Construction Cost Estimating – How it Works

📝Key Takeaways:

  • Go through the basics of cost estimation and the different types of cost estimate you can use for your business.
  • Learn the benefits of cost estimation and the process of creating quality cost estimates.
  • Avoid the common mistakes while creating cost estimates and integrate professional software to manage your construction business operations.

The construction industry was estimated at around $1.36 trillion in 2020 and is expected to touch $8 trillion by 2030. With the rise in the industry, the industry and consumer demand are changing.

You must manage your construction project with finesse and bypass different project management challenges to attract more construction projects and retain your clients.

Accurate and precise construction cost estimation is a leading aspect that decides the success or failure of a construction project.

But what is construction cost estimating?

How does cost estimation work, and what benefits does it have for your business?

Let’s find out.

Why Is Estimating Important?

Construction cost estimating is a basic principle for forecasting the construction cost of the building or the structure. You can use construction cost estimating to analyze the project’s feasibility, budget allocation, and scope.

Following robust and reliable construction estimation practice can deliver precise and accurate estimates to clients.

The importance of project estimation increases with the rise in project scale. Although the initial construction estimate won’t match the actual construction costs, businesses can’t neglect the importance of a professional construction estimator.

Using construction estimating software, you can calculate the estimated construction costs, labor costs, maintenance costs, equipment costs, and other expense values.

Look at how the detailed estimates can assist you:

  • Your procurement team can align with the project’s finances.
  • You can decide your profit margins with finesse.
  • Your clients can get the idea of project feasibility and sustainability.
  • Your team can make vital decisions on the material and design based on the set budget, increasing the effectiveness of construction project management.

Cost estimation considers different factors that can impact the actual project costs and predicts the closest amount for project completion.

It is imperative to set different data points during the estimation. You must consider the location, material, labor, and machinery involved in the project to help you accurately estimate the construction cost.

Apart from these vital factors, you also should consider hidden factors like possible market fluctuations, which can impact the overall construction project cost. 

You should assess the project-specific materials based on the type of construction your client demands.

For example, an eco-friendly building requires different materials than a normal building.

Before we discuss the benefits and processes related to cost estimating, look at the types of cost estimates in the construction industry.

Types of Cost Construction Estimate

types of construction cost estimation

There are eight cost estimates in the construction business that you can choose based on different factors. Have a look.

1. Preliminary cost estimate

The cost estimate is abstract or approximate. It is prepared in the initial construction stages to understand the approximate cost of the project.

The estimates are prepared considering the cost of similar projects handled by the construction contractor. Different important items of work are listed in the estimate to understand the utility and necessity.

The items of work include the cost of roads, land, water supply, building material, electrification, etc.

2. Plinth area cost estimate

The cost estimate is prepared to analyze the plinth area of the building. The external dimensions of the building are considered at the floor level to calculate the final plinth area cost estimate.

Once the dimensions are noted, the project cost for a similar building with specifications near the locality is considered to drive an accurate estimate.

The plinth area of the building is multiplied by the plinth area rate to get the plinth area estimate.

For example, if the plinth area rate of a building in a specific locality is 2000 per sq.m and you need to get the plinth area estimate of a 100 sq.m building, then the plinth area estimate is 200000.

3. Cube rate cost estimate

The cost estimate of the building is calculated by multiplying the height of the building with the plinth area. The height should be calculated from the floor level to the roof level.

The estimate is accurate for multi-story buildings and delivers accurate and precise estimation results. The plinth, foundation, and parapet are not considered in the cube rate cost estimate.

4. Approximate quantity method cost estimate

The cost estimate is calculated by multiplying the total wall length of the building with the rate per running meter.

The rate per running is calculated by considering factors like brickwork cost up to plinth, excavation cost, etc. 

5. Detailed cost estimate

A detailed cost estimate is considered when you require highly accurate estimates. The quantities and the cost of each item are calculated separately.

The different costs of the material are considered according to the current rate, and the total estimated cost is calculated by adding 3–5 % of contingencies as miscellaneous expenses.

6. Revised cost estimate

The revised cost estimate is considered when the originally sanctioned estimate exceeds 5% or more.

The increase in the estimated value can be due to market change and an increase in the cost of materials and transportation.

The reason for calculating the revised cost estimate is mentioned on the last page of the estimate to remain crystal clear with the clients.

7. Supplementary cost estimate

The supplementary cost estimate is another detailed estimate that is prepared when the requirement for additional work arises during the processing of the originally estimated construction work.

The estimate considers the cost of the original project as the base to calculate the supplementary project estimate. Then the total project estimate is calculated again to inform the client about the new additions.

8. Annual repair cost estimate

The annual repair cost estimate or maintenance estimate is prepared to calculate the yearly maintenance cost of the building.

Minor repairs, whitewashing, painting, etc., are considered while preparing the annual repair estimate for the client building.

Based on your project requirements, you can consider one of the listed cost estimation types and deliver a quality estimate to your clients.

Look at the benefits of cost estimating in the construction industry.

