Accurately forecasting the cost of future projects is vital to the survival of any business. Cost estimators develop the cost information that business owners or managers need to make a bid for a contract or to determine if a proposed new product will be profitable. They also determine which endeavors are making a profit.
Regardless of the industry in which they work, estimators compile and analyze data on all of the factors that can influence costs—such as materials, labor, location, and special machinery requirements, including computer hardware and software. Job duties vary widely depending on the type and size of the project.
The methods of and motivations for estimating costs can differ greatly by industry. On a construction project, for example, the estimating process begins with the decision to submit a bid. After reviewing various preliminary drawings and specifications, the estimator visits the site of the proposed project. The estimator needs to gather information on access to the site and availability of electricity, water, and other services, as well as on surface topography and drainage. The information developed during the site visit usually is recorded in a signed report that is included in the final project estimate.
After the site visit is completed, the estimator determines the quantity of materials and labor the firm will need to furnish. This process, called the quantity survey or “takeoff,” involves completing standard estimating forms, filling in dimensions, number of units, and other information. A cost estimator working for a general contractor, for example, will estimate the costs of all items the contractor must provide. Although subcontractors will estimate their costs as part of their own bidding process, the general contractor’s cost estimator often analyzes bids made by subcontractors as well. Also during the takeoff process, the estimator must make decisions concerning equipment needs, sequence of operations, crew size, and physical constraints at the site. Allowances for the waste of materials, inclement weather, shipping delays, and other factors that may increase costs also must be incorporated in the estimate.
On completion of the quantity surveys, the estimator prepares a cost summary for the entire project, including the costs of labor, equipment, materials, subcontracts, overhead, taxes, insurance, markup, and any other costs that may affect the project. The chief estimator then prepares the bid proposal for submission to the owner.
Construction cost estimators also may be employed by the project’s architect or owner to estimate costs or to track actual costs relative to bid specifications as the project develops. In large construction companies employing more than one estimator, it is common practice for estimators to specialize. For example, one may estimate only electrical work and another may concentrate on excavation, concrete, and forms.
In manufacturing and other firms, cost estimators usually are assigned to the engineering, cost, or pricing departments. The estimators’ goal in manufacturing is to accurately estimate the costs associated with making products. The job may begin when management requests an estimate of the costs associated with a major redesign of an existing product or the development of a new product or production process. When estimating the cost of developing a new product, for example, the estimator works with engineers, first reviewing blueprints or conceptual drawings to determine the machining operations, tools, gauges, and materials that would be required for the job. The estimator then prepares a parts list and determines whether it is more efficient to produce or to purchase the parts. To do this, the estimator must initiate inquiries for price information from potential suppliers. The next step is to determine the cost of manufacturing each component of the product. Some high-technology products require a tremendous amount of computer programming during the design phase. The cost of software development is one of the fastest growing and most difficult activities to estimate. Some cost estimators now specialize in estimating only computer software development and related costs.
The cost estimator then prepares time-phase charts and learning curves. Time-phase charts indicate the time required for tool design and fabrication, tool “debugging”—finding and correcting all problems—manufacturing of parts, assembly, and testing. Learning curves graphically represent the rate at which performance improves with practice. These curves are commonly called “cost reduction” curves because many problems—such as engineering changes, rework, parts shortages, and lack of operator skills—diminish as the number of parts produced increases, resulting in lower unit costs.
Using all of this information, the estimator then calculates the standard labor hours necessary to produce a predetermined number of units. Standard labor hours are then converted to dollar values, to which are added factors for waste, overhead, and profit to yield the unit cost in dollars. The estimator then compares the cost of purchasing parts with the firm’s cost of manufacturing them to determine which is cheaper.
Computers play an integral role in cost estimation because estimating often involves complex mathematical calculations and requires advanced mathematical techniques. For example, to undertake a parametric analysis (a process used to estimate project costs on a per unit basis, subject to the specific requirements of a project), cost estimators use a computer database containing information on costs and conditions of many other similar projects. Although computers cannot be used for the entire estimating process, they can relieve estimators of much of the drudgery associated with routine, repetitive, and time-consuming calculations. Computers also are used to produce all of the necessary documentation with the help of word-processing and spreadsheet software, leaving estimators more time to study and analyze projects.
Operations research, production control, cost, and price analysts who work for government agencies may do significant amounts of cost estimating in the course of their regular duties. In addition, the duties of construction managers also may include estimating costs. (For more information, see the statements on operations research analysts
and construction managers
elsewhere in the Handbook.)