How do you prepare estimates for your construction projects?
Considering the vast complexity of construction projects, preparing estimates is one of the toughest tasks for construction estimators. Material and labor costs fluctuate frequently, so it becomes very difficult to predict future rework or delay costs.
In construction projects, estimation is not done only once; it is required multiple times (phase by phase) throughout the project lifecycle. So, it becomes necessary to understand the different types of construction estimates used in accomplishing construction projects.
In this blog, we will explore the types of estimates used in construction projects and how they are applied in real-time with examples.
Let’s dive in…
📌 Key Takeaways
- In construction, estimates are used multiple times, unlike in other work, where they are created only once.
- There are 5 major types of construction estimates, namely, preliminary, detailed, quantity, bid, and control cost estimates.
- The components of construction estimates, such as labor hours and rates, direct and indirect costs, help create accurate budgets.
- Accurate construction estimates prevent budget overruns, improve bidding strategy, and support better cost planning.
What is a Construction Estimate?
A construction estimate is a forecast of the cost required to complete a project. It includes all costs such as materials, labor, equipment, subcontractor charges, and other project-related expense management costs. With estimates, both the project owner and the contractor gain clarity on the budget cap before work begins.
Construction estimates also play a major role in profit planning and resource allocation throughout the project lifecycle.
Types of Construction Estimates
Every construction project involves various types of estimates at different stages, from early budgeting to final bidding and execution.
Let’s explore some of the commonly used estimates in construction projects:
1. Preliminary Estimates
It is an early-stage cost estimate, also known as a Rough Order of Magnitude (ROM) estimate or rough estimate. It is prepared before the final design or detailed drawings are available. This estimate ensures whether the project is financially feasible and worth moving forward.
This estimate is prepared based on:
- Concept plans or rough sketches
- Basic project specifications
- Historical project costs
- Area, volume, or unit-rate calculations
Preliminary estimates provide a large cost range rather than an exact figure as the project scope is still evolving. The goal of this estimate is to help contractors understand the probable project cost at an early stage.
Preliminary estimates don’t detail every material and labor item; instead, they use cost per square foot/per unit, prior project benchmarks, standard cost indices, and early design assumptions.
Example:
Suppose a client wants to build a 20,000-square-foot commercial office building. In this case, the client will contact an estimator who has extensive experience in construction projects.
After that, using the historical project data, if the average baseline construction cost for similar buildings in the area costs around $150 per square foot, the preliminary estimate becomes:
20,000 sq. ft X $150 = $3,000,000 (approx. project cost)
Remember, the exact materials, finishes, and structural details are not finalized yet. This estimate only answers the question “Is this project financially viable to proceed?”
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2. Detailed Estimates
A detailed estimate is generally considered highly accurate because it is prepared after the drawings, specifications, and scope of work are clearly defined. Compared to preliminary estimates, this estimate lists every item of work with measurable quantities and assigns a cost to each.
A detailed estimate includes:
- Material quantities and rates
- Labor hours and productivity
- Equipment and machinery costs
- Subcontractor charges
- Overheads and contingencies
In detailed estimates, the calculation and measurement of every element underpin budgeting, procurement, and project execution.
Estimators list each item with quantity, unit rate, and total cost. Then costs are grouped into the following categories:
- Concrete works
- Masonry
- Electrical and plumbing
- Finishes
- Site work
This line-by-line project cost structure ensures high accuracy and transparency.
Example:
Assume a residential house project where drawings and specifications are finalized.
Here, the estimator will calculate:
- 120 cubic meters of concrete
- 25,000 bricks
- 1,200 sq. ft of tiles
- Specified labor and equipment requirements
Below is an example of a detailed estimate for a construction project:
| Work Items | Quantity | Unit Cost | Total |
|---|---|---|---|
Later, these individual costs are combined with contractor overhead costs, profit margin, and contingency allowance to calculate the final project cost.
3. Quantity Estimates
Quantity estimates are among the most practical and widely used types of cost estimates in construction. It focuses on calculating the exact quantities of all materials, components, and work activities required for a project.
A quantity cost estimate is prepared to support budgeting, billing, and cost control in ongoing construction projects. Either from a Bill of Quantities (BOQ) or a Material Takeoff (MTO) document, the necessary data is retrieved, which lists the following:
- Material quantities
- Labor quantities or work hours
- Equipment usage quantities
- Work section measurements
Unlike preliminary estimates, quantity estimates are purely quantitative, not based on assumptions. This is the reason why quantity estimates are more reliable for on-site execution.
Per the estimate, the estimator will review the architectural and structural drawings, service layouts (plumbing and electrical), and construction specifications. Later, all measurements, calculations, and section-wise labor quantities are estimated to prevent shortages and waste.
Example:
Let’s consider a single-floor residential building.
The estimator will measure and calculate:
- Concrete for slab = 60 m³ (based on length x width x thickness)
- Steel reinforcement = 2,500 kg (derived from bar schedules)
- Brick masonry = 18,000 bricks (from wall area calculations)
- Plastering area = 2,000 sq. ft (wall surface coverage)
Now, considering the above example, the entry of a quantity estimate would look like:
| Work Item | Quantity | Unit | Purpose |
|---|---|---|---|
Quantity estimates reduce wastage and help control the budget during execution.
4. Bid Estimate (Tender Estimate)
Bid or tender estimates are among the most business-critical in the construction industry. It is the cost estimate prepared by a contractor before submitting a bid or tender for the project. It calculates the construction cost, accounting for all factors related to business strategy, risk, and profit.
A bid estimate generally accounts for:
- Material, labor, and equipment costs
- Subcontractor quotes
- Site expenses and logistics
- Manufacturing Overhead and administration costs
- Contingency and risk allowances
- Desired profit margin
The goal of this estimate is to find out the total project cost that the contractor will quote to the client. However, the key is that the contractor still makes sure the profitability and competitiveness remain the same within the specified cost cap.
