Accurately estimating construction costs is essential for the success of any building project. A profitable project requires getting the costs right – undervaluing the price can lead to financial losses, while overvaluing estimates can decrease your chances of winning bids. 

Inaccurate estimations can result in financial losses, project delays, and other undesirable consequences. Inaccuracies can occur as a consequence of missing or incorrect data, improper analysis, and unforeseen changes in project scope or market circumstances. The approach is to use standard techniques for cost estimating, such as including stakeholders, employing dependable tools, and frequently monitoring and revising cost predictions.

Construction cost estimators need to be able to adapt to unexpected changes and recognize the real problem to find solutions that ensure profitability.

With our help, you will learn how to identify the root cause of cost estimation problems and explore possible solutions that will ensure the profitability of your project.


What Is Construction Cost Estimating?

Commercial construction cost estimation process involves calculating the cost of materials, labor, and other expenses related to a building project. Accurate cost estimates require a thorough understanding of the project scope, current market rates, and potential risks. This ensures competitive and reliable estimates that help to achieve project success.

It is a crucial process used to determine a job’s feasibility, develop accurate bids, or create a project’s budget. It involves a detailed and methodical analysis of all expenses related to the construction project. The resulting estimate serves as the foundation for decision-making, budget planning, and other essential project activities.


Who Is Responsible For Cost Estimating?

The responsibility for cost estimating in a project lies with the project manager. Cost estimation and management are vital to project management. The project manager is accountable for developing the most precise project budget possible, which involves using cost breakdown structures and estimating techniques. The project budget includes direct and indirect costs, providing an overall estimate of delivering the project on time while meeting quality expectations. Cost estimation considers all project resources for success.

The project manager has accountability for cost estimation, ensuring that the project stays on the prescribed budget, remains financially viable, and provides the desired value to stakeholders.

Construction Costs To Include

To ensure a comprehensive and accurate project budget, it is important to consider all costs, both indirect and direct. Indirect costs such as office rent, maintenance expenses, taxes, and bid creation costs (even those rejected) must be factored in. Direct costs, on the other hand, refer to expenses related to labor, materials, and equipment. Delving deeper into these cost categories will provide a clearer understanding of their importance.

Labor Costs

Labor costs are a critical component of construction projects, accounting for up to 50% of overall costs. When it comes to construction projects that have longer start dates or extended timetables, it’s essential to consider potential disruptions that may affect your budget. Among these are factors such as bad weather and pay hikes, which can lead to cost overruns and ultimately decrease your profitability. In order to prevent these unwanted outcomes, it’s crucial to have a solid cost estimation strategy that takes these risks into account and enables you to adjust your budget accordingly. This can help ensure a more accurate and lucrative budget.

Quantity Takeoff

In the construction industry, a quantity takeoff is a meticulous assessment of all the materials needed for a building project. It involves the identification and quantification of various materials required for the project, such as doors, wood, carpet, air conditioners, nails, light switches, wiring, tiles, and more. A precise measurement and estimation of materials are crucial to avoiding discrepancies between estimated and actual costs.

It’s important to ensure that the real costs of these materials are not significantly higher than the estimated costs. By conducting a thorough quantity takeoff, builders and contractors can achieve more precise and reliable estimates, leading to a smoother and more profitable construction process.

Material Prices

The accurate estimation of construction costs depends heavily on the overall material cost determined through a quantity takeoff. It’s important to take into account factors such as price fluctuations, quantity discounts, and delivery expenses when determining this cost. 

Equipment Costs

In order to estimate the total cost of a construction project accurately, it is important to take into account the expenses associated with the equipment needed to complete the job. This includes not only the purchase or rental costs of the equipment, but also the expenses related to its maintenance, transportation, and storage on site. It is essential to factor in these costs to ensure that the overall project budget is comprehensive and accurate.

Different Types Of Cost Estimates

Feasibility Estimate

In the initial phase of a construction project, it is important to conduct a feasibility estimate to assess the project’s order of magnitude and determine whether it is a viable option. This estimate is the least precise of all estimates and relies mainly on historical data and prior experience. It helps in identifying any construction methods that are too costly to implement, saving time and resources before proceeding with the project.

