1.6 Estimating, Costing, and Valuation

1.6 Estimating, Costing, and Valuation

Introduction to Estimating, Costing, and Valuation

• The financial feasibility, planning, and successful execution of any civil engineering project depend on accurate predictions of its cost and value

• Estimating, costing, and valuation form the economic backbone of construction management

• Estimating involves forecasting the probable cost of a project before its execution

• Costing is the systematic process of recording and analyzing all expenses incurred during construction

• Valuation determines the present fair value or worth of a property

• This unit covers the methodologies for creating estimates, breaking down costs through rate analysis, defining work quality via specifications, and assessing property value

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1. Types of Estimates

• Estimates are prepared at different stages of a project, with varying levels of detail and accuracy

• Preliminary or Approximate Estimate (Rough Cost Estimate):

  • Purpose: To determine the approximate cost and feasibility of a project at the initial planning stage

  • Used for administrative approval and budget allocation

  • Basis: Prepared from conceptual plans and approximate measurements

  • Methods:

    • Plinth Area Method: Cost = Plinth Area ($m^2$) x Plinth Area Rate (cost/$m^2$)

    • Cubic Content Method: Cost = Volume of Building ($m^3$) x Cubic Rate (cost/$m^3$)

    • Considered more accurate than plinth area

    • Unit Rate Method (for specific projects): Cost = No. of Units (e.g., beds for a hospital) x Rate per Unit

  • Accuracy: Typically ±10% to ±20%

• Detailed Estimate (Item Rate Estimate):

  • Purpose: The most accurate and comprehensive estimate, prepared for technical sanction, inviting tenders, and for executing the work

  • Basis: Prepared from complete working drawings, specifications, and a detailed bill of quantities (BOQ)

  • Process:

    • Taking out quantities of all items of work from drawings (in standard units: m, $m^2$, $m^3$)

    • Preparing a Bill of Quantities (BOQ) listing items, descriptions, quantities, and units

    • Calculating the cost of each item: Quantity x Unit Rate (from rate analysis)

    • Summarizing costs and adding contingencies, work-charged establishment, etc

  • Accuracy: Aimed at ±5% to ±10%

• Revised Estimate:

  • Purpose: Prepared when the original detailed estimate exceeds by more than 5-10% due to changes in design, rates, or scope

  • Required for obtaining supplementary funds

• Supplementary Estimate:

  • Purpose: Prepared for additional work that was not part of the original project scope

  • It is a separate, fresh estimate for the new items

• Annual Repair/Maintenance Estimate:

  • Purpose: To forecast the cost of annual upkeep and repairs of a building or structure to maintain its serviceability

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2. Methods of Estimating (Taking Off Quantities)

• Long Wall - Short Wall Method (Center Line Method is a variation):

  • Principle: Walls are classified as "long walls" (parallel to the longer axis of the building) and "short walls" (parallel to the shorter axis)

  • The length of long walls decreases from earthwork to superstructure, while the length of short walls increases

  • Procedure:

    • Calculate the center-to-center length of walls

    • For excavation/foundation: Long wall length = Center length + (Width/2 + Width/2)

    • For superstructure (brickwork): Long wall length = Center length - (Width/2 + Width/2)

    • The opposite is true for short walls

  • Suitability: Best for rectangular buildings with symmetrical offsets

• Center Line Method:

  • Principle: The total center line length of all walls is calculated first

  • This total length is then used for items with uniform cross-section throughout (like foundation concrete, DPC, plinth wall)

  • Procedure:

    • Calculate total center line length

    • For items with uniform cross-section: Quantity = Total Center Line Length x Breadth x Depth

    • For rooms/partitions, separate center lines are calculated

  • Advantage: Simpler and faster for buildings with symmetrical offsets and multiple rooms

• Partly Center Line and Partly Long Wall-Short Wall Method:

  • A hybrid approach used for complex plans where one method is more efficient for certain items

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3. Rate Analysis

• Definition: The process of determining the cost per unit of a particular item of work

• It involves calculating the cost of materials, labor, plant/equipment, contractor's profit, and overheads for one unit (1 $m^3$, 1 $m^2$, etc.) of that item

• Purpose: To establish a fair and reasonable unit rate for each item in the BOQ

• It forms the basis for preparing the detailed estimate and for tendering

• Components of a Unit Rate:

  • Cost of Materials: Quantity of each material (cement, sand, aggregate, bricks) required for one unit of work, multiplied by its rate at source, including transportation and wastage

  • Cost of Labor: Number of different categories of laborers (mason, carpenter, beldar) required for one unit, multiplied by their daily wages

