COTM 5202 Cost Engineering

Project Cost Estimation

Miniwuyelet Ejigu, Msc
Miliyon Fikre , Msc

December, 2021
 Outline

Outline
1.Introduction
2.Project Cost Estimation
3.Unit Rate Analysis
 1.Introduction
1.Introduction
1.1 General
 Estimation is the scientific way of working out the approximate cost of an
engineering project before execution of the work.
 Project Cost estimation is the process of valuing on monetary expression, including
the cost of all possible entrants necessary for the planning, implementing and
monitoring stages of the proposed project under consideration.
 Cost estimation is a methodology used for predicting/forecasting the likely future
cost of a product or service based on the information available at the time.
 Project Cost includes:
• Preliminary investigation (project appraisal costs);
• Design and supervision (consultancy cost);
 1.Introduction(cont’d)
1.Introduction
 Project Cost includes (Contd) :
• Construction works (contractor’s cost);
• Land owning cost, and
• Monitoring costs.
1.2 Objective of Cost Estimate
 Over all the main purpose of cost estimation can be summarized as follows:
• know the volume of work in reference to the fund available
• determine actual cost per unit of item;
• Identifying engineering estimate of the work for bidding purpose;
• work out economical use of materials , labor and equipments;
• In cases of variations to determine the extra cost to be incurred; and
• when there is escalation, to work out the escalation in cost.
 1.Introduction(cont’d)
1.Introduction
1.3 Information Required for Cost Estimation
 The following information is required to define cost per unit of work:
• Correct information of the market price of the materials at the time of need to
be used as a basic price;
• Correct of the rates of various categories of skilled and unskilled laborers as
wage rates to be used for daily work rate;
• Output of laborers per day for various types of items (productivity);
• Correct information of the rates of various categories of equipment and tools as
rental rates to be used for major items of rates; and
• Up-to-date knowledge of the construction methods.
 1.Introduction(cont’d)
1.Introduction
1.4 Knowledge and Managerial Skill for Cost Estimation
 The following knowledge, managerial talents, and degree of construction
experience make a good estimator.
• Ability to read and understand contract documents, with special skills in reading
construction drawings for all specialties and related specifications.
• Ability to accurately take off the quantities of construction work for which he or she
is preparing the detail estimate.
• Ability to visualize the future building from drawings, which usually requires some
years of construction site experience.
• Knowledge of arithmetic, basic geometry, and statistics.
 1. Introduction(cont’d)
1.Introduction
1.4 Knowledge and Managerial Skill for Cost Estimation
 The following knowledge, managerial talents, and degree of construction experience
make a good estimator.
• Familiarity with estimating software in depth and with available building cost
databases.
• Knowledge of building construction methods.
• Knowledge of labor productivity, crew composition, and impacts of various
forecasted site conditions on crew output.
• Possession of office managerial skills in organizing project-related cost
information.
• Ability to work under pressure and to meet all bid requirements and deadlines.
 1. Introduction(cont’d)
1.Introduction
1.5 Factors affecting Cost Estimation
 Factors which affect the cost estimation are summarized as follow:
• Type and documentation of the project;
• Construction scheduling;
• Bidding environment;
• Quality and availability of material and labor (given in specification);
• Construction facilities /tools and method of construction;
• Location of the site: Transportation charges;
• Improper management;
• Land charges (lease); and
• Nature of subsurface condition
 2.Project Cost Estimation
2.1.Types of Cost Estimation
 Basically, cost estimation falls into two groups namely conceptual estimates and
detailed estimates.
2.1.1 Conceptual Estimates
 This type of cost estimation is required to know the financial position of the client before
costly detailed designs are carried out.
 The process of establishing a project’s cost usually before any graphical representation of
the facility has to be developed.
 This type of estimate is usually carried out as part of a feasibility study at the
commencement of a project.
 It is sometimes called “topdown”, order of magnitude, ball park, feasibility, quickie,
analogous and pre-design estimate.
 This estimate type is prepared with minimum data as regards to the project’s scope with
little design and specification details.
 2.Project Cost Estimation(Cont’d)
2.1.Types of Cost Estimation
2.1.2. Detailed Estimate
 This is the most reliable and accurate type of estimate.
 This is also known as, bid or quantity take-off estimates.
 The estimate is prepared by splitting the work packages in an orderly and logical
form by determining the cost of each work package from experience and
summarizing the total.
 Requires an analysis of the method of construction to be used, the quantities of
work,
resources rates of production and any other factor that affects each of the sub-items.
 2.Project Cost Estimation(Cont’d)
2.2. Tools and Techniques for Cost Estimation
 The most common cost estimating techniques in construction projects are;
2.2.1.Analogous Estimating
 Also called top-down estimating, analogous estimating looks at historical project
data to develop estimates for new projects.
 Analogous estimating takes the actual cost of previous, similar projects as a baseline
and then adjusts for known differences (such as size, complexity, scope, duration,
etc).
2.2.2. Parametric estimating
 Is a way of estimating costs using Cost Estimating Relationships (CERs), along with
mathematical algorithms and other logic to establish a cost estimate.
 Implicit assumption of this approach is that the same forces that affected the cost in
 2.Project Cost Estimation(Cont’d)
2.2. Tools and Techniques for Cost Estimation
2.2.3. Bottom-Up Estimating
 Also called analytical estimating, bottom-up estimating divides projects deliverables
into a series of work packages, which are made up from a series of tasks.
 This system is understood to be one among the foremost accurate, but also one
among the foremost time-consuming.
2.3 Fundamental Approach to Construction Cost Estimation
 Cost estimating is one of the most important steps in project management.
 A cost estimate establishes the base line of the project cost at different stages of
development of the project.
 Efficient construction cost estimates shall address properly the required project
quality, time for completion of works and of course the construction cost of the
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation

