What Are The 5 Cost Estimates Followed In Construction?

Construction cost estimation is the backbone of construction project budgets because it determines whether the projects are feasible. There are numerous ways to estimate construction costs, but here, we will discuss the five cost estimation methods widely followed in construction. 

This comprehensive blog post will discuss the five commonly used construction estimation methods and highlight the premier construction estimating services in NYC. Let’s begin by understanding all five cost estimates in construction. 

5 Cost Estimates Followed in Construction:

There are plenty of cost estimation methods available. Still, here we will explore the five standard cost estimates: order of magnitude, schematic design, design development, construction document, and bid estimates. These estimates range in accuracy and detail and help in project planning and execution. 

1. Order of Magnitude Estimate (Level 1):

The order of magnitude estimate is also known as the level 1 or early estimate. This early estimate is typically used before the project is fully operational. It serves as a rough approximation based on limited information. Order of magnitude estimates help project managers and estimators assess the financial feasibility of a project. Moreover, they can use these estimates to identify the necessary financing or determine if they can fund the project with existing resources. An early estimate is generally based on similar projects that have recently been completed. For example, a general contractor might provide a preliminary estimate for a school building by assessing past school buildings of comparable size. 

2. Schematic Design Estimate (Level 2):

Once the project design has been drafted and the general scope of work is outlined, a schematic design estimate is performed, which also serves as the feasibility study estimate. Level 2 estimates are commonly used for budget approval and strategic planning. This estimate is created when the schematic design is available, but the detailed design remains incomplete. It is more thorough than the order-of-magnitude estimate and helps determine construction costs.

3. Design Development Estimate (Level 3):

Level 3 is referred to as a design development estimate. A rough estimate was created based on the initial design. Level 4 is known as a construction document estimate. This estimate relies on proposed blueprints and building specifications. Developed during the design development phase, it offers a more detailed cost breakdown than the schematic design estimate.

4. Construction Document Estimate (Level 4):

A Construction Document Estimate (Level 4) is a thorough cost estimate prepared once the project’s construction drawings and specifications are complete. Since it relies on the finalized project plan, it is regarded as a more precise and detailed estimate than earlier stages, such as schematic design estimates. This estimate is based on the construction specifications and drawings, providing a more accurate cost assessment.

5. Bid Estimate (Level 5):

Level 5 is known as a bid estimate. This constitutes the contractor’s final estimate, derived from all available blueprints, plans, and material costs. It serves as the definitive estimate ultimately presented to the customer. Based on the construction documents, the final and most detailed estimate is delivered to the client as a price offer. This is often regarded as the most critical estimate.

Why Accurate Cost Estimation Matters in Construction

Accurate and precise cost estimation is crucial in construction because it impacts project feasibility, profitability, and quality. It also helps the construction stakeholders stay within budget, meet project objectives, and complete the projects on time. Accurate estimates also allow for fair bidding, better decision-making, and effective risk management.

1. A reasonable estimate helps determine if a project is financially viable and whether it aligns with the owner’s budget. 
2. Accurate estimates provide a baseline for creating a precise budget, ensuring that materials and labor are sufficient to complete the project without overruns. 
3. Accurate estimates enable contractors to prepare profitable, competitive bids while reflecting project costs. 
4. Reliable estimates guide decision-making throughout the project lifecycle, from design choices to procurement strategies. 
5. By anticipating and analyzing costs, project managers can identify potential risks early on and implement mitigation strategies. 
6. Accurate estimates help contractors avoid costly errors and maintain healthy profit margins. 
7. Estimates help in planning the amount of resources and time available for the project, influencing the quality of the finished product. 
8. In the competitive construction industry, accurate estimates help contractors win more contracts and establish a reputation for reliability and precision. 
9. It helps avoid delays caused by unforeseen costs or material shortages. 
10. Accurate estimates assist in identifying and mitigating potential overruns early in the project lifecycle, thereby minimizing financial risks.

Factors Influencing Construction Cost Estimates

Construction cost estimation is a comprehensive process that forecasts the total cost of a project. This forecasting enables the construction stakeholders to make more informed decisions and complete the projects within time and budget. However, a few factors might influence and enhance your total cost, so when estimating a construction cost, make sure you consider the following factors. 

• Project Scope And Complexity
• Material And Labor Availability
• Market Conditions
• Geographic Location
• Regulatory Requirements

Understanding the project scope and complexity, market conditions, regulatory requirements, and availability of materials and labor can help you execute projects within time and budget. 

Bottom Line:

Construction cost estimation can be done using different methods, but following the five procedures mentioned above will help you estimate costs more precisely. These five cost estimates in construction include an order-of-magnitude estimate, schematic design estimate, design development estimate, construction document estimate, and bid estimate. 

My Virtual Estimator is one of the top cost estimation service providers in NYC. With over a decade of delivering reliable estimation services, they are the best in the area. Whether you’re a construction manager or an estimator, they can help you achieve more accurate estimations. Contact them for all your construction estimation needs in the region today. Their team of experts is always available to provide precise and affordable cost estimation services in New York City.