1.6 Estimating, Costing, and Valuation

What the syllabus asks you to cover

Types of Estimates Methods of Estimating Rate Analysis Specifications: Purpose, Importance, Types Valuation ---

Introduction to Estimating, Costing, and Valuation

The financial feasibility, planning, and successful execution of any civil engineering project depend on accurate predictions of its cost and value
Estimating, costing, and valuation form the economic backbone of construction management
Estimating involves forecasting the probable cost of a project before its execution
Costing is the systematic process of recording and analyzing all expenses incurred during construction
Valuation determines the present fair value or worth of a property
This unit covers the methodologies for creating estimates, breaking down costs through rate analysis, defining work quality via specifications, and assessing property value

1. Types of Estimates

Estimates are prepared at different stages of a project, with varying levels of detail and accuracy
Preliminary or Approximate Estimate (Rough Cost Estimate):
- Purpose: To determine the approximate cost and feasibility of a project at the initial planning stage
- Used for administrative approval and budget allocation
- Basis: Prepared from conceptual plans and approximate measurements
- Methods:
  - Plinth Area Method: Cost = Plinth Area ( $m^2$ ) x Plinth Area Rate (cost/ $m^2$ )
  - Cubic Content Method: Cost = Volume of Building ( $m^3$ ) x Cubic Rate (cost/ $m^3$ )
  - Considered more accurate than plinth area
  - Unit Rate Method (for specific projects): Cost = No. of Units (e.g., beds for a hospital) x Rate per Unit
- Accuracy: Typically ±10% to ±20%
Detailed Estimate (Item Rate Estimate):
- Purpose: The most accurate and comprehensive estimate, prepared for technical sanction, inviting tenders, and for executing the work
- Basis: Prepared from complete working drawings, specifications, and a detailed bill of quantities (BOQ)
- Process:
  - Taking out quantities of all items of work from drawings (in standard units: m, $m^2$ , $m^3$ )
  - Preparing a Bill of Quantities (BOQ) listing items, descriptions, quantities, and units
  - Calculating the cost of each item: Quantity x Unit Rate (from rate analysis)
  - Summarizing costs and adding contingencies, work-charged establishment, etc
- Accuracy: Aimed at ±5% to ±10%
Revised Estimate:
- Purpose: Prepared when the original detailed estimate exceeds by more than 5-10% due to changes in design, rates, or scope
- Required for obtaining supplementary funds
Supplementary Estimate:
- Purpose: Prepared for additional work that was not part of the original project scope
- It is a separate, fresh estimate for the new items
Annual Repair/Maintenance Estimate:
- Purpose: To forecast the cost of annual upkeep and repairs of a building or structure to maintain its serviceability

2. Methods of Estimating (Taking Off Quantities)

Long Wall - Short Wall Method (Center Line Method is a variation):
- Principle: Walls are classified as "long walls" (parallel to the longer axis of the building) and "short walls" (parallel to the shorter axis)
- The length of long walls decreases from earthwork to superstructure, while the length of short walls increases
- Procedure:
  - Calculate the center-to-center length of walls
  - For excavation/foundation: Long wall length = Center length + (Width/2 + Width/2)
  - For superstructure (brickwork): Long wall length = Center length - (Width/2 + Width/2)
  - The opposite is true for short walls
- Suitability: Best for rectangular buildings with symmetrical offsets
Center Line Method:
- Principle: The total center line length of all walls is calculated first
- This total length is then used for items with uniform cross-section throughout (like foundation concrete, DPC, plinth wall)
- Procedure:
  - Calculate total center line length
  - For items with uniform cross-section: Quantity = Total Center Line Length x Breadth x Depth
  - For rooms/partitions, separate center lines are calculated
- Advantage: Simpler and faster for buildings with symmetrical offsets and multiple rooms
Partly Center Line and Partly Long Wall-Short Wall Method:
- A hybrid approach used for complex plans where one method is more efficient for certain items