 In deciding to participate in the intended project tender, the contractor shall carefully
assess the impact of the following key factors:
• Type of project;
• Method of tendering;
• Type of construction contract;
• Number and progress of contracts already at hand;
• Resource availability i.e. skilled manpower, plants and machineries; and
• Financial position.
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
 Once decision is made to participate in the intended tender, the contractor shall give
due attention to the following major items listed below:
• General and particular conditions of contract contained in the bidding documents;
• Technical specifications;
• Drawings;
• Estimated bill of quantities;
• Method of measurement;
• Supporting documents such as information regarding geological formations and
hydrological data;
• Site Visits ; and
• Construction method Statement.
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.1 General and particular conditions of contract contained in the bidding
documents
 Proper understanding of the general and particular conditions of contract is mainly
important for construction cost estimation in identifying the responsibilities and cost
implications on the project.
• Amount and type of performance security;
• Amount of advance payment and type of advance
• Repayment guarantee;
• Time for completion of the whole project;
• Limit of liquidated damages;
• Retention money; and
• Claims and disputes settlement
• Price escalation, Tax exemptions, Insurance of the works and Owner’s risks
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.2 Technical Specifications
 Technical specifications specify the following crucial information to the contractor
and it is the sole basis both for the construction methods to be adapted and the
construction cost of the project.
• Quality of materials;
• Quality of machineries and plants;
• Quality of workmanship;
• Erection and installation methods; and
• Test and inspection requirements and methods
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.2 Technical Specification
 Technical specifications basically have restricted applications, which usually define
specific work items. Therefore, for a better understanding and cost estimation of the
project, the contractor must check the given specifications for:
• Technical accuracy and adequacy;
• Define and clear stipulations;
• Fair and equitable requirements;
• Formats which can be easily used during bidding and construction; and
• Legal enforceability
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.3 Drawing
 The contractor mainly understands from the drawings what type of construction
methods to be adapted during cost estimation as well as construction of the project.
 Some of the construction methods which need to be addressed during cost
estimation of this building project are:
• Concrete production, transportation and placement;
• Transportation of materials to different floors;
• Methods and type of scaffolding, shuttering works;
• Erection and installation of glazing works; and
• Temporary access for manpower working at different
floors, and Skilled manpower requirement.
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.4 Estimated Bill of Quantity
 Estimated quantities of work are also the basis to determine the type and number of
resources to be deployed during construction of the project.
 Moreover, construction methods shall be selected in such a way the given quantity
of works can be executed during the completion time of the project.
 Based on the estimated quantity of works, the contractor shall decide the method of
construction to be adapted during executing of the project such as:
• Type and size of crushing plants;
• Type and size of mechanical mixers or batching plants;
• Type, size and number of machineries such as dozers, graders, loaders, rollers,
dump trucks and so on;
• Skill and number of manpower requirement; and
• Type and quantity of construction materials.
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.5 Supporting Documents
 Supporting documents such as geological formations, hydrological data and other
technical reports like socioeconomic studies are usually provided by the owner to
contractors for their own interpretations for heavy construction projects.
 Therefore, the contractor shall have the technical ability and experience in
interpreting the technical data provided to determine construction methods to be
adapted which directly affects the construction cost estimates
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.6 Site visit
 In order to prepare competent and reasonable construction cost estimates, the
contractor must visit the project site unless the site is familiar to the contractor with
previous reliable site information.
 Site visits are critically important especially when the contractor is working with heavy
construction project cost estimates such as road works and hydropower projects.
 The contractor shall prepare his own checklists during the site visit which shall
address, but not limited to, the following issues which have direct impact on the
construction costs of the intended project.
• Location of the site; • Communication facilities;

