Construction Market Trends Series: Price (2)
In the first installment of the “Pricing” section of the Construction Market Trends series, we introduced the meaning of the term construction cost and its definition in the column, and the contents that make up the construction cost. In this second article, we will focus on the general method of calculating the construction cost.
What are the four factors that determine how construction costs are calculated?
In general, the method of calculating construction costs is based on the following questions: Who? When? What is the purpose? How accurate is it?
First, “who” refers to who is in charge of calculating the construction cost. In recent years, however, there has been an increase in the number of cases where specialists who play the role of construction manager or cost consultant participate in the project and calculate the construction cost on behalf of the entity placing the order. In addition, the number of construction managers and cost consultants is increasing.
The next question is: When? This refers to the stage of the project when the construction cost is calculated. For example, the amount of information obtained at each stage of the project is different, such as at the planning or basic planning stage when the details of the design are not yet finalized, at the basic design stage when the design has progressed to some extent, and at the implementation design stage when the details of the design are finalized. Therefore, the method of calculating the construction cost differs depending on the when?
Also, in terms of the purpose, this question refers to the purpose of calculating the construction cost, for example, to determine the budget of the project, to confirm whether the design is within the budget, to determine the estimated price for bidding, to determine the estimated price and bid amount, etc. When asking about the accuracy, this refers to how precise the accuracy of the cost is. This ranges from a very rough estimate to a very precise cost.
The method of calculating the construction cost differs depending on the various conditions, but it can be broadly classified into the methods called totalization and rough estimation, and these methods will be introduced sequentially.
1. What is cost estimation?
This method is one of the methods used to calculate construction cost in public construction works and private construction projects, and it means to calculate the amount of money in detail based on design drawings and specifications. It is mainly used by the client or designer to determine the final budget for the project at the end of the design phase, and to determine the estimated price for bidding. Construction companies that participate in bidding and quotations also use this method to determine how much to quote and bid and ascertain the estimated price of the project.
The specific method is to pick up the quantity of each item such as materials and labor required for the construction from the design drawings and specifications, multiply these quantities by the unit price to get the amount for each item, and then add up the amounts for all the items to get the total.
One of the characteristics of this method is that it is the most accurate method for calculating the construction cost, since it is basically used at the stage where the details of the design have been finalized. On the other hand, as mentioned above, it is necessary to calculate the amount of money for each item in detail based on the design drawings and specifications, which requires an enormous amount of time and effort to calculate the construction cost.
In addition, in the process of determining the construction cost, there are cases where the quantity is calculated based on a standard called the costing standard, and in such cases, the quantity calculation method is based on a common rule, so the same quantity should be calculated regardless of who does the costing.
In addition, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has published Public Building Quantity Costing Standards, Public Building Equipment Quantity Costing Standards, and Public Building Construction Common Costing Standards as Public Building Construction Costing Standards.
2. What is a rough estimate?
In general, the meaning of rough estimate itself is to calculate approximate quantity and amount without precision. Therefore, rough estimate is a general term that refers to a method of roughly calculating construction costs, and differs from cost estimate, which is a method of precisely calculating construction costs using manpower and time. Therefore, there are many specific methods, ranging from those that can be easily used by anyone once learned to those that require a great deal of experience and judgment. There are also many methods that require a lot of experience and judgment. When? What is the purpose? How accurate is it? The most suitable method is selected each time depending on the conditions such as Who?
The characteristic of rough estimates lies is its diversity, and various methods are used according to the time and purpose of calculating the construction cost. For example, in the planning stage of a project, it is used by the client to determine the project budget or to examine whether the project plan can fit within the budget against the already determined budget. On the other hand, designers use it at the basic planning stage or basic design stage to check whether the current design exceeds the budget of the client or if the design already exceeds the budget, check where the money is spent in the current design, and examine whether the design can fit into the budget.
In this way, rough estimate is often used in the project stage before the detailed design is finalized, so its accuracy is limited and inferior to that of cost estimate, but on the other hand, it is used in many practical situations because it requires less manpower and time for calculation. However, since it requires less manpower and time to calculate, it is used in many practical situations.
The following is a summary of the features of costing and rough estimation that we have introduced so far.
Features of cost estimates and rough estimates for calculating construction costs
| item | Cost estaimtes | Rough estimate |
|---|---|---|
| Purpose of use (main examples) | The client determines the estimated price in the bidding process as the final budget for the project. The construction company decides the quote or bid price. | The client determines the project budget. The designer verifies that the current design does not exceed the client’s budget. If the budget is exceeded, the designer checks where the current design is costing money. |
| Time of use | In many cases, this is used at the stage when the details of the design have been finalized. | It is often used at the stage before the details of design are determined (planning, basic planning, basic design). |
| Calculation method | The quantity of each item, such as materials and labor required for construction, is picked up from the design drawings and specifications. These quantities are then multiplied by the unit price to calculate the amount for each item. Add up the amounts for all the items to get the total.There are many methods, ranging from those that are easy for anyone to use once they are learned, to those that require a lot of experience and judgment. | There are many methods, ranging from those that can be easily used by anyone once they are learned to those that require a lot of experience and judgment. |
| Accuracy | The most accurate results are obtained. | The level of accuracy varies depending on the method of approximation, but there are limits to the accuracy of the results obtained. |
| Calculation time | Requires a great deal of time and effort. | Less time and effort required compared to integration. |
We introduced the conditions that determine the method of calculating construction cost and the characteristics of totalization and rough estimation as a method of doing so. In the next column, we will introduce the specific method for calculating the rough estimate of the building cost.
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