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Appendix D Current Procedures for Preparing Early Estimates Prepared by Michael Morris. Many different methods and techniques are used to prepare early estimates for construction; that is the pre-programming, program, concept/schematic, and design development estimates. This appendix discnbes the most commonly used methods. Some of the methods discussed are also used to prepare detailed owner (government) estimates and esti- mates to compare with contractor bids; such as, working drawing and contact document estimates. However, since the focus of the appendix is on early estimates, the methods are discussed only in that context. Techniques for preparing early estimates can be categorized in various ways. In this appendix, the techniques are grouped and discussed under four broad headings: single unit estimates, multiele- ment estimates, parametric estimates, and range estimates. Information for the discussion was ob- tained from many sources, but especially Adrian (19X2) and Bower (1984~. SINGLE UNIT ESTIMATES In single unit estimates, the cost of a facility is calculated on the basis of a unit of measurement, which may be expressed in terms of the functional use of the facility, areas and volume, or factoring. *Michael Morris is President of Hanscomb Associates, ~c. 33 Estimates Based on Function-of-Use Units Among the function-of-use units sometimes used to prepare early estimates are the number of bed- rooms in a hotel, the number of seats in a theme, the number of beds in a hospital, and the number of parking spaces in a parking garage. Function-of- use estimates are prepared by multiplying the num- ber of units to be included in a proposed facility by an average construction cost per unit (e.g., dollars per bed). Such estimates can be prepared very easily and quickly if an estimator has the appropriate histori- cal dataand when an owner constructs a particu- lar type of facility on a regular basis, historical cost data related to a function-of-use unit for that facil- ity can be accumulated easily. However, even with ample historic data, estimates based on function- of-use units: frequently are unreliable since costs per unit are subject to wide variation. It is generally agreed that estimates based on function-of-use units ought to be used only for very preliminary planning purposes (i.e., pre-program- ming estimates) and only by people who are t}~or- oughly familiar with the type of facility in question and recognize the limitations of the data. Estimates Based on Areas or Volume Generally, one of the following three units are used to prepare area or volume budget estimates: floor area, building surface area, or building vol- ume. Floor area is the most widely used unit for

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34 preparing early estimates in most parts of the world. Estimates based on floor area generally are pre- pared by measuring the gross floor area of the facil- ity and multiplying the area by an average unit cost (e.g., dollars per gross square foot). There is an abundance of data available on con- struction costs per square foot for many types of facility, and government agencies, developers, contractors, and cost consultants collect, store, and use such cost data routinely. In prepanag area- based estimates, the estimator must be concerned with the accuracy of available unit cost data and have the necessary estimating skills to select the most appropriate rate for the building being esti- mated. Judgment is required because most cost data at this level includes little information on the characteristics of the buildings included in the his- torical data base. Area-based cost data is published by several commercial houses and is widely used by owners and estimators who do not have data bases of their own. These data, which are typically generated annually, give median costs per square foot for various building types. The unit cost for each build- ing type is related to a "typical" building of a par- ticular size. If the size of the building being esti- mated is different from the size of the typical build- ing, the unit costs may be adjusted using a no- mograph called a "square foot project size modi- fier." To improve the accuracy of floor-area based estimates, estimators sometimes use different unit costs per square foot for different functional areas of a building. This is known as the functional area method of estimating and the purpose is to account for the fact that in some types of buildings (such as hospitals) the cost per square foot to construct vari- ous departments may be significantly different. However, obtaining accurate cost data broken down by functional area can be difficult, and developing estimates using such data requires considerable skill. One problem with all floor-area based estimates is that there are no universally accepted rules for measuring building areas. The American Institute of Architects has developed measuring rules, but many organizations including most federal agen- cies~o not follow them. In fact federal agencies cannot agree among themselves on definitions of building areas; in a recent Federal Construction Council study (Consulting Committee on Planning and Design Terminology, 1988) it was found that various agencies use at least 13 different terms to define the areas of their buildings. Clearly, in the APPENDIX D absence of standards on measuring and defining areas, area-based cost data must be used with cau- tion. The building surface area method of estimating is similar to He floor area method. However, whereas win the floor area method the estimate is based on He area of just the horizontal floor sur- face of the building, with the building surface method bow vertical and horizontal surfaces are considered. To prepare an estimate based on a building surface areas, the surface areas of all floors, roofs, and external and internal walls are measured (but only one surface of an element is measured). An average unit cost rate for all surfaces is then selected and multiplied by the measured surface area to compute the total cost of the facility. There are also variations on this theme; for example, in some cases the areas of the various elements are multiplied by weighing factors to reflect the differ- ences in their construction costs. The building surface area method is not widely used because reliable cost data of the type needed is often not available. Furthermore, if drawings of the building are sufficiently well-developed to al- low use of this method of estimating, most estima- tors tend to use a multi-element approach (see be- low) for which unit cost data are more readily avail- able. The building volume method of estimating also is similar to the floor area method. The main dif- ference is that the height as well as the floor area of the building is considered. The building volume method is not nearly as popular as the floor area method, but is sometimes used where buildings of the same type can have significantly different floor to ceiling heights:(e.g., hangars, hospitals, and warehouses). The building volume method like the building surface area method is used infre- quently partly because of a lack of cost data; how- ever, some published cost-per-cubic-foot data is available in the market place. The Factoring Method of Preparing Budget Estimates The factoring method of preparing early esti- mates is most often used for major manufacturing facilities where the cost of a single component, for example equipment, is the most significant cost item. Costs of the various components of the build- ing required to house and support the equipment are assumed to be fixed percentages (factors) of the

