Improving cost estimation process in a modular construction company

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Aleksi Virtanen

IMPROVING COST ESTIMATION PRO- CESS IN A MODULAR CONSTRUCTION

COMPANY

Master of Science Thesis

Faculty of Engineering and Natural Sciences

Examiner: Associate Professor Tuomas Ahola

Examiner: Professor Teemu Laine

November 2020

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ABSTRACT

Aleksi Virtanen: Improving cost estimation process in a modular construction company Master of Science Thesis

Tampere University

Master’s Degree Programme in Industrial Engineering and Management November 2020

Construction project cost estimation may be regarded as a pivotal activity for contractor’s tendering phase decision making, pricing, and project management. In the construction industry, lacking cost estimation practices have been noticed to factor in cost overruns, which may cause strategic risk for a contractor when pursuing critical projects.

The purpose of this thesis is to investigate best practices regarding construction project cost estimation and develop the case organization’s cost estimation in building projects. The most important outcome of this study is a suggestion for an effective project cost estimation process that factors in the characteristics of the case organization and the industry. To reach this objective, a literature review regarding cost estimation characteristics and methods was conducted. The practices of the case organization were investigated by an empirical study.

The empirical part of this thesis was conducted using an adapted case-study strategy. By utilizing semi-structured interviews, the practices, issues, and objectives of cost estimating were investigated. Current processes and the activities of different stakeholders regarding generating and utilizing cost estimations were investigated. Based on the findings from these interviews and the findings from the literature, a suggestion for an effective cost estimation process was made.

The study presents that cost estimation in the case organization focuses on the tendering phase of a building project and a customized calculation tool. Cost estimation during the screening and controlling phases gets little emphasis, which may be analyzed from the lack of established cost estimation practices. Current cost estimation methods utilized are mainly parametric estimation and qualitative methods. Several issues may be noticed in the cost estimation methods, practices, and surrounding processes. These issues may be categorized in 1) human resources and -capabilities, 2) process definition, -documentation, and -implementation, 3) stake- holder collaboration, 4) selection design and 5) support processes.

The solution proposal presented is divided into the generation of order of magnitude estimate, conceptual cost estimate, and detailed cost estimate. During tendering, the case organization should direct resources in the analysis of the request for tender material and risk management.

During the project execution, the case organization should develop its practices in quantity take- off and aim to utilize cost estimates in the project management.

Keywords: cost estimation, project management, building project, modular construction

The originality of this thesis has been checked using the Turnitin OriginalityCheck service.

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TIIVISTELMÄ

Aleksi Virtanen: Kustannusten arviointiprosessin kehittäminen moduulirakennusyrityksessä Diplomityö

Tampereen yliopisto

Tuotantotalouden diplomi-insinöörin tutkinto-ohjelma Marraskuu 2020

Rakennusprojektin kustannusten arviointia voidaan pitää kriittisenä toimenpiteenä rakennus- urakoitsijan tarjouskilpailuun liittyville päätöksille, hinnoittelulle ja projektinhallinnalle. Puutteellis- ten arviointimenetelmien on havaittu olevan rakennusalalla keskeinen osatekijä projektien kustannusten ylittymisessä, mikä merkittävien projektien tapauksessa voidaan nähdä strategisena riskinä urakoitsijalle.

Tämän diplomityön tarkoituksena on kartoittaa rakennusprojektien kustannusten arvioinnin hy- viä käytäntöjä ja kehittää työn kohdeyrityksen rakennusprojektien kustannusten arviointiproses- sia. Työn tärkeimpänä tuotoksena luodaan kohdeyritykselle ehdotus tehokkaasta projektikohtais- ten kustannusten arviointiprosessista, joka ottaa huomioon yrityksen ja toimialan ominaispiirteet.

Tämän tavoitteen saavuttamiseksi työssä tehtiin kirjallisuuskatsaus rakennusprojektien kustannusten arvioinnin ominaispiirteisiin ja menetelmiin sekä selvitettiin kohdeyrityksen käytäntöjä em- piirisen tutkimuksen avulla.

Työn empiirinen osa toteutettiin sovellettuna case-tutkimuksena. Tutkimuksessa tarkasteltiin kohdeyrityksen kustannusten arviointikäytäntöjä, haasteita ja tavoitteita teemahaastattelujen avulla. Tutkimuksessa selvitettiin, minkälaisiin prosesseihin kustannusten arviointi liittyy ja min- kälaisia toimintoja yrityksen eri tahoilla on kustannusarvioiden tuottamisessa ja hyödyntämisessä.

