What Is A Construction Estimate? (With Importance)

By Indeed Editorial Team

Published 12 October 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Estimating is an essential step in construction. It allows estimators to determine the cost of all the materials that they require to construct a building and also gauge the total cost of the building. Knowing what a construction estimate is and understanding its components and levels can help you perform this activity accurately for a project. In this article, we define what a construction estimate is, discuss its importance and list the levels of accuracy in an estimate.

What Is A Construction Estimate?

Construction estimate is the calculation of the approximate cost of constructing a building. Builders use this estimate to anticipate the total cost of construction using the amount of each material that they may utilise. They then add these amounts to get a final cost, which can change depending on the change in material and their costs. This can help builders to determine a budget for the project and work accordingly. It also helps them identify their profit margins.

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Importance Of An Estimate

An estimate is typically important while bidding for a project. Construction companies prepare an estimate of the total cost for a project and place their bids accordingly. This can help these companies provide a suitable estimation to the business that wants to construct the building. Based on estimates from multiple builders, a company can decide which builder it can choose for the project. It can also help both parties to determine a final budget or a quotation for the project.

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Levels Of An Estimate

Depending on the progress of the project, the estimate may change. Costs may increase or decrease during the construction depending on the requirement of new material or more quantity of the existing material. It may also change on the basis of changes in labour rate or required working hours of the labourers and masons. As and when these costs change, estimators require updating the estimates. They do these updates in phases or levels. Here are different levels of an estimate:

Order of magnitude

This is level one of the construction estimation. This level refers to the feasibility and budgetary aspects of the estimate. Estimators prepare this type of estimate to determine an approximate budget for the project. They may also use historical data from past projects as references to prepare this. To create an estimate at this level, estimators usually require project information like a general description of the project, cost per square foot, layout, geographical location, building area and the maximum capacity of the building.

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Conceptual or schematic design

Level two of estimating involves a more comprehensive cost calculation than level one. Estimators use this level of the estimate to calculate the budget and feasibility based on a better definition of the scope of the project. They may use it to calculate the cost of various design schemes or alternatives and determine which one fits better within the project's budget. This may also include schematic designs or layouts of the building. Estimators typically base level two of the estimate on the information they gather in level one, with additional details like detailed building drawings or any other design specifications.

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Design development

This is the third level of estimating in construction. More detailed than levels one and two, estimators typically use level three estimations after they finalise the scope of the project, the design and the materials. This estimate also includes design documentation with elements like elevations, floor plans, sections, preliminary finishes, equipment layouts and typical details. Level three estimates typically provide a detailed calculation of the project costs, primarily because of the detailed design documentation.

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Construction documents

Level four estimates typically involve budget allocation for the furtherment of the project when the construction documents are at least 90% complete. Estimators do this after the finalisation of all the designs and verification of all construction costs. It also allows estimators to propose any value engineering opportunities before finalising the estimate and make necessary changes to it accordingly. Businesses typically use level four estimates to evaluate the subcontract pricing in the bidding phase.

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Bidding phase

This is the final level of estimation. In level five, estimators calculate the total cost of construction and prepare it for a bid on the project. They typically submit this estimate to the owner of the project, who decided who takes the project based on the bids and the final estimates. In a typical design-bid-build model, the estimate would be final. In other models, like design-build or guaranteed maximum price, the estimators may submit the estimate in the earlier levels. In such instances, they submit a finalised estimate which progresses along with the completion of the construction phases.

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Components Of An Estimate

Here are the components of an accurate estimate for a construction project:

Labour hours

Labour hours are an important part of an estimate in construction. Adding these hours to the calculation can help estimators to determine the number of hours for which they require the labourers to work on site. The number of hours may help them determine the availability of different labourers and their salaries. Estimators may assign working hours to the labourers depending on the budget and complexity of the project.

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Labour rates

Labour rates refer to the salary a builder may pay to the labourers. They may hire a firm that provides them with a workforce for the project or they may hire individual labourers. The rates may differ based on this. Companies typically pay daily charges to the labourers. They may calculate the total number of working days and add the total amount to the estimate. This may change with the addition or reduction of working days.

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Material prices

Material prices are an essential part of the estimate and one that may change often. Estimators include the price of a single unit of material and then calculate the total amount based on the number of units required. For example, they require marble tiles for flooring. A single marble tile costs ₹15. If they require 100 tiles, the total cost would be ₹1500.

An estimate includes the cost of all the materials required for the project in the same manner. Prices may also change depending on the price of the materials in the market. An estimator requires staying updated with the market price of the materials and updating the estimate if they require purchasing any material after an increase or decrease in its market price. Some vendors may also provide discounts on larger purchase orders. The estimator may add these discounts to the estimate.

Equipment costs

Equipment costs can differ based on the size and duration of the project. If the project requires heavy machinery and a large number of manual tools, the cost may be higher than a minor project that only requires manual tools. The cost also depends on the amount of rent the company require to pay for the equipment. The rent typically varies based on the number of hours or number of days the company requires those instruments. An estimator usually calculates the total cost of renting the instruments for the entire project and adds the total cost to the estimate accordingly.

Indirect costs

Indirect costs are expenses that are not directly related to construction activities or resources. These may include quality control, security, administrative activities, temporary structures, utilities and legal fees and permits. These costs may add up during various phases of construction. The estimator updates the estimate based on the changes in indirect costs throughout the project.