CHAPTER III

PROJECT COST ESTIMATION

AND
VALUATION

Prepared By: Endalkachew M. (MSc)

 Objectives of this Chapter;

To determine rates for construction activities

using detailed cost estimation
Advise stakeholders on preliminary and final
cost estimates of projects
Prepares payment certificates and final
accounts of projects
Acquire knowledge on how to value projects
 Project cost Estimation

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.
 Project Cost includes:

Preliminary investigation (project appraisal

costs)
Design and supervision (consultancy cost )
Construction works (contractor’s cost )
Land owning cost, and
Monitoring costs
 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 information 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
•Up-to-date knowledge of the construction
methods.
 Knowledge and managerial skills 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.
 Factors Affecting Cost Estimation
•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
•Proper management
•Land charges (lease)
•Nature of subsurface condition
Cost due to construction is the focus of this
chapter. It includes:
cost due to material,
cost due to labor,
cost due to equipment,
overhead costs and contractor’s profit.
 Material Break Down

In order to facilitate estimation of cost due

to material, it is important to know the
quantities of various elements involved in
construction of various parts of the building
work.
Example: Material Break Down for 1m3 C-25
concrete (1:2:3 mix)
 Wet (fresh) concrete mix = 1m3
Quantity for dry base analysis= 1.55m3
Volume of cement= 1/6*1.55 = 0.258m3
=0.258m3/0.035m3 per bag = 7.4 bags of
cement
Sands = 2/6* 1.55 = 0.517m3
Coarse aggregate= 3/6 *1.55 = 0.775m3
Water = 0.16 m3 ( assuming w/c0.62)
Note : - 1.5 to 1.6 times dry
volume of the
materials is required to get
1m3 of compact dense fresh
concrete mix.
Exercise: Do similarly for C
20 and C 30 concretes.
 Purposes of Cost Estimation

determine actual cost per unit of item

identifying engineering estimate of the work for
bidding purpose
work out economical use of materials, labor and
equipment's
in cases of variations to determine the extra cost to
be incurred.
when changes in cost due to legislationn happens,
to work out the escalation in cost
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 information 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's and tools as
rental rates to be used for major items of
rates
Up-to-date knowledge of the construction
methods.
Factors affecting cost estimation

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
Proper management
Land charges (lease)
Nature of subsurface condition
Types of costing or Estimation

Estimation can be broadly classified as

preliminary (approximate) and detailed.
Preliminary /approximate costing
This type of cost estimation is required to
know the financial position of the client
before costly detailed designs are carried
out.
 Such estimates are based on practical
knowledge and cost of similar previous
works. Examples of approximate cost
estimations are as follows:
A. Cost per functional unit
Hospital =cost per bed, Dormitory = cost
per student, =cost per area, road works =
cost per kilometer length, culverts or bridges
= cost per meter span,
B. Plinth area method – cost per m2

Based on Plinth Area - roof area or external

dimensions at the plinth level (Courtyard & open
area shall not be included)
The rate per meter square is deduced from the cost
of similar building projects in the locality.

Eg: 1m2=7500 birr (construction cost estimate

for an apartment)
C. Cubical Content method – cost per
m3

Based on cubical contents of various

buildings, i.e. Plinth area of the building x
height x cubic content rate.
Height should be taken from the top of flat
roof (or halfway of the sloped roof) to the
top of concrete in foundation.
 Detailed cost estimate( based on
item rate)
This is the most reliable and accurate type of
estimate.
The quantities of items are carefully prepared
from the drawings and the total cost worked
out from up to date market rates.
A detail cost estimate thus requires:
Quantity surveying and Analysis of the
different rates for the quantities prepared.
 Basic Cost Components of a
Construction Project
Basically the cost of any construction project
comprises
Direct costs, which include the direct cost of
materials, labor as well as equipment and
Indirect costs, which include but not limited
to head office and site overhead costs.
Risk Allowance
Profit and Income Tax-
Income tax=30% of gross profit
VAT= 15% of the construction cost
 Rate Analysis
Rate Analysis is the process of fixing cost per
unit of measurement for the different item of
works.
Total cost per unit of work (TC): Direct cost
(DC) + Indirect cost (IC)
DC includes cost due to material (MC), cost
due to labor (LC), cost due to equipment (EC)
IC covers overhead costs, and contractor’s
profit.
In order to facilitate estimation Material
break down is essential.
Different formats, Excel sheets and
software's (like CONMIS) are used for rate
analysis.
Example 3.1: - Calculate the
Unit price for C -25 concrete
per m3 of work (formwork
and reinforcement rated
separately). Assume 15%
overhead and 20 % profit.
 Solution: -

Total cost (TC) = Direct

Cost (DC) + Indirect
Cost(IC)
IC = (15% + 20%) of DC =
35 % of DC
Direct Cost (DC) =
Material Cost (MC) +
 Material cost (MC)

