Cost estimation is the method of forecasting the cost of building a physical structure. Both builders and clients worry about the financial impact of cost overruns and failing to complete a project. That is why people dedicate so much time and effort to estimating. Also, how much a project will cost before deciding to go ahead with the build? Clients considering large projects often seek more than one estimate.
Project owners use cost calculations to determine a project’s scope, and feasibility and to allocate budgets. Contractors can then use them to decide whether to bid on a project. You prepare estimates to ensure that a project meets both financial and feasibility requirements.
A cost estimation prevents the builder from losing money and helps the customer avoid overpaying. It’s a core project management technique that tracks a project’s performance against the total time and cost estimation.
Creating a project development estimate
Creating a project development estimate is good practice for both clients and developers. If you worry about how much your project will cost it is worth spending time to get it right. You can do calculations for all kinds of construction projects, from building new structures to refurbishing.
Accurate estimates are significant for development projects, which involve paying back lenders. Also, on a more substantial project, small miscalculations become magnified.
As the saying goes, failing to prepare is preparing to fail. So failing to prepare a decent cost estimation can have disastrous results. One notorious example was The Scottish Parliament Building. There was a public enquiry into its construction because of constant delays and its escalating price. Due to opening in 2001, it finally opened three years later with an estimated cost of £414 million, far more expensive than its first estimate of £10-40 million. The analysis found incompetence in the management of the whole project. This investigation also included the fees paid and the way the management added significant design changes.
Estimating the cost of any project with complete precision is impossible; a project can fail for many unforeseen reasons. A skilled estimator will consider as many factors as they can. It is also important to include another factor, such as market conditions.
The exactness of a cost estimate relies on several things — the state of the project plan. Also, the level to which the estimator defines a project and the experience and skill of the estimator.
For property developers, good price estimates win jobs. In competitive bidding conditions, the time and effort you spend are considered a cost of doing business. If urgency is a determinant for a project, the speed at which you provide a bid can also be a differentiator.
Overview of the Construction Estimation Process
Understanding, cost estimation needs means you have a basic grasp of the construction process. Here are the nine primary phases of a building project:
1) Commissioning a Project.
It is necessary to verify that any contractors you hire can design, construct, and deliver to your plans and specifications. It starts right at the beginning of the process and can last for up to a year after the tenant has moved in.
2) Determining Requirements.
The first real step in constructing a development project is the pre-design phase or planning phase. What its functions will be, how much it should cost, where it will be located, and any legal requirements it must follow.
3) Forming a Development Team.
Projects which have specific requirements, such as acoustics need specialised consultants. The property developer is generally responsible for overseeing and coordinating this process.
4) Designing the Structure.
Sometimes it’s worth contracting an architect first to work with you to decide on the development. Also, then with the other specialists to help advise on detailed requirements. Then the property developer receives a high-level plan which they need to approve. The last step is the development documents phase, creating construction drawings and specifications. Estimators produce and review cost estimates for the project as the developer fleshes out the plan.
5) Bidding Based on the Scope of Work.
Once the developer completes the construction documents, they are issued to contractors whom they would like to bid on the project. Along with these bidding documents, they include guidance on how to submit the bids and a sample of the contract agreement. These documents, which define the extent of the work, are the basis on which contractors prepare their quotes. To ensure fair bidding, all contractors obtain the same information.
6) Signing the Contract.
Once you have selected the contractor, they execute a set of contract documents with the property developer. The contract documents incorporate the bidding documents, which now function as a legal contract. Contracts can follow several models, depending on how complete the construction is and how they bear risks. For example, who will carry the costs if there is a time overrun? One of the underlying models involves the contractor bidding a fixed amount for the total project. A unit price contract allows for further flexibility in development. They are having the developer pay the contractor per the number of units they build. These units could be several flats or rooms in an HMO.
During the construction phase, the property developer oversees the work. The property developer will sometimes hire contractors for different tasks. These could be specialist areas such as plumbing or infrastructure work. Throughout the development process, the property developer engages in careful cost control. They compare the actual expenditure with forecasted expenditure during the construction process. Cost control ensures that the property developer can turn a profit.
When the contractor comes to finish a build, the property developer requests a complete inspection. They may use an architect to verify the status of the build. At this stage, the property developer provides the architect with a list of any incomplete work or needed amendments. After the architect examines the structure, they will add any extra incomplete items to the snagging list.
9) Completion Phase.
After the contractor does all the incomplete work detailed on the snagging list, they perform a final inspection. When they have completed the job to its specification, the architect will issue a certificate of completion. At this point, the contractor is entitled to receive the full payment.
The guide provided above can be used for both large builds or a complete ground-up type construction. However, it is aimed to give you an idea of how to things about how to efficiently estimate the construction cost of your next project.
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DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.