Intermediate Estimate

After determining the feasibility of a construction project, an intermediate or base estimate is necessary. This estimate delves into the project’s size, scope, and complexity while taking into account any potential challenges. While not completely precise, it is based on knowledge, prior experience, and historical data, rather than targeted, factual information. Projects begin with 5-20% definition and 10-25% precision estimate.

Preliminary Estimate

A preliminary estimate serves as an initial assessment of a project’s cost, timeline, and scope, providing insight into available options and what is included in the final price. Incorporating blueprint or design data, the preliminary estimate breaks down costs and considers design details, identifying any calculation errors. By estimating the time needed to complete the project, an accurate schedule can be established to avoid delays beyond the agreed-upon date. This estimate provides insight into the various options available and the factors that will influence the final price.

Substantive Estimate

In the construction process, the substantive estimate is a critical step that follows the finalization of the project’s design. This estimate takes into account the precise costs of materials and provides an opportunity to make any necessary changes before construction commences. During this stage, the project team can evaluate the cost of materials and explore options for staying within budget or upgrading to higher-quality materials. It is crucial to make any required adjustments during this phase, as the substantive estimate serves as the final chance to ensure that the project is on schedule and ready to proceed to the construction phase.

Definitive Estimate 

In the concluding phase of a construction project, the definitive estimate is the ultimate step. It is crafted after all contracts are inked, and all alterations have been made. This estimation is the most precise of all and can be deemed as an exact cost calculation. It is formulated when all details are finalized, and all parties are in concurrence. With the definitive estimate, the construction can begin with complete assurance that the costs are accurately calculated and accounted for.

One effective approach to anticipate the amount of resources and labor needed for a specific stage or task in a project is by employing a well-crafted estimation strategy. This technique typically incorporates a margin of error ranging from -10% to +10%. To illustrate, if a Definitive Estimate of 100,000 PKR is provided, it implies that the total project cost could potentially fluctuate between 90,000 to 110,000 PKR. Such a refined and calculated method can aid in establishing realistic expectations and minimizing unexpected costs during the project’s execution.

Construction Estimates By Hand

Typically, creating a construction cost estimate was a tedious task, requiring a pen, slide ruler, and calculator. The estimator had to possess substantial knowledge and skill, and the process could take months or even years. The margin for errors was high, and even minor mistakes could lead to significant financial losses. Spreadsheets have provided practical solutions for smaller building projects.

With advances in technology, the speed and accuracy of construction cost estimates have improved, enabling estimators to produce more reliable estimates in a fraction of the time. These advancements have revolutionized the construction industry, providing better cost control and increasing profits of building projects.

Improve The Estimating Process With Building Estimating Software

Gone are the days when construction cost estimation was limited to the experts with extensive experience and industry connections. DEKR Estimation comes equipped with advanced features to optimize the process and minimize errors. From tracking costs and expenses to managing tasks and timelines, our software helps you create a more accurate project cost estimate. 

With DEKR Estimation, you can generate comprehensive cost estimates for various construction projects, such as commercial buildings, residential homes, and industrial facilities. Software has earned the trust of a wide range of professionals. From General Contractors and Project Managers to Homebuilders and Investors.

Cost Estimation Techniques In Construction Projects

Cost estimation is a critical task that enables the effective planning and execution of construction projects. One of the primary classifications of cost estimates is based on their function, which includes design estimates, bid estimates, and control estimates.

Construction Cost Estimation for the Design Phase

Typically based on conceptual drawings and limited specifications. When it comes to analyzing the cost of design work for a construction project, several types of estimates are available. A screening estimate relies on past cost data, while a preliminary estimate is based on conceptual designs. A detailed estimate examines essential features of the facility, and an engineer’s estimate uses construction contractor bids. These estimates help track progress during the design and planning stages, and provide insight into costs associated with new construction.

Construction Estimates for Project Control

To estimate the cost of a construction project, we consider variables such as the scope of work and size of the construction. During the construction phase, a control estimate is used to monitor the project’s progress. This estimate is based on the budgeted cost, estimated cost to completion, and budget estimate for financing. Contractors and owners should establish a baseline for cost control, and owners should adopt a budget estimate early on to aid in long-term financing.These estimates act as a reference point for actual costs, enabling managers to make necessary adjustments and keep the project on course.