• Environmental protection; and

• Location of local construction materials;
• Access roads; • Existing facilities.
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.2.7. Method of Measurement
 Contractors shall thoroughly understand the method of measurement incorporated
within the bidding documents before starting any cost breakdown calculations.
• BaTCoDA Technical specification and method of measurement (March 1991);
• ERA standard specifications (1968); and
• Civil Engineering Standard Method of Measurement (CESMM) etc
 2.Project Cost Estimation(Cont’d)
2.3 Fundamental Approach to Construction Cost Estimation
2.3.8 Construction Method Statement
 Construction method statements give the clear picture of each project activity execution
during the construction phase of the project.
 The required quality of works as per the specifications, estimated quantity of works,
safety standards, as well as time for completion are the sole basis in determining the
construction method statements of a project.
 Construction method statements shall clearly indicate the following crucial construction issues:
• Skill and number of manpower required;
• Type and specification of equipments required;
• Quantity and quality of materials required;
• Proposed working crews;
• Estimated crew productivity;
• Estimated duration for completion; and
• Expected defects and remedial measures
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
 Basically the cost of any construction project comprises;
• Direct costs, which include the direct cost of materials, labor as well as equipments
and
• Indirect costs, which include but not limited to head office and site overhead costs.
2.4.1 Direct Construction Cost
 Direct construction costs are all costs that can be specifically booked with an
activity in a project.
 The current trend is to assign as much as possible costs to direct costs as these costs
can be budgeted, monitored and controlled far more effectively than the indirect
costs.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.1 Direct Construction Cost
 The direct costs mainly include material, labor, equipment and subcontract costs as
described below.
• Direct Material costs: These costs referring to the cost of materials, consumables
and components used for executing an activity including the allowances for scrap
and wastages.
• Direct Labor costs: All costs related to the workers working on a specific activity
such as carpenters, masons, erectors, painters, plumbers and so on.
• Direct Equipment costs: These costs referring to the costs of machineries and plants
used in executing a specific activity.
• Subcontract costs: In case some specific activities are subcontracted, the
subcontract price will be considered as the direct cost of the activities to be executed
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
 Indirect construction costs are all costs, which can not be directly booked under a
specific activity in a construction project but required to keep the whole project
operational.
 These costs are also called overhead costs, which mainly include the head office and
site overhead costs.
A. Head office overhead costs
 Head office overhead costs are all costs required to run the whole operation of the
construction company, which usually administers different projects at a time.
 These costs are not usually associated with specific project but rather shared
proportionally by all projects under the company.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
A. Head office overhead costs
 Some of the checklists for head office overhead costs are given below with further
clarifications.
• Senior management costs: These refer to costs related with salaries and benefit
packages of the senior management in the head office.
• Indirect labor costs: Staffs other than the senior management members working at
the head office such as the technical, administrative, marketing, finance and supply
staffs.
• Head office building costs: In both cases, costs are incurred in such a way either
rental costs will be paid, if the building is rented and building depreciation will be
considered, if the building is owned.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
A. Head office overhead costs
 Some of the checklists for head office overhead costs are given below with further
clarifications.
• Bidding Expenses: These costs are usually associated with bid document purchases,
site visit expenses, bid bonds and so on. These costs are sometimes called sunk
costs.
• Expertise service costs: These costs will be incurred when professional services are
required such as the services of external auditors, lawyers, management consultants
and external trainings.
• Office furniture and equipments: Different office furniture and equipments are