Haastattelujen pohjalta tehtyjen havaintojen sekä kirjallisuuskatsauksen pohjalta tehtiin ehdotus tehokkaalle kustannusten arviointiprosessille.

Tutkimus osoittaa, että kohdeyrityksen projektien kustannusten arviointi keskittyy tarjousvai- heeseen ja sen aikana käytettävään kustomoituun laskentatyökaluun. Kustannusten arviointi projektien seulonta- ja hallintavaiheessa saavat vähäisen painoarvon, mikä voidaan havaita vakiin- tuneiden arviointikäytäntöjen puutteena. Kohdeyrityksen projektikustannusten arviointia toteute- taan tällä hetkellä parametrisellä arvioinnilla sekä kvalitatiivisilla menetelmillä. Kustannusten ar- viointimenetelmissä, käytännöissä ja ympäröivissä prosesseissa on havaittavissa lukuisia haasteita, jotka voidaan luokitella 1) henkilöstöresursseihin ja -kyvykkyyksiin 2) prosessimääritykseen, -dokumentointiin ja implementointiin 3) yhteistyöhön sidosryhmien kanssa 4) tarjooman suunnit- teluun ja 5) tukiprosesseihin.

Esitetty ratkaisuehdotus on jaettu seulontavaiheen kustannusarvion, tarjousvaiheen kustannusarvion ja projektinhallintavaiheen yksityiskohtaisen kustannusarvion tuottamiseen. Tarjous- vaiheessa kohdeyrityksen tulisi kohdistaa lisäresursseja tarjouspyyntömateriaalin käsittelyyn ja riskienhallintaan. Projektin toteutusvaiheessa kohdeyrityksen tulisi kehittää määrälaskentaan liit- tyviä käytäntöjä ja pyrkiä hyödyntämään kustannusarviota toteutusvaiheen projektinhallinnassa.

Avainsanat: kustannusten arviointi, projektinhallinta, rakennusprojekti, moduulirakentaminen

Tämän julkaisun alkuperäisyys on tarkastettu Turnitin OriginalityCheck –ohjelmalla.

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PREFACE

I would like to thank the supervisors of this thesis, Tuomas Ahola and Teemu Laine, for all the motivation, support, and expertise that were shared during this work. I would also like to thank all of my colleagues that made this study possible.

Since the completion of this thesis marks the end of my studies, I would like to thank my family for being supportive during this journey and all my friends here and abroad for making it worthwhile.

Tampere, 30.11.2020

Aleksi Virtanen

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LIST OF FIGURES

Figure 1. Project cost management breakdown. Adapted from PMI (2013)... 6

Figure 2. Organizational chart of the case company. ... 27

Figure 3. Building project flowchart. ... 31

Figure 4. Process ownership in different phases of a building project. ... 33

Figure 5. The current state of the conceptual estimating process. ... 35

Figure 6. Possible scenarios for estimating special work costs in the tendering phase. ... 37

Figure 7. The current state of the detailed estimation process. ... 40

Figure 8. Experienced issues in cost estimation activities and surrounding processes. Adapted from Gioia et al. (2012). ... 44

Figure 9. Outlined suggestion for the conceptual estimating process. ... 63

Figure 10. Outlined suggestion for the detailed cost estimating process. ... 66

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LIST OF TABLES

Table 1. The objectives of cost estimating in the construction literature. ... 11

Table 2. Recurring cost estimation methods in the literature. ... 22

Table 3. Pros and cons of cost estimation methods according to the literature. ... 23

Table 4. Interviewee information and interview durations. ... 28

Table 5. Estimation methods for a conceptual estimate. ... 38

Table 6. Estimation methods for the detailed estimate. ... 41

Table 7. Objectives described in the literature and the related findings. ... 49

Table 8. Activities and sub-activities in the suggested conceptual estimating process. ... 61

Table 9. Activities and sub-activities in the suggested detailed estimating process. ... 64

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LIST OF ABBREVIATIONS

BIM Building Information Modeling

CBR Case-based reasoning

EVM Earned Value Management

PMI Project Management Institute

QTO Quantity take-off

RFQ A request for a quote

RICS Royal Institute of Chartered Surveyors

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1. INTRODUCTION

1.1 Background

Key stakeholders involved in major construction projects have a keen interest in the performance of the project. Clients are protecting themselves with contracts from contractors failing to deliver quality products in time, and failing to do so may be extremely harm- ful to a construction company’s future business. Performing against project objectives comes down to successful planning, which neglected, is also the most common reason for delays and cost overruns in construction projects (Sambasivan & Soon 2007).

