Cost Estimation is Not Just Number Crunching

Cost estimation is a critical management tool for project planners, and they should demand a thorough effort from construction industry estimators.

By Victoria Cabanos and Breck Perkins

One of the greatest concerns an owner or developer has over the lifespan of a building project is what the effort is going to cost. These development leaders rely on cost consultants to present an accurate and detailed evaluation of project costs as early as possible in order to ensure the overall project's financial stability.

But developers - as well as contractors that use outside consultants - don't always know what to expect from their cost estimators and how much to ask of them. Trying to ensure that the completed building adheres to the original financial plan is no small challenge.

The basic value of a good cost estimator is in helping to establish detailed foreknowledge of expenditures in specific terms as well as an idea about the scope of expected changes as a project progresses. Such information contributes to proper project capitalization and scheduling from the outset. This is especially true for structures expected to last many decades, such as high-quality museum facilities with projected lifespans of 100 years or more.

An important first step in using a cost estimator is getting that consultant on the job as early as possible. Ideally, the architect and the engineering consultant team also should be collaborating in advance of the design development phase. This allows the full team to comprehensively detail project needs at the schematic level.

Next, the estimating team should work with the architect to develop project details beyond the schematic level, relying on prior knowledge and experience to determine what specific design elements will cost. An initial baseline budget can validate the viability of the schematic design and alert the team to the need for any major changes.

A good cost estimator will monitor the project not only to support its design intent, but also to let the architects know precisely when and why they might exceed the budget. For example, as the design moves forward, estimators can facilitate the discussion among the architectural and engineering teams by validating the need for particular systems or suggesting appropriate cost-effective alternatives. This allows the team to adjust the project scale for both function and lifespan cost. It also enables the team to balance the selection of materials, systems, and specific building components.

These early steps are more critical today, because many developers demand accelerated project schedules, putting pressure on the entire consultant team. Proper understanding of costs can help to avoid delays.

Developers also have had to contend with the dramatic price fluctuations of recent years for raw materials, commodities, and finished building components and assemblies. The cost estimating effort should involve strategies to manage through these hurdles, such as fast-track pricing and ordering schemes for building materials, the early purchase of pre-assembled components, and efforts to tap into the overseas materials supply market.

Behind such early planning and cost-containment strategies, any estimator needs a strong foundation of research, including on-going rigorous analysis of the regional market for labor and materials. Cost consultants need to have an acute awareness of pricing by region and a sophisticated understanding of the economic trends and market forces that can cause these prices to fluctuate.

The critical factor is appropriately estimating for change. Developers apply pricing models well in advance of construction, so it is essential to anticipate how costs will change when it comes time to order and purchase materials and labor.

Ultimately, successful estimating requires due diligence and the establishment of relationships across geographical borders in order to acquire accurate market information for specific project locations. This model gives project leaders a much better chance to catch inconsistencies and avoid potential problems as construction moves forward.

Victoria Cabanos and Breck Perkins are principals at Stuart-Lynn Company, a New York-based construction cost estimator.