required depending on the size and standard of the company.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
A. Head office overhead costs
 Some of the checklists for head office overhead costs are given below with further
clarifications.
• Office running expenses: The head office operation requires lots of miscellaneous
expenses such as telephones, fax, internet services, stationery, mail services and so
many others.
• Workshops, garages and warehouses: Costs related to central workshops, garages
and warehouses such as the depreciation costs of the buildings or rental expenses.
• Bank charges: It is very natural that companies may borrow money from banks.
Therefore, the interest to be paid on the borrowed capital shall be considered under
the head office costs.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
A. Head office overhead costs
 Some of the checklists for head office overhead costs are given below with further
clarifications.
• Insurance charges: Employees medical insurance, office building and small
vehicles insurance.
• Transportation and travel expenses: costs related to transportation, per diem and
living expenses.
• Sundry expenses: These are miscellaneous expenses such as advertisement
expenses, reception parties and
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
B. Site overhead costs/Project overhead
 Site overhead costs are all costs required to run the whole operation of a specific
construction project at site level.
 These costs are not associated with specific activity in a project but rather shared
proportionally by all activities within the project. Some of the site overhead costs are
listed below with further clarifications.
• Mobilization and demobilization costs –These costs are mainly transportation costs.
• Tender Expenses – These costs are related with the costs of the contract performance
security, advance repayment guarantee, contractor’s all risk insurance, insurance of the
works and third party insurance depending on the contract conditions agreed.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
B. Site overhead costs/Project overhead
• Site offices –site offices are constructed from different materials such as corrugated iron
sheets, prefabricated materials, material packing steel containers, steel structure and normal
hollow concrete blocks.
• Expertise service costs-These costs will be incurred when professional services are
required at the project site such as lawyers, claim experts and so on.
• Office furniture and equipments – Different office furniture and equipments are required
depending on the size and location of the project.
• Office running expenses - The site office operation requires different expenses such as
telephones, fax, internet service, mail service and stationery.
• Radio communications - If the coverage area of the construction project is vast, hand held
and stationed radio communications may be used within the site and with the head office
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.2 Indirect Construction Cost
B. Site overhead costs/Project overhead
• Camp facilities – The costs of construction and operation of other facilities such as
restaurants, recreational centers and playgrounds are also included under the camp
facilities.
• Access roads – Depending on the topography and location of the project site, different
access roads may be required to construct such as detour roads, access roads to quarry
and disposal areas, etc.
• Water and power supply – All the site offices, camp facilities, the construction itself
requires water and power supply for operating the whole project properly.
• Work shop garages and ware houses, Bank charges , Transportation and travel expenses
and Insurance charges, etc…
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.3 Risk Allowance
 Usually contractors incorporate risk allowances in their tender prices to compensate
the negative impacts of different risks such as contractual, technical, political and
economic risks.
• Contractual risks are usually stemming from the contract agreements with the
project owner, subcontractors and suppliers.
• Technical risks are associated usually with the clarification of the technical
specifications, working drawings, construction technology and difficulties in
understanding new method of constructions.
• Political and economic risks reflect impact of political situations, stability of
economic policies, inflation and price escalation on the execution of intended
construction project.
 2.Project Cost Estimation(Cont’d)
2.4 Basic Cost Components of Construction
2.4.4 Profit and Income Tax
 Construction projects are executed by contractors whereby these contractors will