During the estimating process, the contractor reviews drawings, specifications, analyzes site conditions, resource availability, assesses time, risk, scope complexity, and decides on markup and profit margins.
Bid cost estimates are the backbone of winning projects and negotiating contracts.
Example:
Suppose a contractor is preparing a tender estimate for a multi-story commercial building.
The tender estimate may include:
- Direct construction cost: $3,200,000
- Subcontractor packages: $800,000
- Site overhead: $120,000
- Contingency: $80,000
- Profit and markup: $150,000
This results in a final bid price of:
- $4,500,000 (quoted to the client)
Here, the contractor balances competitive pricing, profit expectations, and risk coverage to submit a bid that is commercially viable and strategically positioned.
5. Control Cost Estimate
Once the construction project moves from bidding to execution, cost monitoring is essential, and this is why a control cost estimate is prepared. This estimate makes it easier to track, monitor, and control expenses during the construction phase. It is a financial benchmark that is used throughout the project lifecycle.
This estimate is created after pricing decisions are finalized and is regularly updated as the project progresses.
This estimate helps compare key construction costs, such as:
- Planned costs vs actual costs
- Budget deviations
- Scope-driven cost changes
- Cost performance over time
Using this estimate, every activity and resource is monitored against its estimated cost to ensure there are no inefficiencies, delays, or overruns.
If any unusual behavior is detected, corrective actions are implemented, such as replanning and resource adjustments.
Example:
Let’s assume a construction project where the baseline concrete budget or planned cost is $110,000, but during execution, the actual cost is close to $118,000 due to higher material rates and extended labor hours.
To control costs, the $8,000 variance will be applied to the estimate, prompting project teams to reassess vendor pricing and resource deployment.
Components of Construction Estimates
The components of construction estimates work together to define costs, improve financial planning, and help construction estimators create accurate budgets, i.e., from planning to execution.
Below are the key components of construction estimates to consider:
1. Labor Hours and Rates
Labor costs are a major concern in any project, but using digital estimates simplifies labor cost calculations. While preparing construction estimates, the total labor hours required for each activity, along with wage rates, overtime costs, and crew size, are calculated. Correct labor estimation prevents cost overruns during the execution of construction projects.
2. Direct and Indirect Costs
Direct costs are nothing but the expenses that are directly connected to construction activities, such as materials, labor, and equipment. Indirect costs, on the other hand, refer to expenses involved in supervision, site administration, safety measures, insurance, and office overheads. Both direct and indirect costs are necessary to calculate the true project cost.
3. Quantity Takeoff
This is also an important component of construction estimates as it involves measuring and listing all material quantities. From drawings and specifications, it includes everything, such as concrete, steel, masonry, finishes, etc. It creates the baseline for pricing, procurement planning, budgeting, and contractor billing.
4. Equipment and Subcontractor Costs
The cost of construction materials, machinery usage, rentals, and subcontractor service charges all come under this component. Under this component, other expenses such as transportation, mobilization, and maintenance are also included.
Why Accurate Construction Estimates Matter?
Construction estimates are more than just cost projections. They strengthen financial decision-making and help contractors deliver projects on time and within budget. Let’s understand why accurate construction estimates are important.
1. Prevents Budget Overruns
Risks such as unexpected expenses, payment conflicts, and cash-flow pressure can be avoided when estimates are accurate. When material costs, project scope, and labor requirements are accurately estimated, it becomes easier to manage budgets and minimize financial surprises.
2. Improves Bidding Strategy
Accurate estimates play a major role in solidifying bidding strategy and winning construction projects. It allows contractors to bid more competitively without losing profit margins. The right types of estimates in construction work help contractors submit smarter proposals with a higher likelihood of winning projects.
3. Supports Better Planning
Accurate construction estimates support procurement planning, resource allocation, and clearer task scheduling. Teams can easily align timelines, manpower, and equipment needs with real-time work requirements.
4. Strengthens Cost Control
Contractors gain better insights into pricing trends, productivity rates, and past project outcomes by comparing estimates against historical data. Accurate estimates help you refine assumptions and improve the predictability of real-world construction projects.
5. Builds Professional Credibility
Accurate estimates help deliver projects within the agreed budgets and lift the contractor’s reputation. It helps demonstrate transparency and technical competence, which leads to stronger client relationships and continuous growth.
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How Moon Invoice Helps Estimating Construction Projects?
Cost estimation is only half the job in construction. Next, you should be able to track where your money is going; ignoring minor costs could lead to significant expenses in the end.
To keep your estimation process easier, you should consider using software such as Moon Invoice. It allows you to create construction estimates within seconds with the help of customizable estimate templates. The templates are ready-made and require only the necessary details to be filled to create estimates.
Another feature of Moon Invoice is that you are not required to create invoices separately for the ongoing construction project. After approval, you can convert the same estimate into an invoice within seconds. It helps you save time and, most importantly, helps you maintain professionalism.
Are Tools and Software the Future for Cost Estimation?
The answer is yes. Currently, digital tools and automation are reshaping the world of construction and transforming how we do business. Instead of relying on spreadsheets, which is often time-consuming, contractors can choose modern estimating tools that offer faster estimate creation and centralized data.
Another benefit of using modern tools is that they reduce calculation errors and maintain consistency across projects. Day-by-day construction projects are becoming highly data-driven, and even small errors can cause significant disruption or even project failure.
This is the primary reason why it is always recommended to use a digital solution. They improve transparency and support smarter decision-making during the project.
So, are you in search of a construction estimate tool? You are at the right place. Start your free trial today!
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Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