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APPENZUX D cost of that equipment, as illustrated in the follow- ing example. Cost of Equipment: $2,000,000 Cost of construction and support systems expressed as factors of the equipment costs: Element/Component Factor Estimated Costs Arc hi tee turallS tru c tural . 3 0 Mechanical .25 Electrical .10 Equipment Installations .15 General Conditions .10 Total Estimated Cost $600,000 450,000 200,000 300,000 200,000 $1,750,000 The type of cost data used with the factoring method is relatively inexpensive to collect and use, and the factoring method can produce reasonably accurate estimates provided a good data base is available. The factoring method does not, how- ever, lend itself to the type of facilities ordinarily constructed by the federal agencies. MULTI-ELEMENT ESTIMATES The multi-element approach is a popular method of preparing cost estimates for construction: First, each of the various elements, systems, and compo- nents of the proposed facility are identified, sized, and priced separately in accordance with recog- nized procedures; next, the costs of the individual items are added to determine the total direct cost of the facility; finally, allowances are added for over- head, profit, and contingencies to determine the overall estimated cost of the project. Most estimates of the multi-element type are based on one of two recognized formats: an ele- mental format in which most costs are related to the systems and physical elements that make up a build- ing; and a trade format, in which costs are broken down by specification sections, most of which are related to construction trades or materials. Elemental Format Probably the most widely used elemental format is Uniformat (a contraction of"uniform" and "for- mat"), originally developed by the American Insti- tute of Architects (AIA). It was later modified and adopted by the General Services Administration (GSA). The GSA version is now a nationally rec- ognized method for analyzing building construc- 35 lion costs on the basis of 12 standard building sys- tems or elements: foundation, substructure, super- structure, exterior closure, roofing, interior con- struction, conveying systems, mechanical, electri- cal, general conditions and profit, equipment, and site work. As developed by GSA, each of the 12 Uniformat elements can be fewer broken down into sub-ele- ments, and each sub-element can be further subdi- vided into components to permit the preparation of highly detailed estimates. However, in practice, most estimators use the Uniformat breakdown for preparing early estimates and the CSI approach (see below) for preparing working drawing esti- mates. Some commercial houses and several fed- eral agencies publish generalized cost data for early estimating purposes on the basis of the 12 Unifor- mat elements, but also have available detailed cost data for preparing more detailed estimates in accor- dance with the CSI format. The Uniformat approach has been widely adopted for the preparation of early estimates because own- ers, architects, engineers, and others involved in making broad decisions about construction tend to relate more to the cost elements used in Uniformat than to the work items in the CSI format. The usefulness of the Uniformat approach has been enhanced by the development of computer programs that permit cost data in the CSI format to be sorted into Uniformat elements and vice versa. CSI Format The most widely used format for storing and presenting construction cost data is the 16-division specification format of the Construction Specifica- tions Institute: general requirements, site works, concrete, masonry, metals, wood and plastics, ther- mal and moisture protection, doors and windows, finishes, specialties, equipment, furnishings, spe- cial construction, conveying systems, mechanical, and electrical.* By design, the CSI format reflects the scheme used by most contractors to organize and manage construction projects, account for costs, and award subcontracts. Consequently, the CSI format is widely used by contractors to prepare bids and by *The 16-division specification format of CSI is based on the 16-division "Uniform Construction Index" that was jointly developed in the late 1960s by a number of or- ganizations including the American Institute of Archi- tects, the Associated General Contractors, and CSI.