commit to invest their capital to get maximum possible profit from the contracts to
be performed.
 A profit margin entirely depends on the market competitiveness and company
strategies.
 Any construction company operating a profitable business in Ethiopia shall pay
30% of its gross profit as an income tax as per the income tax proclamation No.
286/2002.
 If the contractor is registered for VAT, which is usually the case, the contractor’s
construction cost estimate shall also include Value Added Tax which is 15% of the
 3.Unit Rate Analysis
3. Unit Rate Analysis
3.1 General
 Construction cost estimation formats and procedures shall also serve as the basis for
different purposes as listed below in managing the project during construction.
• Construction planning;
• Project cash flow preparation;
• Productivity data collection;
• Material consumption data collection;
• Construction monitoring;
• Performance evaluation and controlling;
• Performance related pay;
• Subcontractor’s price evaluation;
• Variations and claims substantiation; and
• Remedial measures and improvements.
 3.Unit Rate Analysis(Cont’d)
3.1 General
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 Direct material cost is the total cost of construction materials required to execute a
unit of specific activity in a project.
 In estimating the direct material cost, the contractor shall obtain the quantity and
quality of materials required to produce the specific unit of an activity.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 In order to have a better material cost estimation, contractors shall develop their own
material price database and the database should contain, but not limited to, the
following information:
• Material price at place of delivery;
• Supplier’s address such as telephone, fax and mail address;
• Supplier’s contact person, email address and web site;
• Supplier’s credit facility;
• Country of origin, Material delivery time;
• Place of delivery such as at the supplier’s shop, project site, Addis Ababa air port or
Djibouti port;
• Transportation charges usually per ton-km as well as transporters.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 The contractor shall add the following costs to the material supplier’s price to get the
material unit cost at the project site:
• Loading expenses at the supplier’s place of delivery;
• Transportation costs to the project site;
• Insurance charges during transportation to the project site; and
• Unloading expenses at the project site.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 Unless otherwise stated on the contract conditions and investment incentives,
contractors shall add the following costs, but not limited, to the CIF Djibouti price to
get the final material unit cost at the project site.
• Port clearance;
• Duty;
• Excise tax;
• Value Added Tax;
• Customs clearance;
• Clearing Agent’s fee;
• Transportation cost from Port to the project site;
• Insurance, if required, during transportation; and
• Unloading expenses at the project site.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
Example: Assume the CIF price at Djibouti Port for Re-bar is 4,115.53 Birr/ton.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.2 Direct Material Unit Cost (E)
.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.3 Direct Labor Unit Cost (F)
 In calculating the direct labor cost, contractors need to calculate the direct labor
hourly cost which is the total hourly cost of labor crew required to execute a specific
activity in the project.
 In estimating the direct labor hourly cost, the contractor shall obtain the following
inputs:
• Number of labor;
• Skill and labor utilization factor (UF);
• Labor basic salary; and
• Labor index from his previous records and the labor market.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.3 Direct Labor Unit Cost (F)
 Labor Index is a multiplying factor of the basic salary which represents the
additional benefits whereby a worker gets from the contractor such as:
• Severance pay;
• Annual leave;
• Occupational accident expenses;
• Occupational disease expenses;
• Overtime pay;
• Occupational safety, health and working environment; and
• Benefits resulting from collective agreements.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.3 Direct Labor Unit Cost (F)
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.3 Direct Labor Unit Cost (F)
𝑃𝑎𝑦 𝐻𝑜𝑢𝑟𝑠 = 𝑊 𝑒 𝑒 𝑘 𝑙𝑦 𝑠 𝑡 𝑟𝑎𝑖𝑔 ℎ 𝑡 𝑡 𝑖𝑚 𝑒 + 𝑊 𝑒 𝑒 𝑘 𝑙𝑦 𝑜𝑣 𝑒 𝑟𝑡 𝑖𝑚 𝑒 + 𝑆 𝑎𝑡 𝑢 𝑟𝑑 𝑎𝑦 𝑜𝑣 𝑒 𝑟𝑡 𝑖𝑚 𝑒
= (5 𝑑 𝑎𝑦 𝑠 𝑥 8 hr/day) + (5 𝑑 𝑎𝑦 𝑠 𝑥 2 hr/day @ 1.5) + (1 𝑑 𝑎𝑦 𝑥 10 ℎ 𝑟 /𝑑 𝑎𝑦 𝑥 2.0)
= 40.0 + 15.0 + 20.0
= 75 ℎ 𝑟
𝐴 𝑐 𝑡 𝑢 𝑎𝑙 𝐻 𝑜𝑢 𝑟𝑠 = (10 ℎ 𝑟 /𝑑 𝑎𝑦 𝑥 5 𝑑 𝑎𝑦 𝑠 ) + (10 ℎ 𝑟 /𝑑 𝑎𝑦 𝑥 1 𝑑 𝑎𝑦 ) = 60 ℎ 𝑟
𝐴 𝑣 𝑒 𝑟𝑎𝑔 𝑒 𝐻 𝑜𝑢 𝑟𝑙𝑦 𝑃𝑎𝑦 = [(𝑃𝑎𝑦 𝐻 𝑜𝑢 𝑟𝑠 ) / (𝐴 𝑐 𝑡 𝑢 𝑎𝑙 𝐻 𝑜𝑢 𝑟𝑠 )] 𝑥 𝐵 𝑎𝑠 𝑒 𝑊 𝑎𝑔 𝑒

