152527012890500Factors affecting the accuracy of cost estimate
Ibrahim Amanallah Ibrahim Mohamed
Dept. of Civil Engineering, Benha University, Shoubra Faculty of engineering.
[email protected]
Abstract
The process of cost estimate is the most considerable element of the project lifecycle and the main driving force of project success. There are many factors that directly or indirectly effect the cost estimation of projects and they differ through stakeholder’s viewpoint. In spite of cost estimate importance, it is common to see a construction project not achieve its objectives within the initial specified cost. Cost overrun is a very varying phenomenon and is almost influence all projects in the construction industry. This trend is highly effecting in developing countries where cost overruns sometimes exceed 100% of the predicted cost of the project. The purpose of this research is to identify the factors influencing the accurate cost estimation of the project and these factors by consultants, contractors and contractors.
The main purpose of this research is to summarize the factors affecting cost estimating process through previous works in the literature review. This research concluded that there are factors related to consultant, contractor, market condition and project characteristics and they have deferent influences on the cost estimate process.
Introductionone of the most effective parts of the process of buying a building is how to manage the customer expenses in the shape of budget control. This is done at the time of buying. One of the elements of customer’s spending management to make accurate the cost estimate before tender. Pre-bid cost appreciation is an important part of the information required in the feasibility of building projects which assessing and making decisions on design and construction issues (Aibinu and Pasco, 2008). The cost estimates determine that company is able to take the tender or not, thus playing an important role in marketing the company. However, the final project costs in a lot of cases due to various factors are higher than the initial estimates. Cost estimation is a process to determine how much will the project cost from A to Z. Hence, information about the projects’ structural components and characteristics directly influence the estimation of the costs involved (Shash and Ibrahim, 2005).
Not exceeding the project budget is the major challenge for construction companies. The cost estimates could be improved significantly if the project scope, community interest, and macro-economy are reflected accurately (Shash and Ibrahim, 2005). For the projects to finish due to the budget, the accurate cost estimate and a realistic assessment of factors that can make the project lose. Many factors can affect the accuracy of cost estimating of construction projects such as experience in pricing construction projects, understanding of estimation importance, concise drawings and specification, availability of database of bids on similar projects, level of competition, time allowed for preparing cost estimates, project complexity, the padding estimates, accuracy and reliability of cost information, etc. Some of these factors can increase the cost estimates, while others might potentially reduce the costs providing a competitive advantage in tendering. (Akintoye, 2000; Shash and Ibrahim, 2005, 2008; Azhar et al., 2008).
Research Scope and Objectives • Identify the most important factors affecting the cost estimation process.• Selection of the top ten factors in the assessment that affect the accuracy of the cost estimate and compare it with other studies.
Research methodology
In order to collect the data we need, literature review was done and also the expert opinions in the field of construction projects were taken into account, in which cost overruns were identified in the construction projects scenario. Table I shows the total forty two (42) factors were finalized to made part of the survey questionnaire.
Table I. Cost estimate all influencing factors.
Researchers Factors affecting accuracy of cost estimate
F01F02 F03F04F05 F06F07F08F09 F10F11F12F13F14
F15
F16
F17
F18
F19
F20
F21
F22
F23
F24
F25
F26
F27
F28
F29
F30
F31
F32
F33
F34
F35
F36
F37
F38
F39
F40
F41
F42 Experience of pricing construction projectsClear and detail drawings and specificationAvailability of database of bids on similar project (historical cost data)Accuracy and reliability of cost informationProject’s team experience of the construction typeCompleteness of cost information
The estimating method used
Level of involvement of the project managerQuality of information and flow requirementsThe quality of the assumptions used in preparing the estimateTime allowed for preparing cost estimatesPerception of estimation importanceThe padding estimatesContractor bidding strategy
Risk sharing between the parties
Level of competition (number of competitors)Material availabilityLabor costLabor availabilityEquipment (cost/availability/performance)Level of workmanship (productivity and performance)
Market conditions/economic climate
The project complexityA clear scope definition
Financial capabilities of the client
Impact of project schedulesSite constraints (access, storage, services)