Benefits of Cost Estimating in Construction

The cost estimation process provides a solid foundation for planning your project operations and achieving the desired business outcome.

benefits of cost estimation in construction

The benefits of using cost estimating in construction are:

1. Precise planning

Cost estimation provides a great base to complete the task and deliver quality construction results. You can have a flawless workflow based on the results to ensure that the workforce aligns with the project timelines.

The planning can assist you in removing the guesswork and work according to the set structure to deliver the desired construction results.

2. Boost profits

Unexpected events and poor planning limit your efficiency, increase the construction time, and disturb your budget and deadlines. 

But planning the construction project based on a professional estimate can help protect your profit margins and analyze the unexpected and expected project completion cost. 

Once you deliver quality construction results and limit your expenses based on the estimates, you can lock in more business profits and scale your contractor business to new heights.

3. Better industry presence

Proper planning and quality estimates can finish the projects within a specific time and the budget limits. You can improve your relationship with your clients, strengthen your industry presence, and stand out from the rest.

You can gain more clients and boost word-of-mouth marketing, which can attract more new customers to scale your business operations.

4. Effective resource management

You can manage your resources based on the estimates, and increase the productivity of your construction project.

You can hire the right talent, integrate the right systems, and fill the resource gaps, which can help you streamline the construction process and achieve your desired business outcomes.

The Cost Estimating Process

All projects can benefit greatly from thoughtful and deliberate cost estimation processes. The estimation process requires planning and judgment to achieve the desired target and accurate results.

You must have expertise in the construction process, which can help you improve the cost estimation process results and deliver quality estimates to your clients.

Look at the guidelines that can help you with the construction estimate creation:

1. Cost estimating basis

You must agree on different costs with your suppliers and other vendors to help set a solid foundation for the estimation process. You also need to obtain project information like client requirements, scope, and budget, which can help you create a professional and accurate cost estimate.

The project’s cost estimation also depends on the project type, design matrix, complexities, and criteria.

You also need to record subsequent and additional information to trace history for similar projects, which can help you draft an accurate cost estimate.

2. Estimate preparation

You can use professional cost estimating software to help you access pre-build estimate templates to create professional estimates for your clients.

The construction cost estimates must include detailed pricing of the construction process like building costs, capital costs, material costs, supervision costs, overhead costs, and other estimating construction costs to get a more detailed cost estimate.

Once the estimate is created, you must ensure that the value remains close to the actual costs and that the construction process is streamlined.

3. Review

You can review and cross-check the construction estimates and ensure that the construction document estimate looks professional and delivers clear information to the clients.

The preliminary estimate is sent to the clients, who can review and approve the construction project.

Common Mistakes in Construction Cost Estimating 

mistakes in construction cost estimation

Many construction cost calculations can result in mistakes that can hinder the quality of the bid estimate.

1. Improper labor costs

You need to research historical cost data and real-time labor costs to help control estimates and ensure no mismatch in the values.

Improper labor costs can hinder the project scope and increase the overall estimated costs in the building construction.

2. Overlooking some costs

Multiple construction professionals ignore the miscellaneous construction costs that can drain your profits and result in higher total costs. The project owners won’t be satisfied with your estimation process if the actual project completion cost exceeds the estimate. 

3. No auditing

Conducting timely inception during the estimate creation and the construction process is important to avoid higher operating costs.

You must ensure that your team performs regular auditing while checking the initial estimates for better results.

Once you avoid or rectify these mistakes, you can deliver quality results to your clients. But you also need professional software to help you manage your workforce and deliver excellent on-ground construction results. 

The software can help you create well-vetted performance field service reports that can help you boost your analytics results.

Utilizing the right tools will not only streamline your projects but also effectively manage your construction endeavors.

Try This Construction Business Management Software

Get a 7-Day Free Trial with All Features. No Credit Card Details Required.

No credit card details required


The three top cost estimating types are preliminary cost estimate, plinth area cost estimate, and cube rate cost estimate.
You can analyze different operational, material, labor, and other construction costs or look at similar construction projects to get a brief idea about the costs.
The cost estimation process gives a brief idea about the project’s overall construction cost, enabling you to make informed decisions. That’s why cost estimation is important.

FieldCamp Can Streamline Your Construction Business 

FieldCamp is a leading field service software that can assist you with construction job scheduling, dispatching, invoicing, payment processing, and reporting.

The software offers a professional interface that helps it stand out from other leading field service management software

You can keep track of your construction crew within a few clicks and create robust invoices that can help match your estimates’ quality.

You can store customer details that help you connect with them regularly to deliver an excellent customer experience.

Avail of the to transform your construction business.

Author Bio

Gaurang Bhatt

Gaurang Bhatt is a techie in himself with an ability to solve problems technically and present solutions in the form of a product. He is one of the pioneers to curate FieldCamp with his 15+ years of knowledge and expertise in providing solutions to home service industries. Gaurang aims to overcome challenges faced by service business owners through software solutions and blogs.