3. Rate Analysis

Definition: The process of determining the cost per unit of a particular item of work
It involves calculating the cost of materials, labor, plant/equipment, contractor's profit, and overheads for one unit (1 $m^3$ , 1 $m^2$ , etc.) of that item
Purpose: To establish a fair and reasonable unit rate for each item in the BOQ
It forms the basis for preparing the detailed estimate and for tendering
Components of a Unit Rate:
- Cost of Materials: Quantity of each material (cement, sand, aggregate, bricks) required for one unit of work, multiplied by its rate at source, including transportation and wastage
- Cost of Labor: Number of different categories of laborers (mason, carpenter, beldar) required for one unit, multiplied by their daily wages
- Cost of Tools and Plant (T&P) / Equipment: Usually taken as a percentage (1-2%) of labor cost or added as a lump sum
- Water Charges: A small percentage (1-1.5%) of the total material and labor cost
- Contractor's Profit and Overheads: A percentage (10-15%) added to the sum of all the above costs
Procedure:
- Study the specifications and method of construction for the item
- Calculate the quantities of materials from standard data books (like Standard Schedule of Rates - SOR or IS 1200)
- Calculate the labor requirements based on output per day
- List the current market rates for materials and labor
- Compute the total cost for one unit
Example (Simplified Rate Analysis for 1 $m^3$ of Cement Concrete 1:2:4):
- Materials: Cement, sand, coarse aggregate
- Labor: Mason, beldar, bhisti
- Calculations yield a final rate in Rs. per $m^3$

4. Specifications

Definition: A detailed description of the nature, quality, and workmanship of materials, components, and execution of work
It complements the drawings and quantifies in the BOQ
Purpose:
- To define the quality standards for materials and workmanship
- To guide the contractor in executing the work as intended by the engineer/architect
- To serve as a legal document for resolving disputes
- To ensure uniformity and control over the project
Importance: Without clear specifications, cost estimates are meaningless, and quality control is impossible
They are as important as the drawings themselves
Types of Specifications:
- General Specifications: Briefly describe the class and quality of materials and work for different parts of the work
- Used in preliminary estimates
- Detailed Specifications:
  - Technical Specifications: Describe the exact properties, composition, strength, and standards (IS Codes) of materials (e.g., "Cement shall be OPC 43 Grade conforming to IS 269")
  - Workmanship Specifications: Describe the methods of construction, mixing, placing, curing, etc. (e.g., "Concrete shall be compacted using needle vibrators")
  - Performance Specifications: Specify the required end result or performance standard, leaving the method to the contractor (e.g., "The floor shall withstand an abrasion load of X")
Principles of Writing Specifications: They should be clear, concise, complete, correct, and unambiguous

5. Valuation

Definition: The process of estimating the fair present value or worth of a property (land and building) at a given time, based on its utility, demand, location, and potential to generate income
Purposes:
- Buying/Selling property
- Assessment of property tax, wealth tax, or capital gains tax
- Security for loans (mortgages)
- Acquisition of property by government (compulsory acquisition)
- Insurance and rental fixation
Important Terms:
- Market Value: The most probable price a property would fetch in an open and competitive market
- Book Value: Value as recorded in the account books (Cost - Depreciation)
- Scrap Value: Value of materials if the building is dismantled at the end of its life
- Salvage Value: Value if sold as a whole at the end of its utility
- Depreciation: Loss in value due to age, wear and tear, obsolescence, etc
- Annuity: A series of equal annual payments
- Sinking Fund: A fund set aside annually, which with compound interest, accumulates to a specified amount at the end of a property's life for its reconstruction
Methods of Valuation:
- Rental Method (Income Capitalization):
  - Used for properties that generate rent
  - Year's Purchase (Y.P.): The capital sum required to get an annuity of Re. 1 per year
  - $Y.P. = \frac{1}{i}$ or $Y.P. = \frac{(1+i)^n - 1}{i(1+i)^n}$ for a finite period
  - Where $i$ is the interest rate and $n$ is the years
  - Gross Income: Total annual rent
  - Net Income: Gross Income - Outgoings (taxes, repairs, insurance, management)
  - Capitalized Value: Net Income x Year's Purchase
- Land and Building Method:
  - Value = Value of Land (from market rates) + Value of Building
  - Value of Building = Depreciated Value of Cost
  - Straight Line Depreciation: $D = \frac{C-S}{n}$
  - where C=Cost, S=Scrap Value, n=Life
- Profit-Based Method: For commercial properties like hotels, theaters (Value based on net profit)
- Development Method: For undeveloped land, estimating value after development minus development cost
- Depreciation Method (for a standing structure):
  - Observed Depreciation Method: Physical inspection to assess condition
  - Constant Percentage Method: Using a formula like $V = C(1 - \frac{r}{100})^n$ where r is the annual depreciation rate

Estimating, costing, and valuation are interconnected disciplines that translate engineering designs into financial reality
A robust estimate ensures a project is viable and well-funded
Detailed rate analysis and clear specifications guarantee that cost and quality expectations are met
Finally, accurate valuation is essential for the economic life cycle of any property, from its construction and financing to its eventual sale or redevelopment
Mastery of these concepts is crucial for the commercial success and management of civil engineering projects

Pause and recall

Without looking back, explain the main idea, recall a key definition or formula, and describe when it applies. Include assumptions and units where relevant. Revisit any step you could not explain.