Lack of coordination between design team and general contractor
Lack of coordination between general contractor and subcontractorsHigh machineries maintenance costsInadequate duration of contract period
Domination of construction industry by foreign firms and aids
Poor financial control on site
Inappropriate contractual procedure
Additional work
Stealing and waste on site
Adverse effect of weather
Scope changes arising from redesign and extensive variation occasioned by change in brief
Work suspensions owing to conflicts
Inadequate quality/ Ambiguity of contract documents
Inappropriate contractor policies
Poor project (site) management/ Poor cost control
Cost Estimating Factors. A technique was used to collect qualitative data. In this study, the technique consisted of two parts: in the first part, an organized interview was conducted with experts in the construction project. The interview was a questionnaire containing 42 factors that affect the accuracy of the cost estimate. Participants were asked to approximate the impact of each factor on the accuracy of the estimate and explain their answers if they had one. After completing the first part, the data was collected and the factors were arranged. The questionnaires were then rewritten to include the assessment of each component’s percentage per worker. The percentage given by each participant affects the accuracy of the estimate in the first part reported to them. Then the second part of the interviews began. Participants were asked to estimate these factors again. The data collected from the second part of the discussion were used to determine the most important factors that had a significant impact on the accuracy of the estimate. Overall, Table 2 shows the 27 factors chosen by the experts as the most important factors affecting the accuracy of the cost estimate. These factors were used to construct the questionnaire organizer to collect quantitative data and identify the most important variables that were requested to accurately estimate the cost. Accordingly, the operational measures of these factors are classified into three groups
As follows: (1) factors related to consultants, contractor, design parameters, and information;(2) factors related to market conditions (external factors); and(3) factors related to project characteristics.
Table II. Cost estimate most important influencing factors.
Researchers Factors affecting accuracy of cost estimate
Factors related to consultant, contractor, design parameters and information
F1F2 F3F4F5 F6F7F8F9 F10F11F12F13F14
F15 Experience of pricing construction projectsClear and detail drawings and specificationAvailability of database of bids on similar project (historical cost data)Accuracy and reliability of cost information Project’s team experience of the construction typeCompleteness of cost informationThe estimating method usedLevel of involvement of the project managerQuality of information and flow requirementsThe quality of the assumptions used in preparing the estimateTime allowed for preparing cost estimatesPerception of estimation importanceThe padding estimatesContractor bidding strategy
Risk sharing between the parties
Factors related to market conditions (external factors)
F16
F17
F18
F19
F20
F21
F22
Factors related to project characteristics
F23
F24
F25
F26
F27
Level of competition (number of competitors) Material availability Labor cost Labor availability Equipment (cost/availability/performance) Level of workmanship (productivity and performance) Market conditions/ economic climate
The project complexity A clear scope definition Financial capabilities of the client Impact of project schedulesSite constraints (access, storage, services)
Results and discussion
Information section of the questionnaire in this study was designed to get thefollowing information from respondents. Frequencies and percentages are conducted inorder to describe the profile information of the respondents as shown in Table III.
Table III. Demographic description
Respondents’ information Frequency Percent
Type of participation in project implementation ContractorConsultant
The company classification
Roads
Buildings
Electromechanical
Water and sanitation
Other works
The degree of the company classification
The first category
The second category
The third category
The fourth category
Current position
Company/organization manager
Project manager
Construction manager
Office engineer
Site engineer
Other
Working experience in the construction industry
;3 years
3-5 years
5-10 years
10-15 years
;15 years
170
95
27
147
47
11
33
156
38
49
22
10
56
44
72
45
38
35
90
80
37
23 64.2
35.8
10.2
55.5
17.7
4.2
12.5
58.9
14.3
18.5
8.3
3.8
21.1
16.6
27.2
17.0
14.3
13.2
34.0
30.2
14.0
8.7
It was concluded that the top ten factors affecting the accuracy of cost estimate are clear and detaileddrawings and specification, experience of pricing construction projects, perception ofestimation importance, equipment (cost/availability/performance), project complexity, clearscope definition, accuracy and reliability of cost information, site constraints (access,storage, services), material availability, financial capabilities of the client, and availability ofdatabase of bids on similar project (historical data).