As a key part of the planning process, providing an accurate estimation of costs can be argued as a time-consuming but critical task in construction operations. Good estimating of costs is a vital part of the success of any project since it enables contractors to deter- mine their future direct costs and provides a ‘bottom line’ cost for the project to be profitable (Trost & Oberlender 2003). Budgeting, performance reports, and the calculation of standard costs for pricing and other decisions all depend on reliable estimates of costs (Drury 2013).

Project cost estimates are found to contribute to business unit decisions (Dang & Le- Hoai; Sonmez 2011; Trost & Oberlender 2003), quality of tenders (Akintoye & Skitmore 1991; Flanagan & Jewell 2018; Trost & Oberlender 2003), and project management and control (Dang & Le-Hoai 2018; Kim et al. 2004). A consistent estimation process is also a response to uncertainty in future events, and it enables taking reasonable risks in in- vesting the company’s resources. Without estimations in place, decisions are exposed to delusional optimism instead of weighted gains, losses, and probabilities.

In recent years, increased competition in the Finnish modular construction market has resulted in stronger buyer positions and a decrease in market prices. Customers are increasingly aware of the options they can demand from contractors, and in addition to general project delivery, these options must be priced profitably. The market situation requires the industry to be on top of their tendering practices, where robust estimating of project costs is necessary.

Challenges in estimating process and generally in cost management are also widely understood in the case company. The challenges are associated with all parts of the project

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cost management processes, from the initial planning of the costs to the cost accounting aftermath and cross-project learning.

1.2 Research objective and scope

This study has objectives from both practical and academic perspectives. Based on the initial screening of the study, the case organization believes to be lacking in capabilities related to cost estimation of assembly projects and utilizing estimates adequately in its project management practices.

To support solving these challenges, the objectives of this study are to create an understanding of the current cost estimation process and related issues in the case organization, find out requirements for cost estimating and propose a solution to improve these practices.

In the construction management literature, the practice of cost estimating is heavily focused on tendering practices of large building contractors, which neglects other objectives of cost estimating. Al-Harbi et al. (1994) and Betts (1990) have presented cost estimating processes for construction tendering. Betts (1990, p. 413) states that:

Further study that could usefully follow from this work would include extend- ing the analysis to other aspects of building contractor’s activities and also to other systems of other participants in construction projects. The potential benefits and scope for this are considerable.

This finding suggests a research gap in applying a more holistic view to cost estimating as a basis for business decisions. Carr (1989) argues that in construction, a standard, fundamental base for formats, procedures, and processes that would provide accurate and useful decisions does not exist. This statement suggests case specificity of decision support systems in construction, with the remark that the industry and its practices have developed considerably after Carr’s study. Cost estimating literature’s primary focus is on estimating formats, procedures, and processes for particular applications (Carr 1989).

Akintoye (2000) states that even if cost estimation literature presents estimating practice as a technical process, estimators consider factors that form the basis for their costing.

These findings suggest that a reasonable approach for assessing cost estimation of a company is by analyzing established processes and the interaction of the parties involved instead of solely focusing on questioning their technical methods, even if, ultimately, the technical methods are providing the estimated figures.

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The most important outcome of this research is to introduce an effective cost estimation process for the delivery of relocatable building projects, considering fundamental characteristics of the industry and the case company. Therefore, the research question of this thesis is:

What would be an effective cost estimation process for modular building projects in the case organization?

To answer the research question, the study aims to build an understanding of the context of the research: what are the objectives for cost estimating in the case organization, and what are the current methods, tools, processes, and experienced issues present in daily operations.

The chosen methodology for this research is an adapted case study that examines the current state of practices by conducting semi-structured interviews as the main data gathering method. The empirical study will be based on the review of scientific literature, textbooks, and state-of-art journal articles related to construction projects, project management, and cost estimation. The literature review aims to generate a basic understanding of the subject for the researcher and suggest themes for the upcoming interviews.

As is typical for project business, customer operations in the case organization consist of a multitude of activities. The scope of this thesis is limited to modular building delivery that consists of planning and construction of the building. During the initial screening of the research subject, development needs were identified for this phase of customer operations. Building delivery is characterized by construction activities that are significant cost drivers and are prone to most considerable financial risks, and therefore, building delivery is meaningful scope for this study.

Also, the characteristics of modular building projects change considerably depending on if the contract is awarded through procurement and competitive tendering of the public sector. Since the public procurement factors approximately 70% of the revenue of the case organization, this thesis is limited only to projects of the public sector.

