Research Paper on Accurate Cost Estimation: Quantity Takeoff

Introduction

The cost estimate is the practice of projecting the price of project completion with a defined scope. Good cost estimation helps in ensuring that the project is done within the set budget. Many costs can occur over the project's life cycle, and an accurate estimation approach helps a cost estimator to know the cost and time for project completion (Brook, 2016). One of the elements of a cost estimate is quantity takeoff. It involves accurate identification and development of the necessary materials for the project. This element is essential because it prevents inaccuracies in the project.

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The second element is labor hours. In this component, the cost estimators use their experiences to approximate the labor hours needed to finish the entire project. The estimator must consider the different levels of labor productivity rooted in the complexity of every phase of the project (Brook, 2016). The third facet is labor rates. It is the cost of labor used to derive the outlay of activities related to the project. Labor rate is calculated by multiplying the direct labor hourly rate by the number of direct labor hours needed to complete a single unit. While determining this element, the cost estimator also considers the likelihood of overtime work and the rise in cost associated with additional hours.

Another element is the price of materials. According to Brook (2016), estimating the material cost is complicated due to the fluctuation in the cost of materials based on the demand and supply of the market, quantity needed transportation cost to the construction site and exchange rates. Another component is the equipment cost. It is estimated using the capacity of the equipment and the differential costs that exist if the equipment is rented. Another element is the cost of the subcontractor. Subcontractors do some portions of a project. As such, the cost estimator must consider labor, equipment, and material costs the contractor requires.

Importance of Construction Project Scheduling

Project scheduling is a mechanism used to communicate the tasks that should be completed, the resources to be allocated for each task, and the time each task should take. The primary benefit of scheduling is that it ensures a project is completed on time and within budget (Scott, 2017). A well-organized schedule helps in outlining the speed of work and how the task will be completed. The schedule assists in illustrating the methods and patterns of establishing the materials. It also allows the workers to exploit quality control measures since they can sequence the work and ensure that the correct materials ate used at every stage.

Additionally, scheduling helps with the planning of numerous resources, such as labor and equipment. Another importance of construction project scheduling is that it provides a sequence of tasks to enable project managers to know the kind of activities they are handling and the next activities that require preparation (Scott, 2017). Scheduling also helps in formulating bid estimates. Besides, it enables construction workers to see their objectives and when they should be accomplished. Further, project managers can use details of the construction schedules as a means of monitoring the progress of work. Lastly, construction project scheduling reduces wastage of resources.

The Critical Path Method

The critical path method (CPM) is a step-by-step technique in project management used for scheduling a set of project activities. It uses the concept of the critical path to identify the entire project duration and possibilities of missing deadlines (Ray, 2019). CPM calculates the longest path of planned activities to the end of the project, the earliest start time, and the latest finish time of each activity without making the project longer. The primary technique for using CPM is to construct a project model that includes: a list of tasks needed for project completion, the dependencies between the tasks, and the duration taken by each activity to finish (Ray, 2019). With this information, a project manager can identify the critical path by determining the longest stretch of dependent activities and measuring them from the beginning to the end.

After identifying the critical path or the longest activities, one can identify the activities that can be delayed without extending the project (total float). It is called a critical path because delays in any tasks related to this path are likely to delay the project. To use the CPM, it is essential first to know the scope of the project and list all the activities needed for its completion (Ray, 2019). The next thing is to estimate the time each task would take to complete. Next is to note all dependencies between the task to know the activities that can be done separately and the ones that depend on the previous tasks to be completed. The last step is to add deliverables and milestones to the project.

Overheads

Overheads are expenses required by a company to operate, but exclude direct expenses of project activities. These expenses cannot be attributed to specific business activity. Instead, they support the whole revenue-generating activities of the project. Examples of overheads are office rent, accounting fees, telephone expenses, repairs, travel, supplies, and salaries to the staff. In other words, these are expenses incurred to support the project but are not directly related to the production of a product or service. Overheads are calculated costs of operating the contracted company and are priced equally against a project. These costs are often referred to as head office administrative costs. Administrative or head office costs include finance charges, property costs, external advisors, taxes, tendering activities, staff, and insurances.