This result suggests that there is a very slight variation in the ranking of each group.Among the top ten factors, five factors were common between consultants and contractor. Three of which are design parameters, and information-related factors and two factors relatedto market conditions (external factors). It should be noted that the same factors were alsoamong the top ten factors but with different ranking in many studies, such as Akintoye,Alumbugu et al. (2014). Furthermore, thesefactors are interrelated and have direct consequences on the project performance and on itsprofitability. During the estimation phase, the estimator should focus on these factors due toimportance of these factors:
Without the clear and detail drawings and specification, some of the information willbe missing, which might lead to an inaccurate estimate, disputes, and litigations.
Cost estimation process is a project team responsibility who work to determine the quality and quantities of cost estimation in order to match the project type and quality expectation. Hence, loss of experienced staff leads to poor estimate. This factor asserts the significance of the experience level not only of the estimating team but also of the engineering staff.
Perception of estimation importance: if the estimators consider the importance of theestimate during the estimation process, they will make sure to achieve a flawlessestimate, consistent with the estimation importance.
Equipment (cost/availability/performance): any change in the equipment cost affectsthe accuracy of the estimates by impacting the overall estimate, the same conceptalso applies to the equipment availability and performance.
The project complexity should be examined carefully: the project should be fullyunderstood by the estimators in order to provide the best price for each activity(in case of a complex project, a detailed study should be implemented to recognizeeach and every task on the project). The project complexity factor is related to thescope of a project, complexity of design and site constraints. Project complexity canbe examined in terms of size and kind of work, extent of repetition, number ofoperations and operations predictability. Project complexity is the determinant factorfor performance on site which affects contract duration and consequently theconstruction cost.
A clear scope definition is important since a project scope is related to client’srequirement and specifications. Project scope determines the appropriate projectteam and works breakdown units and project’s cost and duration. Hence, projectteam and estimators should eliminate any ambiguity in scope and make it clear andeasy to read and understand.
Accuracy and reliability of cost information: the preparation of a pre-tenderconstruction plan and cost estimate in the construction firm should collect sufficientproject information, project details, drawings and project specification. The importanceof this information requirement is to determine the type of work and the resourcesrequired. Hence, the cost information that the estimator use in the estimate should beaccurate and from a reliable source to insure an accurate estimate
The estimator should take in his account the site constraints (access, storage,services), because these might cost an over charge that was missed in the originalestimate. The site of the project is important. Constraints of site must be analyzedcompletely for cost elements that are unique to the location and have the greatesteffect on the cost estimate.
Material availability: when the estimator makes his estimate, he should consider theavailability of the material that will be used in the project; if the material cannot bepurchased on the right time or even from a local source during the constructionphase, it must be purchased from another source which will cause an extra cost thatwas not included in the original estimate.
Financial capabilities of the client: if the estimate is above the capabilities of theclient, it might intimidate the client which means losing the project.
Availability of database of bids on a similar project (historical data) and keeping arecord for the past estimates could help in achieving an accurate estimate in the future.
ConclusionsThis study has analysed pre-tender cost estimating performance and The ten most significant factors affecting the accuracy of the pre-tender cost estimate. This implies thatto produce an accurate estimate encompassing available of detail information, skill and requisite experience of the estimator. It also requires Project team’s experience in the construction. Knowledge and skill acquired over time by the design team on a particular construction type will enhance the amount of information they would provide to the estimator at the conceptual stage.. Based on the results obtained from this research, the following conclusions of the research there are slight differences between the contractors’ response and consultants’ response over the importance factors affecting the accuracy of cost estimate. This result indicates that each of them looks at the process of cost estimation almost the same. Many of the cost estimate-influencing factors discussed in this study do not have a high level of importance regarding their influence on the accuracy of cost estimate. Such as, “the padding estimate,” “contractor bidding strategy,” “quality of information and flow requirement,” “the estimating method used,” “level of involvement of the project manager,” “risk sharing between the parties,” “level of workmanship (productivity and performance)” and “labor availability.” Some of these types of variables are considered more subjective in nature and difficult to be measured, while others like availability of labor, and level of workmanship have a Varied nature and perhaps the availability of these variables makes a limited impact on the overall cost. Also, these factors still have an effect over the long-term period or indirect impact.• The top ten factors emphasize the importance of human effect on estimate accuracy, not only of the estimating team but also of the engineering staff. Furthermore, theranking of “clear drawing and specification” as the most important factor indicates that construction project costs were more influenced by architects and consultants than by contractors. This means that the project costs are more determined by decisions at the initial, feasibility, and early design stages rather than by later construction stages.
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