Related to the proposed solution, neither the assessment of the viability of the solution nor the implementation of the suggested process will be factored in this research, but the limitations in terms of research methodology and what may be analyzed based on the gathered information, will be presented.

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The focus of the results and analysis will be on the actions of the employees responsible for cost estimation processes and interaction between each other. Therefore, the analysis will not be brought down to the algorithmic level.

1.3 Structure of the thesis

The thesis is divided into seven chapters. Chapter 1, Introduction, consists of motivation for the study, objectives, and the research question. The chapter aims to answer why the research is carried out and what are the main outcomes of the study.

Chapter 2 introduces key terminology and context for cost estimation in construction.

Cost estimation methods in the construction industry are analyzed together with the objectives and limitations of estimating practice. This chapter sets the basis for the terminology and pivotal concepts for this study, which will support empirical data gathering and analysis in later chapters of this study.

Chapter 3 presents the research methodology choices for this research. This chapter consists of describing the research method for this study, case characteristics, and presents how the empirical data was gathered and analyzed for the results of this study.

In chapter 4, current cost estimation processes are presented and analyzed, based on empirical data. The chapter consists of a description of the outlined process for cost estimation activities and moves on to cost estimation processes starting from preliminary, order of magnitude estimates and ending in more detailed cost estimates. In this chapter, experienced issues in cost estimation processes are modeled and analyzed for further use.

In chapter 5, research results will be analyzed from the perspective of cost estimation objectives and addressing the experienced issues. Combined with the analysis of the current state of cost estimation processes, this analysis is utilized in proposing sugges- tions for possible processes.

Chapter 6 discusses the findings of the study and creates a comparison of the results with the literature. The solution proposal, managerial implications, and contributions to existing knowledge will be discussed.

Chapter 7 concludes the thesis and presents how the objectives and research questions were answered. Limitations of this study and recommendations for further research will also be presented.

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2. THEORETICAL BACKGROUND

2.1 Project and project management

According to the Project Management Institute (PMI), a project is “a temporary endeavor undertaken to create a unique product, service, or result.” From this definition, the temporary nature of the project indicates that the project has specified start and end. The project may also end when there is no longer a need for additional outcomes and its terminated by the customer or governing authority. The temporality of the project does not necessarily mean that the outcome product is temporal. The product created is typically long-lasting, and its possible social, economic, and environmental impacts may out- live the project itself. (PMI 2013, p. 2).

Like a definite period, the project has a predefined scope of linked activities that must be brought forth in a certain sequence during project execution. The uniqueness of the project indicates that a similar combination of project organization, result, and process does not exist. Even if project activities may be executed as serial production and result in uniform outcomes, changing project organizations and the scope of activities ensure their uniqueness. In addition to finite time and resources, it makes projects more complex than non-project acts. This complexity is a requirement for creativity, evaluation of activities, decision making, and problem-solving - project management.

Together with budgeted resources, timespan and scope form an objective, wished state in the future that is the result of the project. This object bonds the contractor to the customer and its strategic goals (Artto et al. 2006, p. 26). This is also one reason for the project’s uniqueness: the result must be compatible with the customer’s requirements and expectations. In the project management literature, the three dimensions of a project (timeliness, budget compliance, and scope) are often referred to as the project’s iron triangle: change in one dimension is likely to affect two others. Scope, the activities, and how they should be performed affects the value gained by customer. The bigger the expected value is, the more customer is willing to pay for it. This creates preconditions to the project budget and how long it takes to complete the sequence of planned activities.

“Project management is the application of knowledge, skills, tools, and techniques to meet the project requirements” (PMI 2013, p. 5). Where a project is a collaboration to achieve a well-designed objective, project management is applying managerial means

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to achieve that objective. These managerial means include initiating, planning, organiz- ing, controlling, resource management, and closing the work of the project team. Mana- gerial means may be emphasized differently in different phases of the project’s lifecycle (Artto et al. 2006, p. 35).

2.2 Project cost management

Cost management is a process in project management that targets completing the project within the approved budget. Project management Institute (2013) divides project cost management into four distinct sub-processes containing their own set of tools and techniques. These processes are cost management planning, cost estimating, budgeting, and controlling costs. The cost management process is presented in Figure 1. The en- tirety of cost management serves as a context for cost estimating, which will be the focus of this study, together with its linkages to other sub-processes.

Figure 1. Project cost management breakdown. Adapted from PMI (2013).

