Construction Cost Estimation: Financial Factors and Methods

This report provides a comprehensive overview of construction cost estimation, emphasizing the crucial role of financial factors in the initial stages of a project. It discusses the economic climate, competition, and contract methods as key determinants influencing cost. The report further explores preliminary estimation techniques, including floor area, unit, and cubic methods, highlighting their applications and levels of accuracy. A detailed case study of the Stones River Apartment Complex illustrates the practical application of cost estimation and sustainable construction practices, such as energy efficiency and environmental considerations. The report concludes by emphasizing the importance of accurate cost estimation for efficient project management, proper budgeting, and ultimately, project success.

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CONSTRUCTION COST ESTIMATION
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Introduction
Accurate estimation of construction cost of a project is extremely paramount in the initial
construction stages to ensure the project fits the budget of the client or the scheme drawn by the
project designers. (Barmeyer and Franklin, n.d., P. 430). One of the major factors that affect
construction cost estimation is the financial position of the client. This important factor would
help to gauge the design and plan prior to construction work. The progress of construction sites
heavily rely on this key factor. Conceptually, financial factors are categorically placed into
three; the economic climate, competitors, and contract methods (Layer, 2003, P. 67). These
methods are broadly discussed below.
Financial factors affecting construction cost estimation
Economic climate
The state of economy is a key element to consider before establishing a cost
estimate for a project. Most economies are striken by high inflation rates that affects the
costs of construction materials. Additionally, inflation determines the lending rates and
maximum borrowing limits of clients with a view to complete a project. As a designer, one
should develop a cost estimate with knowledge of possible increase in prices (Wang et
al., 22013, P. 98). To play safe, adding a reasonable percentage to the total cost would be
ideal. Proper economic climate helps project managers allocate sufficient costs and budget
in the project under execution.
Competition
Authors Kurth, Winter and Pospichal (2015) argue that contractors are faced
with stiff competition in their area of expetee. This affects the cost of the project. More
qualified contractors attract a competitive pricing mechanism lowering the cost of
construction. Contractor’s bidding would significantly reflect the quality of work
expected. The lesser the bid, the lower the quality. However, a very high bid does not
always act as an assurence of the best quality (Ariaratnam & Rojas, 2009, p. 103). To

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obtain a competitive bid it is important to allow discretion in bidders pricing of the
project. It is also helpful to draw and specify the quality expected to the contractors.
However, being flexible allows them opportunities to make choices of approaches,
personnel, and materials. Specifications are key in determining the degree of
competition by eliminating those who do not qualify the stated design. Openess
alllows a graeter pricing for an effective cost estimate.
Contract methods
Contract methods have an impact on estimating construction costs. Factors such as
the degree of specialization required , time needed to complete the project, and the
cost of materials affect cost. Different projects have different levels of complexity and
details (Cai, 2012 P. 199).For example, there will be a variation in costs between
construction of a school cafeteria and a five star hotel. Basically, projects are controlled
with three variables which are level of quality, size of the building, and total cost of the
project. High quality flexes prices. Therefore clients should decide on quality, size,
and costs (AI-Mashta, 2011, p. 15). Variance analysis is important since it helps project
managers in understanding all sources of variances and hence coming up with proper
methods of preventing inefficiencies from occuring.
Industrial case scenario
Stones River Apartment Complex
Stones River Apartment Complex was constructed by J &S Construction Company
for a period dating May 2011 to March 2012 under the supervision of Maffett Loftis as a
mechanical and electrical engineer, and Huddlestone Steele as the civic engineer who oversaw
landscape architects. The project costed $ 1.2 million (Parker, 2014, P. 422). Stones River is a 9
unit apartment building whose foundation was reinforced using concrete, and slab. It covers
7,548 square feet on a 1.5 acre piece of land. The walls were constructed using bricks and the
roof is made of asphalt shincgle material. The building is energy efficient and environmental