A Rise and Fall Clause

A rise and fall clause refers to a building contract that allows for an upward and downward shift in a contract cost based on the fluctuations of the prices of materials, wages, and other factors specified in the contract. A rise and fall clause in the construction contract is a way of sharing the risk of changing building costs with the client instead of being left solely on the builder. Such a clause requires the builder to pass the contract to the client after signing it. It also allows for the surges and reductions in the construction work.

How Projected S-Curve can be used to Determine Progress

In project management, an S-curve is a tool used to determine Progress by comparing the actual S-curve with the target and the baseline S-curves (Tawfeq, 2017). The production schedule is updated regularly throughout the period of the project. These updates involve the revision of complete percentage for every task. This information is used to generate an actual S-curve. This S-curve represents the actual Progress of work to date and is compared with the Target S-curve and the Baseline S-curve to determine the Progress of the project, as shown in Figure 1.

The actual S-curve often terminates at the cut-off date during the project. The cut-off date refers to the time the production schedule was last updated (Scott, 2017). For many projects, the actual S-curve sits below the target s-curve due to factors such as production schedule delays. The curves converge and towards the completion of the project. The success of the project is measured when the target s-curve finishes above the actual S-curve. In case the actual S-curve sits above the projected S-curve at the cut off date, project managers should examine the production schedule to determine if the project is really beyond the schedule or if the schedule has unrealistic values for the continuing work.

Figure 1: Determining the Progress of the Project using S-curves

Factors Which can affect a Construction Cost Estimate and Impact on the Project

One of the factors is similar construction projects. The best reference for the construction estimate is always similar construction projects (Olawale & Sun, 2010). The final costs of identical construction projects give the idea for the calculation of the new project cost. Another factor is the costs of construction materials. These costs include shipping charges, material costs, and taxes. Another factor is the rates of labor wage. Labor wages vary depending on the place. As such, it is necessary to consider local wages in the calculation. If the project needs to commence after many months of project cost estimation, the possible variation in the rate of wages must be included in the calculation (The Constructor: Civil Engineering Home, n.d.).

Another factor is the condition of the construction site. The construction sites such as those with poor soil conditions, contaminated materials, wetlands, endangered species, conflicting utilities, and archaeological sites can increase the cost of a project (The Constructor: Civil Engineering Home, n.d.). The inflation factor also affects project estimation cost. It is characterized by the variations in economic factors such as the cost of materials. These variations should be considered during cost estimation. Another factor is the project schedule. An increase in the duration of the project increases the cost of the project due to the surge of indirect expenses.

Cash Flows in Construction

In construction, cash flow is an analysis of the incurred costs during the project cycle. It is similar to the general cashflow: - the inflow and outflow of cash that maintains the operation of the construction project. Cash inflow represents the payments made by the client after performing a portion of work or as a down payment. Cash outflow is the money paid out, such as amount used to purchase raw materials, labor wages, subcontractor commission, interests, and taxes. For project construction, a strong projection of cash flow helps in ensuring that the involved parties are compensated accordingly. This allows the project to run smoothly. Usually, the main contractor in a construction project outlines the fee payment schedule and the cash flow of the project. Simply put, cash flows in construction involve the incoming and outgoing cash.

Effects of Scales on Construction Cost

Screening cost estimates often depends on one variable representing the size or physical measure of the design like highway length, floor area in buildings, capacity of storage bins and production size. Costs do not always vary linearly depending on different facility sizes. Typically, there is existence of scale economies and diseconomies. A decline in the average cost per unit shows an existence of scale economies. Conversely, the increase in the average costs exhibits the existence of diseconomies.

Empirical data seek to create the economies of scale for different types of facility to take advantage of the reduced cost per unit. To find out the linear cost relationship with economies of scale, let x be a variable representing facility capacity and y be the resulting cost of construction. Then linear relationship can demonstrated in the form of y = a + bx as shown below. For instance, the cost of construction of a school building can be approximated based on linear relationship be...