Estimating Construction Costs for Bids

Cost estimation is essential to the construction process, factoring in all aspects of a project from materials to labor and equipment rentals. During the procurement phase, bid estimates are developed as contractors compete for the project. These estimates reflect the actual cost proposed by the contractor and are typically more detailed than design estimates. The estimate includes construction cost, general overheads, and profit, derived from quantity takeoffs, construction procedures, and subcontractor quotations. Whether through competitive bidding or negotiation, accurate bid estimates are critical to successful project completion.

Understanding the differences and purposes of design, bid, and control estimates is crucial to the success of a construction project that aids project managers in informed decision-making throughout construction.

How Do You Calculate Construction Costs?

After getting a big picture of the project, the next step is to gather every detail and start calculating the costs. This involves gathering information on direct costs, such as materials, labor, and equipment, as well as indirect costs like utilities, legal fees, and permits. Don’t forget to factor in the cost of labor, including wages, taxes, and overtime. 

By taking all of these factors into account, you can create a comprehensive and accurate estimate for your construction project. Remember to approach this task with attention to detail and careful calculations to ensure the success of your project.

Common Cost Estimation Problems

Generating accurate cost estimates is crucial for any successful construction project. However, cost estimation can be challenging due to several factors, including 

  • Quantifying Cost Impacts 
  • Resource Constraints
  • Coordinating with Multiple Organizations 

To address these challenges, it’s crucial to use cost estimation software and allocate enough time for data collection and validation. Additionally, estimating labor costs and staying up-to-date on material and supply costs is crucial for accurate estimates. Reviewing your work carefully can help you catch potential errors and ensure your estimates are reliable. By being aware of these challenges and using the right tools and techniques, you can create accurate cost estimates that will help your construction project stay on track.

Whether you are a seasoned estimator or new to the field, by being proactive and with a keen awareness of common construction estimating mistakes, you can minimize their impact on the accuracy and speed of your final estimate.


Construction cost estimating is the process of determining the cost of a building project, including materials, labor, and other expenses. Accurate estimates require a deep understanding of the project scope, market rates, and potential risks. The project manager is responsible for developing the most precise budget possible, using cost breakdown structures and estimating techniques. All costs, direct and indirect, should be considered, including labor, material prices, quantity takeoff, and equipment costs. There are different types of estimates, such as feasibility, intermediate, and preliminary estimates, each serving a specific purpose. A comprehensive and accurate budget is crucial for determining job feasibility, developing bids, or creating a project budget.


How To Calculate Construction Cost Per Square Feet?

To calculate construction cost per square foot, divide the total cost by the total square footage. For instance, if a 5-marla house costs PKR 8M and has 2,000 sq ft, the cost per sq ft is PKR 4,000. Costs vary based on factors such as location, materials, labor, and complexity.

Why Is Construction Cost Estimation Important?

Estimation of construction costs helps ensure that projects are completed on time and within budget. This promotes accountability and helps project owners determine if their project is viable. Contractors can use estimation techniques to avoid financial losses, while clients can be confident that they are not overpaying for services received.

How Much Does A Contractor Cost To Build A House? 

The cost of building a new house with a contractor can vary depending on factors such as the level of customization and the materials used. On average, builder-grade new house construction can cost around $150 per square foot, while luxury or custom homes can cost more.

How Can I Improve The Accuracy Of My Construction Cost Estimates?

Achieving accurate construction cost estimates involves several steps, including building a cost database, incorporating risk analysis through contingencies, utilizing cost engineering software, reviewing past projects, performing precise take-offs, and understanding labor costs and productivity of your crews.

What Are Some Common Mistakes To Avoid When Estimating Construction Costs?

There are several common mistakes to avoid. These include failing to conduct a site visit, inaccurate takeoffs, inadequate assessment of risks and contingencies, guessing instead of using accurate data, and not reviewing subcontractor estimates. By avoiding these mistakes, you can potentially save on costs while identifying potential problems.


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