Key Types of Estimates in Construction

The challenge of determining the cost of building a construction project can seem like an impossible task. Considering the unique nature of each project and the fact that material and labor prices change constantly, it’s virtually impossible to calculate future rework or delay costs. It’s as if estimators have some kind of psychic ability just to be in the ballpark. 

Estimation isn't a single process that occurs one time during a construction project. Rather, estimation happens in different forms at various stages throughout a project's lifecycle. These estimates not only help in defining budgets but also become pivotal in tracking actual project costs against planned expenses. Here's an in-depth look into the different types of construction estimates and how they are applied across various project delivery methods.

4 Stages of Construction Estimating

There are many ways to estimate how much a job will cost, especially considering the different types of contracts between owners and general contractors that contribute to what estimating looks like. As the project moves forward through design phases and then into construction, estimators will continue to reassess estimates in greater and more granular detail. 

Depending on the stage of the project, a different type of estimating will be used. In most cases, a larger job will consist of the following types of estimates: conceptual, detailed, quantity and bid. 

1. Conceptual Estimates

At the outset of any construction project, a primary concern for owners is establishing a clear and accurate estimate of project costs. Conceptual estimating is that foundational step that influences project funding, budget planning and design development, setting the stage for the financial viability of a project.

Conceptual estimating, sometimes referred to as cost modeling or preliminary estimates, is a preconstruction exercise, focused on forecasting project costs before detailed project design and engineering is completed. This process often begins during the predevelopment phase of a project — or as part of a pro forma — to ensure financial viability.  These early estimates are essential for setting initial construction budgets, assessing project feasibility, guiding the design process and supporting strategic decision-making.

Estimators collaborate closely with architects and project owners so each design iteration remains aligned with the project's architectural intentions and budgetary goals. These early estimates guide cooperative design adjustments, helping project teams make informed decisions that balance aesthetic desires with financial constraints.

Detailed Estimates

Detailed estimates will be conducted after the preliminary and conceptual estimates have established basic feasibility and scope. These estimates provide a more precise and thorough financial projection, laying the groundwork for a more accurate and reliable budget for owners. 

Detailed estimates involve an in-depth analysis of all aspects of the project, taking into account a comprehensive list of materials, labor and associated costs. This phase transitions from high-level estimates to specific costs, often using data from previous projects, current market rates and detailed project drawings. It includes precise measurements and quantities, such as square footage for flooring or linear feet for piping, and multiplies these units by their respective costs.

Detailed estimates might initially start with broad approximations. Earlier estimations might consist of a document from a trade partner promising to do the sheetrock and all the insulation. As the project progresses, estimates might get broken out into sets based on materials and methods they’ll use – often called the "30, 60, and 90 sets" – which are increasingly more accurate based on the percentage of detail given. 

The 30, 60, 90 set often goes in one of two ways. Sometimes people go to three bidders and ask them to provide 30% pricing, meaning they're not going to take off every square inch, but they're going to put a rough number on it with a moderate level of certainty based on the scope of the work, like the average square feet of coverage.

Quantity Estimates

Quantity estimates focus on calculating the specific quantities of materials and labor required for the project. These estimates are usually derived from detailed project drawings and specifications, using tools like on-screen — material takeoffs or 3D takeoffs — to measure areas, lengths and volumes.

General contractors typically perform takeoffs to create accurate work packages, either to complete themselves or assign to specialty contractors. A specialty contractor usually reviews the plans specifications to perform their own material takeoff, ensuring they have an accurate count before reaching out to suppliers and vendors.

After completing a takeoff, estimators have a comprehensive list of every material required to complete the project. They also use information from the takeoff to determine what equipment will be needed for each work package.

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Bid Estimates

After the cost of the project has been determined front her  takeoffs and conceptual and quantity estimates, general contractors then need to determine how much to  bid. This estimate will take into consideration all of the indirect costs a general contractor will take on — such as overhead, labor, insurance and bonding, permits, site cleaning, etc. — as well as accounting for profit and contingency. 

After calculating all of the costs for a construction project, the estimator will adjust the total to account for both profit margin and contingency. The profit is the fee that the contractor earns for the contract—and that money can be reinvested to continue growing the business. Contingency, on the other hand, is a portion of the contract set aside for overruns and waste — which are generally to be expected on a construction project. 

How Project Delivery Methods Change Estimates

The process behind building out construction estimates and who will complete each iteration will depend on the construction delivery method the project uses.

Design-bid-build

Design-bid-build (DBB) is the traditional construction delivery method. On a DBB project, an owner would work with a design team to sketch out the idea for a new project and then have general contractors bid on the project based on their own estimations. 

Often, owners will ask the designers to create rough conceptual estimates to use to create budgets for lenders and stakeholders — but, for the most part, it’s during the bidding process that owners will have a greater understanding of how much the project will actually cost them. 

Design-build

The design-build (DB) delivery model allows for much closer collaboration between designer, owner and contractors early on in the construction design process. In this case, it's very common to put together a Guaranteed Maximum Price (GMP) as the design process goes along, so that they can notice when costs start to get out of hand and change the design to limit those costs. 

The owner and the architect both experience the benefits of creating more informed early project estimations. The owner benefits by getting a sense of costs earlier on in the process, and won't get too attached to any idea that's totally unaffordable.

Meanwhile, the architect has a greater likelihood of the design actually getting built, because the owner, architect and contractor are working together on a design that will max out the design capacity while staying within budget.

Over the course of a DB project, there will be various versions of project cost estimates.

Cost escalation in estimations

After an owner and a design-build firm have both signed off on a budget, the total costs of the project as scoped out in the contract become the construction firm's responsibility, regardless of any cost increases like the cost of materials.

Some contractors will answer this challenge by firming up all those materials contracts as soon as the project begins. That way, the liability for price increases falls to the materials suppliers who have guaranteed their prices. Contractors who don't buy their contracts out will need to do more frequent internal estimating (that they won't share with the owner) as the project progresses so that they are aware of any spiking prices and don't get snowed under with price increases when it comes time to actually procure the materials.

Some construction projects with very long lead times may be contracted with price escalation clauses that outline how those extra costs may be handled between the owner and the contractor.

Change order estimations

No construction project is without surprises. As work begins, there will be items that come up that will require more work than the original scope allowed for. In those cases, the build team will ask for estimations on the cost of the extra work that eventually become change orders.

For instance, if the build team starts digging and identifies some bad soil, they will get experts to identify the approximate yardage of the bad soil and get estimates from subcontractors to dig it out.

How Technology is Changing Estimation

Access to information about past projects may drastically change the way that owners think of the design-build teams they hire to build their projects. Technology is now allowing savvy construction firms to access huge swaths of fresh information and analysis from past work, which helps inform new projects.

Firms with access to data can look at a particular square footage of a project like a hospital, and based on the last four projects extrapolate exact costs. Any issues that arise can be solved as cost-effectively as possible using this project data, and DB firms are able to use the data to suggest the cheapest way to fix the issue. And with new virtual design and construction (VDC) programs, it’s not a pipe dream that estimation can be an automated process based on building information modeling (BIM) and integrated cost data. 

Information like that may avoid a great deal of risk for the owner. With all the metadata that's going into digital storage, it would stand to reason that owners will, in many cases, choose the design-bid firms with the most data.

As technology advances, construction software is beginning to enable users to see and analyze data, plus complete rudimentary takeoffs using building plans.

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