𝑰𝒓 𝒐 𝒏 𝒘 𝒐 𝒓 𝒌 𝒆 𝒓 𝑪 𝒐 𝒔 𝒕 𝒔 :
𝐴 𝑣 𝑒 𝑟𝑎𝑔 𝑒 ℎ 𝑜𝑢 𝑟𝑙𝑦 𝑝 𝑎𝑦 = (75/60 𝑥 $20.97/ℎ 𝑟 = $26.2125/ℎ 𝑟
𝑆 𝑜𝑐 𝑖𝑎𝑙 𝑆 𝑒 𝑐 𝑢 𝑟𝑖𝑡 𝑦 𝑇 𝑎𝑥 = 7.65% 𝑥 $26.2125/ℎ 𝑟 = $2.0053/ℎ 𝑟
𝑈 𝑛 𝑒 𝑚 𝑝 𝑙𝑜𝑦 𝑚 𝑒 𝑛 𝑡 𝑇 𝑎𝑥 = 3.0% 𝑥 $26.2125/ℎ 𝑟 = $0.7864/ℎ 𝑟
𝑊 𝑜𝑟𝑘 𝑒 𝑟𝑠 ’ 𝑐 𝑜𝑚 𝑝 𝑒 𝑛 𝑠 𝑎𝑡 𝑖𝑜𝑛 = $12.50/$100 𝑥 $20.97/ℎ 𝑟 = $2.6213/ℎ 𝑟
𝑃𝑢 𝑏 𝑙𝑖𝑐 𝐿 𝑖𝑎𝑏 𝑖𝑙𝑖𝑡 𝑦 /𝑝 𝑟𝑜𝑝 𝑒 𝑟𝑡 𝑦 𝑑 𝑎𝑚 𝑎𝑔 𝑒 = $3.25/$100 𝑥 $20.97/ℎ 𝑟 = $ 0.6815/ℎ 𝑟
𝐹𝑟𝑖𝑛 𝑔 𝑒 𝑏 𝑒 𝑛 𝑒 𝑓𝑖𝑡 𝑠 = $3.15/ℎ 𝑜𝑢 𝑟
𝐼𝑟𝑜𝑛𝑤𝑜𝑟𝑘𝑒𝑟 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 ℎ𝑜𝑢𝑟𝑙𝑦 𝑐𝑜𝑠𝑡 = = ≅ 1.69 ∗ 𝐵𝑎𝑠𝑒 𝑤𝑎𝑔𝑒
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.4 Direct Equipment Unit Cost (G)
 In order to calculate the direct equipment cost, contractors need to calculate the
direct equipment hourly cost which is the total hourly cost of equipment crew
required to execute a specific activity in a project.
 In estimating the direct equipment hourly cost, the contractor shall obtain:
• The number of equipments,
• Capacity and equipment utilization factor (UF), and
• The equipment hourly cost.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.4 Direct Equipment Unit Cost (G)
 In order to calculate the direct equipment cost, contractors need to calculate the
direct equipment hourly cost which is the total hourly cost of equipment crew
required to execute a specific activity in a project.
 In estimating the direct equipment hourly cost, the contractor shall obtain:
• The number of equipments,
• Capacity and equipment utilization factor (UF), and
• The equipment hourly cost.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.5 Site Overhead Cost (I)
 It is easier to express the site overhead costs as a percentage of the direct unit cost of
an activity.