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friendly. The project is LEED certified to meet homes requirements. For instance, the 7548
square feet building has energy efficient systems such as spray foam insulation, energy star
windows, and insulated duct in unconditioned spaces. In addition to energy saving, the project
centered on water efficiency, indoor air quality, durable materials, and skilled landscaping.
Environmental friendly fetures included recycling of construction wastes, using drought
resistant plants for landscaping, and 10% framing waste. The project was built with durable
materials to limit effects of moisture, water, risks of pests, reduce heat loss, air filtration and
ultraviolet radiation. Acting in a corporate social responsible manner helps a firm improve the
public image as well as target market concentration and hence is key.
Discussion
From the case discussed above, it is clear that the projects designers of the 9 unit apartment
did a good cost estimation and used highly effective contract methods of construction such as
environmental friendly and energy efficiency techniques. These two techniques gave them a
competitive advantage over their competitors creating a robust market for their services within
the construction industry. Additionally, the designers were cautious to maximize available
resources and reduce wastes for example only 10% framing material was under waste
(economy). Moreover, meeting the LEED certification is a selling point to the J &S Company.
This construction method gives it a competitive position within the global world. Stones River
shares J&S commitments reflected through their quality work (Parker, 2014, P. 423). The
company’s use of robust contract techniques has been important in improving sustainability in
the business environment.
Commonly used preliminary estimate techniques
There are three major preliminary estimate techniques. These are; floor area, unit,
and cubic. The methods are similar since they come during early stage of the project.
Purposively, these methods serve functions such as ascertaining actual costs of a project,
measures client’s extent of commitment to finacial needs of a given project, and functions as

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a design guide (Warner, 2013 P. 234). The proper estimation of floor area by engineers
ensures efficiencies in planning and control. There is also improved project execution by
project managers in the event that all costs are ascertained as projected. This leads to proper
budgeting hence accuracies in the estimation of floor area, unit area, and cubic area.
Preliminary estimate methods contrast table
Description/ Method Unit Cubic Floor area
Definition Unit method is used
when projects have
standard unit of
accomodation.
Estimate to calculate
volume of air
conditioned space
(ventilation)
Usesd to calculate
the area covered by
a floor
Accurecy level Less accurate Accurate since it
uses real heights of
flat roof and pitch
roof
Most accurate since
it deals with actual
units of
measurement
Requirements Obtained by
multiplying number
of accomodation in
the new building
with cost per unit.
The volume of the
building multiplied
by the best price per
M3.
Actual area of the
building. Both the
new and analyzed
building must be the
same
Popularity Mostly used to Seldomly used It is used extensively

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gauge costs in public
sector buildings
in almost all types of
buildings
Convenience Easier but mostly
unrefined
It is difficult to
obtain similar costs
hence nonconvenient
It is clear and
convenient.
(Source: Factors Affecting Construction Cost Estimation of Building projects, 2017).
Conclusion
Its is clear that cost estimation is an important planning element prior to a
construction project. This technique is imparatively affected by financial factors
which are economic climate, competitors, and contract methods. Commonly used
estimation methods are floor area, cubic and unit method. They all paly a major role
in construction projects through ascertaining actual costs of a project, measuring
client’s extent of commitment to finacial needs of a given project, and functions as a
design guide (Warner, 2013 P. 234). Therefore, project managers should carry out
proper cost estimation so as to enhance efficiency, proper monitoring, planning, and
control. This would help in avoiding budgeting variancies hence success of the project
execution.

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Reference list
AI-Mashta, S. (2011). Integrated cost budgeting and cost estimation model for
building projects. Ottawa: Library and Archives Canada = Bibliothèque et
Archives Canada.pp 10-16
Ariaratnam, S. and Rojas, E. (2009). Building a sustainable future. Reston, Va.:
American Society of Civil Engineers. Pp. 102-105
Barmeyer, C. and Franklin, P. (n.d.). Intercultural management.pp. 427-44
Cai, H. (2012). Construction Research Congress 2012. Reston, Va.: American
Society of Civil Engineers. 189-199
Castro-Lacouture, D., Irizarry, J. and Ashuri, B. (n.d.). Construction Research
Congress 2014.p 55-57
Factors Affecting Construction Cost Estimation of Building projects.
(2017). International Journal of Recent Trends in Engineering and Research,
3(4), pp.379-387.
Kurth, H., Winter, K. and Pospichal, V. (2015). Building Condition Record and Cost
Estimation. Applied Mechanics and Materials, 796, pp.137-143.
Layer, A. (2003). Case-based cost estimation. [S.l.: s.n.].pp. 60-67
Parker, D. (2014). Parametric Cost Modeling for Buildings. Hoboken: Taylor and
Francis.pp.420-425
Wang, Y., Lennerts, K., Shen, G. and Bai, Y. (2013). ICCREM 2013. Reston,
Virginia: American Society of Civil Engineers.pp.90-100
Warner, R. (2013). Applied statistics. Thousand Oaks, Calif.: SAGE Publications.Pp.
200-250