In cost management planning, the framing for the whole cost management process is established. The upcoming cost management policies, procedures, and required documentation is set for later phases. In theory, the planning effort occurs early in the project lifecycle and sets the framework for each of the cost management processes so that the processes will be efficient and coordinated. In cost estimating, an approximation of monetary resources needed to complete the project activities is created. Estimation takes multiple project attributes into account and can vary greatly by the tools and methods used for creating the estimate. The budgeting process utilizes the created estimate and aggregates the costs of individual activities to establish an agreed cost baseline for the project. The key benefit is to get a basis against which project performance can be mon- itored and controlled. The budget includes all the funds allocated for the project and usually requires steering committee authorization. Typically, during the budgeting phase, the contractor starts to gather the required resources for the project. Eventually, cost

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controlling refers to said monitoring of project status where project costs and work pro- gression are valued against each other. Ideally, controlling provides the means to recognize variance from the project plan, take corrective action, and minimize risk. (PMI 2013).

2.3 Project cost estimation

A fundamental part of project cost management, cost estimating, can be described as the process of assessing and predicting the total cost of completing the planned project activities. Comprehensive estimates include costs for all resources that will be charged to the project, including labor, material, equipment, services, and facilities, as well as special categories such as inflation allowance, cost of financing, or contingency costs (PMI 2013).

According to PMI (2013), ideal cost estimating utilizes various inputs such as cost management plan, project schedule, risk register, scope baseline, and project work breakdown together with the understanding of environmental factors and organizational as- sets. Cost estimates are generated from these inputs by utilizing selected cost estimation methods, which results in activity cost estimates, risk identification, and information for budgeting decisions (PMI 2013).

According to best practices, cost estimates should consider the cost of risks, and they are updated with the latest information as the project advances to later phases. As the project progresses, more detailed information about the project will be available, and assumptions will be tested, which enable increasing the accuracy of the estimates. (PMI 2013).

The following chapters will examine project cost estimation in the context of construction management.

2.4 Cost estimation in construction management

Different types of estimates are prepared by the building contractor in different project phases, serving various purposes. Because the level of detail in the information available of a project is relative to the project's proceeding, estimates of greater detail are enabled once the project proceeds to later stages. Also, the required level of accuracy of construction cost estimates varies from rough estimates in the early stages to fairly reliable figures for budget control before construction (Hendrickson 2000). Yu et al. (2006) divide estimates into three accuracy levels: order of magnitude estimates, conceptual estimates, and detailed estimates. For each type, the amount of design information available increases.

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In the planning stage, order of magnitude estimates are generally for management purposes, to assess the scheme's feasibility and set budgets (Flanagan & Jewell 2018).

Even if early estimates are grossly inaccurate, they have been found to become often the basis upon which all the later estimates are benchmarked (Dang & Le-Hoai 2018).

Order of magnitude estimates are used to have a general idea of project costs instead of defining costs for each activity at this point. They are typically obtained with hypothet- ical design information and minimum site information, which yields the lowest accuracy (Yu et al. 2006). Detailed estimates in the early stages of the project would be both difficult and meaningless to carry out because of possible scope changes. Conceptual estimates are based on the conceptual design of the facility when the basics of the design are known. Detailed estimates, in turn, are typically made with complete project design and specifications to achieve the highest level of accuracy (Yu et al. 2006).

Depending on the estimating objective and the size of the organization, the responsible for generating estimates may vary. In the whole delivery process, different stakeholders also generate their estimates. Both the contractor and client are typically conducting a feasibility study, which may utilize estimations as an input. Designers may use estimates in evaluating possible design alternatives and contractors for bidding and budgeting decisions (Karshenas 1984). In contractors’ operations, estimating responsibility belongs to company management, dedicated cost estimators, calculation specialists, senior tech- nicians, commercial directors, or even to sales manager, being relative to the company size (Akintoye & Fitzgerald 2000). Smaller companies may not have dedicated estimators, and therefore, the person responsible may be an experienced manager, technician, or salesperson.

The general view regards estimating as a multi-disciplinary function, which is coordinated by the estimating department, but typically management approval is required because of their clearer view of available resources (Akintoye & Fitzgerald 2000). Venkataraman and Pinto (2008) also suggest that isolating cost estimating may lead to underestimating the magnitude and complexity of certain tasks, especially in surrounding functions, which may lead to estimates being too low. Also, because of the diverse objectives, the estimates may benefit from multiple aspects and cross-organizational work. The objectives of cost estimation are presented in the next sub-chapter.