1. Types of Estimates

Estimates are prepared at different stages of a project, with varying levels of detail and accuracy

Preliminary or Approximate Estimate (Rough Cost Estimate):

Purpose: To determine the approximate cost and feasibility of a project at the initial planning stage
Used for administrative approval and budget allocation
Basis: Prepared from conceptual plans and approximate measurements
Methods:
- Plinth Area Method: Cost = Plinth Area ( $m^2$ ) x Plinth Area Rate (cost/ $m^2$ )
- Cubic Content Method: Cost = Volume of Building ( $m^3$ ) x Cubic Rate (cost/ $m^3$ )
- Considered more accurate than plinth area
- Unit Rate Method (for specific projects): Cost = No. of Units (e.g., beds for a hospital) x Rate per Unit
Accuracy: Typically ±10% to ±20%

Detailed Estimate (Item Rate Estimate):

Purpose: The most accurate and comprehensive estimate, prepared for technical sanction, inviting tenders, and for executing the work
Basis: Prepared from complete working drawings, specifications, and a detailed bill of quantities (BOQ)
Process:
- Taking out quantities of all items of work from drawings (in standard units: m, $m^2$ , $m^3$ )
- Preparing a Bill of Quantities (BOQ) listing items, descriptions, quantities, and units
- Calculating the cost of each item: Quantity x Unit Rate (from rate analysis)
- Summarizing costs and adding contingencies, work-charged establishment, etc
Accuracy: Aimed at ±5% to ±10%

Revised Estimate:

Purpose: Prepared when the original detailed estimate exceeds by more than 5-10% due to changes in design, rates, or scope
Required for obtaining supplementary funds

Supplementary Estimate:

Purpose: Prepared for additional work that was not part of the original project scope
It is a separate, fresh estimate for the new items

Annual Repair/Maintenance Estimate:

Purpose: To forecast the cost of annual upkeep and repairs of a building or structure to maintain its serviceability

2. Methods of Estimating (Taking Off Quantities)

Long Wall - Short Wall Method (Center Line Method is a variation):

Principle: Walls are classified as "long walls" (parallel to the longer axis of the building) and "short walls" (parallel to the shorter axis)
The length of long walls decreases from earthwork to superstructure, while the length of short walls increases
Procedure:
- Calculate the center-to-center length of walls
- For excavation/foundation: Long wall length = Center length + (Width/2 + Width/2)
- For superstructure (brickwork): Long wall length = Center length - (Width/2 + Width/2)
- The opposite is true for short walls
Suitability: Best for rectangular buildings with symmetrical offsets

Center Line Method:

Principle: The total center line length of all walls is calculated first
This total length is then used for items with uniform cross-section throughout (like foundation concrete, DPC, plinth wall)
Procedure:
- Calculate total center line length
- For items with uniform cross-section: Quantity = Total Center Line Length x Breadth x Depth
- For rooms/partitions, separate center lines are calculated
Advantage: Simpler and faster for buildings with symmetrical offsets and multiple rooms

Partly Center Line and Partly Long Wall-Short Wall Method:

A hybrid approach used for complex plans where one method is more efficient for certain items

3. Rate Analysis

Definition: The process of determining the cost per unit of a particular item of work

It involves calculating the cost of materials, labor, plant/equipment, contractor's profit, and overheads for one unit (1

m^3

, 1

m^2

, etc.) of that item

Purpose: To establish a fair and reasonable unit rate for each item in the BOQ

It forms the basis for preparing the detailed estimate and for tendering

Components of a Unit Rate:

Cost of Materials: Quantity of each material (cement, sand, aggregate, bricks) required for one unit of work, multiplied by its rate at source, including transportation and wastage
Cost of Labor: Number of different categories of laborers (mason, carpenter, beldar) required for one unit, multiplied by their daily wages
Cost of Tools and Plant (T&P) / Equipment: Usually taken as a percentage (1-2%) of labor cost or added as a lump sum
Water Charges: A small percentage (1-1.5%) of the total material and labor cost
Contractor's Profit and Overheads: A percentage (10-15%) added to the sum of all the above costs