Cement 7.4 bags * 400birr/ bag 2960 birr/m3

Sand 0.517m3 * 950 birr/m3 491.15 birr/m3

Aggregate 0.775m3 * 1000 birr/m3 775 birr/m3

Water 0.16m3 * 6 birr/m3 0.96 birr/m3

Total MC/m3 4227.11

 Labour cost (LC)

Assuming the crew consists of a foreman,

mason, four daily laborers, mixer operator
and Vibrator operator and assuming a Crew
productivity of 0.50 m3 per hr:
 Personnel Salary per hr Indexed hr rate Utilization factor Lc/hr

(120%)

Forman 9000birr/month/(26days/month* 51.92 =1/4 =0.25 (assuming 12.98

4)
8hrs/day) = 43.27 birr/hr
crew under him)

Mason 200birr/day / ( 8hrs/day) = 25 birr/hr 30 1 30

Daily laborers 4* 80birr/day / (8hrs/day) = 40 birr/hr 48 1 48

(4)

Mixer 150 birr/day /(8hrs/day) = 18.75birr/hr 22.5 22.5

1
operator

Vibrator 150 birr/day / (8hrs/day) = 18.75 birr/hr 22.5 1 22.5

operator

Total (Birr/hr) 135.98

Total LC (birr/M3) 135.98/0.5

= 271.96
 Equipment Cost (EC)

Assuming a mixer with a

daily rental rate of
500Birr/day and a vibrator
with a daily rental rate of
100 birr/day and
equipment productivity of
0.5 m3 per hour:
 Utilization
Equipment Hourly rental rate EC/hr
factor

Mixer 500birr/day/ (8hrs/day)= 62.5 birr/hr

62.5Birr/hr 1

birr/hr

vibrator 100 birr/day /(8hrs/day)= 25 birr/hr

1
25 birr/hr

Total 87.5 birr/hr/(0.5 m3/hr)

=

175 birr/m3
 Rate Analysis

DC = MC + LC +EC

DC = 4227+ 271.96+ 175 = 4674.07 Birr/m3 IC= 35/100 *4674.07 =

1635.92 Birr/m3

TC = (4674.07 + 1635.92) Birr/m3 = 6309.99 ≈ 6310Birr/m3

Thus, the unit rate of C25 concrete = 6310 birr/m3

Example 3.2: If the quantity of C25 concrete was found to be 100 m3

from the take off; the total cost of concrete would be

=< 6310birr/m3 * 100 m3 = 630999 birr

 PROJECT VALUATION

Valuation is the art of determining

present value of a property such as
a building, a factory or other
engineering structure.
It is determined or decided by its
selling price.
The value of property depends on
 Purpose of Valuation

For buying or selling

For Security of loans or mortgage
Acquisition –government
compensation
For Tax assessment
 Valuation of Building

Valuations of a building depends

upon, the type of building, its
structure, shape, size, locality, the
quality of material used, present
day prices of the materials, and
plinth area.
Determined after knowing the
It can also be calculated on its cost
of construction at present day rate
after deducting a suitable
depreciation.
Methods of valuation
Rent Return Method: based on the
net rent value, capitalized for the
 Valuation on land and building
basis: Land + Cost of Building
Valuation on profit basis: Suitable
for commercial buildings like
hotels, cinemas, etc.
Net profit =After deducting all outgoings and interest of
capital invested.
◦ The net profit is multiplies by future life of the
building.
Valuation on cost basis: Actual cost
incurred in construction -
depreciation.
Development method of valuation:
underdeveloped or partly
developed or require renovations
by alteration.
Depreciation method of valuation:
the property value is determined
based on the book value for the
year by deducting the deprecation.
THANK YOU
DR. Nabil Dmaidi
DR. Nabil Dmaidi
DR. Nabil Dmaidi
 Sec A

Calculate the total material cost

required for 10m3 of C20 concrete
with mix ratio of 1:2:4? Assume
the cost of 1 quntal cement=
400birr
1 m3 sand =
200birr
 Quiz
Calculate the Total Labor Cost required to produce
1m3 of C30 concrete?
Assuming the crew consists of a site engineer (UF =
0.2), foreman(UF = 0.4), mason, mixer operator, and
three daily laborers and a productivity of 0.8 m3 per
hr:
The salary of Site Engineer = 10,000birr/month,
Foreman = 6000birr/month, Mason = 200birr/day,
Mixer Operator = 100birr/day, and Daily Labor = 50
birr/day.
 Q (Re)

Calculate the total material cost

required for 30m3 of C25 concrete
with mix ratio of 1:2:3? Assume
the cost of 1 quntal cement=
600birr
1 m3 sand =
400birr