Inaccurate predictions could lead to lost sales opportunities, wasted development effort, and lower than expected returns from project sales. Generally, if a job is overestimated and the estimated cost is much above the actual cost of the work, the contractor will not be able to compete with competitors who have estimated the price correctly and will not be awarded the contract. On the other hand, when the estimated cost is below the actual

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cost of the work, the contractor suffers from financial loss in project execution. (Trost &

Oberlender 2003).

2.5 Cost estimation objectives

Even if all cost estimates predict the estimated cost of undertaking construction work, the outcome result, and the uses of that result varies. According to the construction literature, cost estimating has versatile objectives that relate to, for example, a feasibility study, tendering, and project management.

Mainly, construction projects aim for economic profitability, and together with revenue, cost estimates build the rate of return, which enables comparing the profitability of different sales opportunities. Although, the findings from Akintoye and Fitzgerald’s (2000) study suggest that compared to competitive tendering, project planning, and control purposes, opportunity comparison is significantly less popular objective within contractors of any size.

Without assessing both costs and profit, justifiable strategic opportunity comparison is arguably impossible. This indicates contractor if the project will be economical or not and ultimately, aids for the project go- and no-go-decisions (Dang & Le-Hoai 2018; Trost &

Oberlender 2003). Internally, because cost estimates predict the total expenditure to be made, it enables arranging necessary capital for the project (Hendrickson 2000), which may be regarded as important in ensuring contractor’s liquidity during high-cost projects and in project business when pursuing multiple projects in parallel.

After the feasibility study, conceptual estimates are typically prepared for proposed design alternatives (Hendrickson 2000). These enable including cost management perspective to design choices within the boundaries of the budget. Typically, architects or design agencies are responsible for providing conceptual estimates (Flanagan & Jewell 2018). Order of magnitude and conceptual estimates are also, when necessary, used to gain funding (Flanagan & Jewell 2018).

The most common objective (Akintoye & Fitzgerald 2000) for a contractor’s estimating is for tender sum preparation in response to an invitation to tender. More detailed than conceptual estimates enable defining the selling price for project activities before the actual execution of tasks, which helps the contractor to submit more accurate bids (Dang

& Le-Hoai 2018) and selling at a price above the minimum acceptable rate of return.

Ideally, detailed cost estimates give accurate information of all construction tasks and their costs, which enables choosing the best alternative of various construction methods (Dang & Le Hoai 2018). In the long term, together with actual cost data, estimate data

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may help in making decisions whether to produce certain actions in-house or to out- source them to sub-contractors (PMI 2013). Approximate quantities may be used for decisions regarding contractual agreements with sub-contractors as well as for procurement decisions (Carr 1989).

Cost estimates and project budgets are inextricably linked. The budget created from a more detailed cost estimate serves as a baseline for project controls and earned value management (EVM) (Vandevoorde & Vanhoucke 2006; Venkataraman & Pinto 2008).

For the contractor, the bid estimate is usually regarded as the budget estimate, which will be used for project control purposes (Carr 1989; Kim et al. 2004; Trost & Oberleder 2003). Detailed cost estimates serve not only the cost information but are also valuable for scheduling the project activities (Firat et al. 2010).

Project managers need to know the extent to which the project is meeting its objectives.

Detailed estimates enable account- or work package level control, which can be utilized in providing performance reports for both, external and internal stakeholders. These reports may be used for feeding action requirements to the project manager about possible problems and shortcomings before it is too late to take corrective measures.

According to Oberlender (1989), too often project tracking is based on costing, which takes place subsequently to the project. The information obtained from invoices is typically of little value to project management because they are generally received 30 to 60 days after the work is in place (Oberlender 1989). And as such in EVM, estimates are maintained at certain intervals and in synchronization with the planned schedule (Hen- drickson 2000). By comparing actual expenses and progress information with the baseline estimate, an indication of the project’s performance can be obtained to steer the project (Horngren et al. 2012; PMI 2013, Vandevoorde & Vanhoucke 2006).

The performance monitoring may also aid in communicating the project’s impact after the project and enable learning. Optimally, contractors gain an understanding of where their projects go wrong and ensure that lessons learned are applied to future projects.

(Drury 2013). Objectives for cost estimating in construction literature are presented in table 1.

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Table 1. The objectives of cost estimating in the construction literature.