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36 estimators to store cost data for working drawing estimates. However, while there is considerable historical cost data available in the CSI format on venous building types, it is often of little value for early estimating purposes because it is usually in such detail that it cannot be used until the design of the facility has been developed to a significant degree. A detailed estimate using the CSI format is prepared by measurement of the quantities for all labor, materials? and equipment required for each item included in each of the 16 divisions. These quantities are then priced at appropriate rates, ex- tended, and totaled. Allowances are then included for general conditions, overheads, profit, and con- tingencies to arrive at a total estimated cost. The preparation of such estimates, generally known as the quantity survey method, is labor-intensive and needs time to complete. It should be noted that detailed working drawing estimates can be pre- pared in CSI or elemental format or indeed in other formats to suit an owner's code of accounts. As mentioned previously, the managers and professionals who make decisions in the early stages of a project do not think in terms of the work items in the CSI format. Rather, they tend to think in terms of systems, like those in the Uniformat. Thus, whereas detailed estimates are usually in the CSI Format, program and concept/schematic estimates tend to be in Uniformat. PARAMETRIC ESTIMATES To a certain extent all methods of estimating are parametric in that they are based on the use of cost parameters. However, the term "parametric esti- mating" is generally understood to mean the tech- nique of developing estimates based on a limited number of important features that are the major cost drivers of an estimate. Parametric estimating is most applicable to relatively standard facilities since the starring point is a data base containing detailed estimates of various specific facilities. The premise underlying paramedic estimating is that the cost of the facilities in the data base will vary as a function of certain values (parameters). Thus, by assigning new values to the parameters associated with the detailed estimate from a particular facility, a new detailed estimate for that facility can be generated. The concept is sound and produces rea- sonably accurate estimates provided the algorithms and statistical data used in connection with the parameters are accurate and extrapolations of the estimates in the data base are not excessive. APPENDIX D The major advantage of paramedic estimating is that it provides detailed cost breakdowns in either Uniformat or CSI format depending on how the prototype estimates in the data base are format- ~iquickly and at relatively low cost with only limited analysis of the facility to be constructed. Thus, wig parametric estimating, budget estimates can be prepared that include similar detail as work- ing drawing estimates. The disadvantages of parametric estimating are that it can be used only for facilities similar to the facilities for which there are estimates in the data base, and the computations are performed by com- puter, making it very difficult for estimators to verify the results. In addition, many parametric estimating systems are proprietary, and developers will not divulge the algorithms used; consequently, their validity must be taken on faith. The U.S. Air Force has developed a parametric estimating system called the Construction Cost Management Analysis System (CCMAS) for esti- mating costs of venous types of Air Force facilities that are constructed on a regular basis.~The devel- opers of the system, the Construction Cost Man- agement group at Tyndall Air Force Base, report that the system has been tested and found accurate and reliable (Bridges and Gregory, 1987~. PROBABILISTIC ESTIMATING AND RANGE ESTIMATING Construction cost estimating traditionally has been treated as a determinate problem; that is, a problem in which the answer can be expressed as a specific, definite value. However, since a cost esii- mate is really a prediction of what an item or group of items will cost in the future, many assumptions must be made in preparing an estimate, which in- troduces a degree of uncertainty into the process. In the case of early estimates, which usually are prepared before most design decisions have been made (and often many months before bids are re- ceived), the level of uncertainty may be high. Traditionally, estimators and owners have dealt with uncertainty about the accuracy of estimates through the use of contingency factors, which in essence provide funds to cover cost overruns up to a certain amount. Although the contingency-factor approach has worked reasonably well, in recent years a number of estimators have developed alter- native methods of quantifying the uncertainty that is inherent in almost all cost estimates. These meth- ods are usually referred to as either range estimat-

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APPENDIX D ing (Curran, 1988) or probabilistic estimating (Consulting Committee on Cost Engineering, 1983~. While there are significant differences in the venous range estimating and probabilistic estimat- ing techniques that have been developed, they tend to have several features in common; specifically: (1) they require that an estimate be made of the potential variability of each element in an estimate; (2) they employ the laws of probability to deter- mme me impact of possible variations in the cost of individual elements on overall costs; (3) they re- quire tile use of a computer; and (4) they present the results in the form of a histogram or a cumula- tive distribution showing either the probability of 37 various estimates proving to be the actual cost of the project, or the probability of cost overruns of various magnitudes. Opinions vary on the value of range estimates for budgeting purposes. A number of users have enthusiastically endorsed the range estimating con- cept (see Curran 1988~. However, several federal agencies that used range estimating on a Dial basis encountered opposition from estimators on the grounds that He range estimating process as too time-consuming and from managers on the grounds that they did not want more complexity in the deci- sion-making process (see consulting Committee on Cost Engineering, 1983~.

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