The Basics of Developing a Cost Estimate for a Building Project

Posted by on Aug 28, 2020 in Social Buzz | No Comments


This article is an introduction to covering the basics of what goes into an accurate construction cost budget. There are a myriad of topics and subtopics that go into a budget, and we will delve into those topics with greater detail in future articles. For now, let us focus on the basics:

The endeavor of a building project can be a daunting task, especially if the owner has no experience in construction. Once an owner has determined that a new building, addition, or renovation is needed to do business, the two questions that can cause the most anxiety are: Can I afford it? And: how do I determine what the cost will be? MGA certainly can estimate what your project costs will be, but together we will have to first establish what it is that you require and how you wish to pursue it.


Cost estimates can be broken down according to the phase you are working in. The first phase determines whether the project is even feasible. This is where we discuss what is needed in broad terms so that the scale of the project can be defined. From this we can generate what is called an Order of Magnitude Estimate. Order of Magnitude is used to determine if the project is financially feasible. We determine what you and building users require for spaces in the building and on the site. This is referred to as your project program. We discuss how these spaces interact and relate to one another, and how the building is to function for your particular use. We also begin to discuss what type of building construction is to be implemented and the pros and cons of each type. This is based on experience and typically has a range of cost since there are no specifics yet that describe how your project is constructed.

The process or delivery method would be discussed early in the process, likely to be determined prior to schematic design. Delivery method is how an owner will organize their project and covers financing, design, and construction.


If the owner decides that the project is financially feasible, the next step would be to move into schematic design. During this phase basic floor plans, exterior elevations, and site plans start to be laid out. Basic structural types and materials are also explored and incorporated into the design. At the end of this phase a second estimate of cost can be generated. This will begin to narrow the range of cost, so the estimator is able to gather costs for the materials that are potentially included in the project.

After schematic design comes design development. This phase will further refine the design, define more materials, and the majority of alterations to the building and site will have been finalized. An example of design refinement would be selecting one type of heating system over others, but final sizing and specific equipment is not yet selected.

The construction document phase comes next. This is where the final drawings and specifications are completed. These are the documents that contractors will bid and build from. The estimate would be refined to a much more detailed level, and the range of construction cost would be at its narrowest margin here.


After the construction document phase is completed, a final estimate of cost would be generated. All materials and equipment are known, and the estimator can now insert very detailed and specific information into the estimate. Any design contingencies would be removed from the estimate and any ranges of costs will be at their narrowest margin prior to contractor bidding.


When looking at a construction cost estimate there are several things to look for to make sure that you are including all related costs, otherwise you may end up with a few surprises at the end of the project. The building itself will list costs for all the physical materials that go into that building, but this will include labor and equipment costs as well.

A basic outline for the building costs include but is not limited to:

  • Footings and foundations
  • Exterior and interiors walls
  • Roof and floor systems
  • Doors and hardware
  • Windows
  • Interior finishes such as floor coverings
  • Wall and ceiling finishes
  • Plumbing piping and fixtures
  • Heating
  • Cooling and ventilating equipment and ducting
  • Electrical power and lighting
  • Fire alarm
  • Sprinkler system
  • Security systems for access and surveillance
  • Accessories
  • Elevator, if required

The building site must be developed as well, and costs included here would be:

  • Grading
  • Excavation and backfill
  • Driveways
  • Parking and sidewalks
  • Landscaping
  • Utility services
  • Site lighting
  • Storm water management


There is a contingency included in most all cost estimates. A contingency is extra money set aside to cover the cost of changes in the work that are commonly incurred for unknown conditions prior to the start of construction. There are also costs for permitting, inspections and testing of soils and concrete.

You may have allowances listed on the cost estimate as well. Allowances are specific dollar amounts that the contractor uses in their bid to include work and products that are not specifically defined by the construction documents.

Alternates can also be a part of a project. Alternates are portions of the project that are priced separately from the main bidding package and can either be accepted or rejected once the bids have been submitted. Alternates are typically items that can be included in the project but are not required to help build in flexibility for value engineering and managing your budget.


Another expense that you would see are the professional services fees. These fees include architectural, mechanical, plumbing, and electrical engineering, structural engineering, civil engineering, geotechnical services, and other possible consultants that may be needed for the project. The professional services fees also come with reimbursable expenses, that include things like travel or printing costs. An owner will want to know and understand these expenses prior to entering a contract.


Lastly, a common line item for a cost estimate is for furniture, fixtures, and equipment (FFE). FFE is often seen on a cost estimate but may not be necessarily included in the contractor’s bid. Many times, this work is provided under a separate contract with an architect or interior designer. These items can be furnished directly by the Owner as well.

Other items that are not typically listed in a cost estimate but may be more commonly seen in a budget would be things such as land acquisition, feasibility studies, financing, rent for temporary facilities, insurance and taxes, and other miscellaneous costs.

Again, this is merely an overview of what goes into a cost estimate, and we intend to dive deeper into each topic to further explain what goes into a typical cost estimate in future posts. We hope that this begins to give you a better understanding of what to be looking for when considering a construction or renovation project. Happy building!