Cost estimation objectives References To prepare tender for client; to submit more

accurate bids Akintoye & Fitzgerald 2000; Dang & Le-Hoai 2018 To control or monitor project execution Akintoye & Fitzgerald 2000

To audit the project success Akintoye & Fitzgerald 2000

To staff project Akintoye & Fitzgerald 2000; Al Harbi et al. 1994 To schedule project Akintoye & Fitzgerald 2000; Firat et al. 2010 To select projects to tender for, feasibility

study

Akintoye & Fitzgerald 2000, Karshenas 1984; Dang & Le- Hoai 2018; Trost & Oberlender 2003; Wouters and Verdaasdonk 2002; Dang & Le-Hoai 2018

To evaluate project estimator Akintoye & Fitzgerald 2000 To evaluate client Akintoye & Fitzgerald 2000

Project budgeting decisions Dang & Le-Hoai 2018; Karshenas 1984 Ensuring project profitability and profit mar-

gins

Brook 2008; Dang & Le-Hoai 2018; Trost & Oberlender 2003

Decisions on alternative design choices Hendrickson 2000 Arranging necessary capital for the project in

high-cost and parallel projects Hendrickson 2000; Lederer and Prasad 1993 Facilitating construction-phase decision mak-

ing

Carr 1989; Dang & Le-Hoai 2018; PMI 2013; Horngren et al. 2012; Vandevoorde & Vanhoucke 2006

Improved cost controlling accuracy

Carr 1989; Kim et al. 2004; Trost & Oberlender 2003;

Oberlender 1989; Vandevoorder & Vanhoucke 2006;

Venkatamaran & Pinto 2008 Project follow-up and inter-project learning Drury 2013

To assist in possible outsourcing decisions PMI 2013

2.6 Risk and uncertainty management

By its nature, estimating is dealing with risks and uncertainties, which are present in all cases that concern predicting future activities. In project management literature, uncertainty is understood to result from variability and ambiguity (Ward & Chapman 2003;

Atkinson et al. 2006). Variability concerning project performance measures such as cost, duration, and quality and ambiguity associated with contradictions caused by lack of clar- ity (Ward & Chapman 2003; Atkinson et al. 2006). The causes of uncertainty about estimates include one or more of the following (Ward & Chapman 2003; Atkinson et al.

2006):

• Lack of clear specification of what is required;

• Novelty, or lack of experience of this particular activity;

• Complexity in terms of the number of influencing factors and associated inter-dependencies;

• Limited analysis of the processes involved in the activity;

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• Possible occurrence of particular events or conditions which might affect the activity;

• Emerging factors unknowable at the start of the project;

• Bias exhibited by estimators, typically optimism bias.

There is a need to recognize that many projects include high, difficult to quantify, levels of uncertainty. This uncertainty is often neglected, possibly due to conventional project management being too focused on operational planning and control. (Atkinson et al.

2006).

2.7 Estimation inaccuracies and issues

Several multi-factor studies aim to explain the key factors causing the inaccuracy of cost estimates (Al-Harbi et al. 1994; Akintoye & Fitzgerald 2000; Shash & Al-Khaldi 1992), but their findings can be regarded as non-recurring. According to Al-Harbi et al. (1994), the tough competitive situation, short duration of the construction stage, and incompleteness of drawings and specifications have been found to increase the inaccuracy. Be- cause of their importance in tendering, the tough competition calls for increasingly accurate estimates, which may be regarded as a positive problem. In earlier studies, competitive pressure has been found to increase the sophistication and use of accounting systems (Chapman 1997; Khandwalla 1972). The short duration of the construction phase increases the resource intensity, which has been found to challenge the estimators (Al- Harbi et al. 1994). Naturally, the information of the project’s scope is necessary for providing accurate estimates, where incompleteness and changes to scope create major difficulties for the estimating work.

In Akintoye and Fitzgerald’s (2000) study, the biggest challenges found are related to the lack of construction knowledge by the estimating responsible, insufficient time for estimating, and poor tender documents. Finally, Shash and Al-Khaldi’s (1992) study listed the lack of previous experience regarding the contract and the characteristics (complexity) of the project as the most challenging factors.

The findings of these studies suggest that the many-sided factors contributing to the quality of the estimates are to some extent case-specific, which arguably is the result of including, but not only variety in project attributes, estimating departments, and processes. The only recurring factor between these studies is estimating in areas that the estimators have little experience. This factor is also noted as a major challenge for cost estimating by Carr (1989). Akintoye and Fitzgerald (2000) also found that generally, large

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contractors have fewer problems in cost estimating functions, which may be due to available resources and well-defined estimating processes. Besides, large contractors are more likely to enhance their estimates by estimating software (Akintoye & Fitzgerald 2000).