  • Cost of Tools and Plant (T&P) / Equipment: Usually taken as a percentage (1-2%) of labor cost or added as a lump sum

  • Water Charges: A small percentage (1-1.5%) of the total material and labor cost

  • Contractor's Profit and Overheads: A percentage (10-15%) added to the sum of all the above costs

• Procedure:

  • Study the specifications and method of construction for the item

  • Calculate the quantities of materials from standard data books (like Standard Schedule of Rates - SOR or IS 1200)

  • Calculate the labor requirements based on output per day

  • List the current market rates for materials and labor

  • Compute the total cost for one unit

• Example (Simplified Rate Analysis for 1 $m^3$ of Cement Concrete 1:2:4):

  • Materials: Cement, sand, coarse aggregate

  • Labor: Mason, beldar, bhisti

  • Calculations yield a final rate in Rs. per $m^3$

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4. Specifications

• Definition: A detailed description of the nature, quality, and workmanship of materials, components, and execution of work

• It complements the drawings and quantifies in the BOQ

• Purpose:

  • To define the quality standards for materials and workmanship

  • To guide the contractor in executing the work as intended by the engineer/architect

  • To serve as a legal document for resolving disputes

  • To ensure uniformity and control over the project

• Importance: Without clear specifications, cost estimates are meaningless, and quality control is impossible

• They are as important as the drawings themselves

• Types of Specifications:

  • General Specifications: Briefly describe the class and quality of materials and work for different parts of the work

  • Used in preliminary estimates

  • Detailed Specifications:

    • Technical Specifications: Describe the exact properties, composition, strength, and standards (IS Codes) of materials (e.g., "Cement shall be OPC 43 Grade conforming to IS 269")

    • Workmanship Specifications: Describe the methods of construction, mixing, placing, curing, etc. (e.g., "Concrete shall be compacted using needle vibrators")

    • Performance Specifications: Specify the required end result or performance standard, leaving the method to the contractor (e.g., "The floor shall withstand an abrasion load of X")

• Principles of Writing Specifications: They should be clear, concise, complete, correct, and unambiguous

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5. Valuation

• Definition: The process of estimating the fair present value or worth of a property (land and building) at a given time, based on its utility, demand, location, and potential to generate income

• Purposes:

  • Buying/Selling property

  • Assessment of property tax, wealth tax, or capital gains tax

  • Security for loans (mortgages)

  • Acquisition of property by government (compulsory acquisition)

  • Insurance and rental fixation

• Important Terms:

  • Market Value: The most probable price a property would fetch in an open and competitive market

  • Book Value: Value as recorded in the account books (Cost - Depreciation)

  • Scrap Value: Value of materials if the building is dismantled at the end of its life

  • Salvage Value: Value if sold as a whole at the end of its utility

  • Depreciation: Loss in value due to age, wear and tear, obsolescence, etc

  • Annuity: A series of equal annual payments

  • Sinking Fund: A fund set aside annually, which with compound interest, accumulates to a specified amount at the end of a property's life for its reconstruction

• Methods of Valuation:

  • Rental Method (Income Capitalization):

    • Used for properties that generate rent

    • Year's Purchase (Y.P.): The capital sum required to get an annuity of Re. 1 per year

    • $Y.P. = \frac{1}{i}$ or $Y.P. = \frac{(1+i)^n - 1}{i(1+i)^n}$ for a finite period

    • Where $i$ is the interest rate and $n$ is the years

    • Gross Income: Total annual rent

    • Net Income: Gross Income - Outgoings (taxes, repairs, insurance, management)

    • Capitalized Value: Net Income x Year's Purchase

  • Land and Building Method:

    • Value = Value of Land (from market rates) + Value of Building

    • Value of Building = Depreciated Value of Cost

    • Straight Line Depreciation: $D = \frac{C-S}{n}$

    • where C=Cost, S=Scrap Value, n=Life

  • Profit-Based Method: For commercial properties like hotels, theaters (Value based on net profit)

  • Development Method: For undeveloped land, estimating value after development minus development cost

  • Depreciation Method (for a standing structure):

    • Observed Depreciation Method: Physical inspection to assess condition

    • Constant Percentage Method: Using a formula like $V = C(1 - \frac{r}{100})^n$ where r is the annual depreciation rate

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• Estimating, costing, and valuation are interconnected disciplines that translate engineering designs into financial reality

• A robust estimate ensures a project is viable and well-funded

• Detailed rate analysis and clear specifications guarantee that cost and quality expectations are met

• Finally, accurate valuation is essential for the economic life cycle of any property, from its construction and financing to its eventual sale or redevelopment

• Mastery of these concepts is crucial for the commercial success and management of civil engineering projects