risks, and emergencies. Direct costs are the expenses associated with physical construction like; equipment labor, raw materials, etc. Indirect costs are costs that are influenced by the indirect expenses of a construction project like utilities, delivery costs, rent, etc.   

What is the work of a cost estimator in construction?

A cost estimator works alongside all stakeholders, including; engineers, architects, vendors, contractors, and clients, to give an accurate estimate of all costs for the construction project. Cost estimators should have high knowledge of evaluating bids, forecasting estimates, and cost optimization.

Is construction estimating difficult?

Construction estimation is a complicated process of finding the correct cost estimates for a project. However, with the right tools, cost estimators can quickly provide credible cost estimates.


Cost estimation is a critical stage in construction as it helps contractors know which construction projects to undertake. With the most accurate cost estimates, contractors are more likely to complete projects with few hiccups as every cost is accounted for. 

Before embarking on a commercial construction project, it’s essential to have an independent cost estimate prepared by a qualified construction cost estimator. Armed with this information, you can assess financial feasibility, establish a budget, tackle corrections early on, price-check quotes, and ensure the design process progresses cost-effectively.