3.6 Head office overhead costs (J)

 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.7 Risk Allowance (L)
 Let’s assume the following factors represent the percentage cost increment of each
cost component and the risk allowance will be calculated as follows:
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.8 Gross Profit (M)
 As an illustration, if the net profit margin is assumed to be P% of the breakeven cost
(direct costs + indirect costs + risk allowances), the gross profit (net profit + income
tax) can be calculated as follows, which is X% of the breakeven cost.
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.9 Total Unit Price without VAT (N)
 If the contractor is registered for VAT but the contract is VAT exempted, the
contractor’s unit price in his tender is the sum of direct unit cost (H), indirect unit
cost (K), risk allowance (L) and gross profit (M).

3.10 Total Unit Price with VAT

 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.10 Unit Rate Analysis Format Examples
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.10 Unit Rate Analysis Format Examples
 3.Unit Rate Analysis (Cont’d)
3. Unit Rate Analysis
3.10 Unit Rate Analysis Format Examples
 3.Unit Rate Analysis(Cont’d)
3. Unit Rate Analysis
3.10 Unit Rate Analysis Format Examples
 Literature Based Review Projects
List of Projects;
1. Identifying factors affecting feasibility study of Public building projects in Addis Ababa.
2. Factors affecting the accuracy of cost estimation in Public building construction projects.
3. Pros and cons of conceptual and detailed cost estimation in construction projects.
4. Review of Parametric cost prediction variables for building construction projects.
5. Review of Parametric cost prediction variables for road construction projects.
6. Risk management practice for building projects in Addis Ababa.
7. Challenges of applying value engineering in construction projects.
8. Critical Success factor for construction projects.
9. Total quality management in construction projects.
10.Risk factors in cost estimation: Building Contractors’ Experience
11.Risk factors in cost estimation:Road Contractors’ Experience
 References ;
Sources;
1. COTM 5133;BSc Lecture slide prepared by Getaneh Gezahegn(2015).
2. Estimating Construction Costs, Peurifoy and Oberlender, 2002, McGraw-Hill.

Thank you!!!