Procedure:

Study the specifications and method of construction for the item
Calculate the quantities of materials from standard data books (like Standard Schedule of Rates - SOR or IS 1200)
Calculate the labor requirements based on output per day
List the current market rates for materials and labor
Compute the total cost for one unit

Example (Simplified Rate Analysis for 1

m^3

of Cement Concrete 1:2:4):

Materials: Cement, sand, coarse aggregate
Labor: Mason, beldar, bhisti
Calculations yield a final rate in Rs. per $m^3$

4. Specifications

Definition: A detailed description of the nature, quality, and workmanship of materials, components, and execution of work

It complements the drawings and quantifies in the BOQ

Purpose:

To define the quality standards for materials and workmanship
To guide the contractor in executing the work as intended by the engineer/architect
To serve as a legal document for resolving disputes
To ensure uniformity and control over the project

Importance: Without clear specifications, cost estimates are meaningless, and quality control is impossible

They are as important as the drawings themselves

Types of Specifications:

General Specifications: Briefly describe the class and quality of materials and work for different parts of the work
Used in preliminary estimates
Detailed Specifications:
- Technical Specifications: Describe the exact properties, composition, strength, and standards (IS Codes) of materials (e.g., "Cement shall be OPC 43 Grade conforming to IS 269")
- Workmanship Specifications: Describe the methods of construction, mixing, placing, curing, etc. (e.g., "Concrete shall be compacted using needle vibrators")
- Performance Specifications: Specify the required end result or performance standard, leaving the method to the contractor (e.g., "The floor shall withstand an abrasion load of X")

Principles of Writing Specifications: They should be clear, concise, complete, correct, and unambiguous

5. Valuation

Definition: The process of estimating the fair present value or worth of a property (land and building) at a given time, based on its utility, demand, location, and potential to generate income

Purposes:

Buying/Selling property
Assessment of property tax, wealth tax, or capital gains tax
Security for loans (mortgages)
Acquisition of property by government (compulsory acquisition)
Insurance and rental fixation

Important Terms:

Market Value: The most probable price a property would fetch in an open and competitive market
Book Value: Value as recorded in the account books (Cost - Depreciation)
Scrap Value: Value of materials if the building is dismantled at the end of its life
Salvage Value: Value if sold as a whole at the end of its utility
Depreciation: Loss in value due to age, wear and tear, obsolescence, etc
Annuity: A series of equal annual payments
Sinking Fund: A fund set aside annually, which with compound interest, accumulates to a specified amount at the end of a property's life for its reconstruction

Methods of Valuation:

Rental Method (Income Capitalization):
- Used for properties that generate rent
- Year's Purchase (Y.P.): The capital sum required to get an annuity of Re. 1 per year
- $Y.P. = \frac{1}{i}$ or $Y.P. = \frac{(1+i)^n - 1}{i(1+i)^n}$ for a finite period
- Where $i$ is the interest rate and $n$ is the years
- Gross Income: Total annual rent
- Net Income: Gross Income - Outgoings (taxes, repairs, insurance, management)
- Capitalized Value: Net Income x Year's Purchase
Land and Building Method:
- Value = Value of Land (from market rates) + Value of Building
- Value of Building = Depreciated Value of Cost
- Straight Line Depreciation: $D = \frac{C-S}{n}$
- where C=Cost, S=Scrap Value, n=Life
Profit-Based Method: For commercial properties like hotels, theaters (Value based on net profit)
Development Method: For undeveloped land, estimating value after development minus development cost
Depreciation Method (for a standing structure):
- Observed Depreciation Method: Physical inspection to assess condition
- Constant Percentage Method: Using a formula like $V = C(1 - \frac{r}{100})^n$ where r is the annual depreciation rate

Estimating, costing, and valuation are interconnected disciplines that translate engineering designs into financial reality

A robust estimate ensures a project is viable and well-funded

Detailed rate analysis and clear specifications guarantee that cost and quality expectations are met

Finally, accurate valuation is essential for the economic life cycle of any property, from its construction and financing to its eventual sale or redevelopment

Mastery of these concepts is crucial for the commercial success and management of civil engineering projects