2.8 Cost estimation methods

Various methods are suggested in construction management literature for estimating the likely cost of future project activities. According to the literature review conducted, the research focus of state-of-art publications is around particular, case-specific applications. Particularly, cost estimation literature concerning the use of information systems and expert systems can be regarded as highly case-specific. However, recurring methods may be summarized to gain a comprehensive view of the methods utilized in the construction industry.

Since a comprehensive presentation of estimation methods cannot be found from a single source of literature, this sub-chapter aims to present the common methods in construction research and principal work. Highly particular applications related closely to specific research settings are therefore neglected. Cost estimation method in this setting relates to a method, tool, or technique that aids the estimating responsible for generating monetary value for future project activities. This may relate to some or all of the following:

direct project costs, overheads, cost of uncertainty, and contingencies.

As stated earlier, there is a need for predictive information for the basis of strategic project decisions, but findings from Akintoye and Fitzgerald’s (2000) study suggest that cost estimating is used pre-dominantly for planning and to a lesser extent as a decision-support technique. The suggested reason for this is the widespread use of conventional, activity-based estimates (Akintoye & Fitzgerald 2000), which means that organizations may fail to see the value offered by statistical methods and expert systems.

Hegazy and Moselhi (1995), in turn, argue that the methods that the contractors have generated for themselves are often inaccurate, unstructured, and based solely on contractors’ own experience and dictated by the software systems they use.

According to Akintoye and Fitzgerald (2000), even if techniques such as range estimating, factor estimating, and parametric estimating are not widely practiced, they could provide useful tools for reviewing detailed cost estimates produced by conventional methods in the shortest time possible (Akintoye & Fitzgerald 2000). The possibility to gain from more advanced techniques is also suggested by the widespread use of regression analysis in megaprojects such as in the space industry (Black 1984) and highway

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projects (Bell & Bosai 1987). Also, the information systems have developed drastically from Akintoye and Fitzgerald’s study, which means that repetitive work and estimating in general, has likely become more cost-efficient. This does not negate the need to com- municate the value offered by more advanced methods.

According to Flanagan & Jewell (2018), the level of detail of information available of the upcoming project and the quality of existing history information are the main factors in dictating which methods can be used for estimating. These requirements relate to the phase of the project and the experience from similar past projects. Kim et al. (2012) add the purpose of the estimate, together with the estimator's preferences, as the most important factors.

The requirement for estimation accuracy (Carr 1989) and the available resources for estimating work are also suggesting factors when choosing estimation method, because not every intended use of estimates requires the most accurate or detailed information and the methods vary drastically by the effort, and therefore cost required. Kim et al.

(2004) point out the need for the long-term use of the estimates. An important aspect of selecting the method is the ease of updating the estimates and the consistency of the variables stored (Kim et al. 2004).

2.8.1 Quantity take-off

In cost management literature, engineering methods of analyzing cost behavior are based on engineering analyses, direct observations of the underlying physical quantities required for an activity, and then to convert the results into cost estimates (Drury 2013).

In construction, the engineer’s estimate is called quantity take-off (QTO).

In traditional QTO, a detailed estimate is generated by comparing project drawings and specifications and calculating the amount of material, labor, and equipment needed to complete a construction project (Hendrickson 2000). This is typically done by a cost estimator in the pre-construction phase (Hendrickson 2000). The monetary value for direct materials and work is gained when the unit costs for bills of quantities are assigned. The total cost is the sum of the products of the quantities multiplied by the corresponding unit costs. Some contractors utilize public cost data (Hendrickson 2000), whereas some contractors maintain their own cost databases or poll their vendors.

QTO is known to take time and requires understanding the technical documents. Typi- cally, a construction project consists of hundreds or thousands of different cost items, which makes the estimation tedious. The upsides of this method are straightforwardness and usability in resource allocation (Cost engineering 2019). The technicality of this

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method is limited to basic arithmetic formulas. And because this method provides visibil- ity at the work-package or task level, it is closely related to scheduling, planning, and resource allocation (Cost engineering 2019). The estimate may be further improved by documenting the expected method of construction since the costs may vary depending on how the work is carried out. QTO is usually satisfactory for estimating costs that are usually associated with direct materials, labor, and machine time because these items can be directly observed and measured (Drury 2013).

The detailed QTO estimate is typically made when the scope of work is clearly defined, and the detailed design is in progress so that the essential features of the facility are identifiable (Hendrickson 2000), but the level of detail in the estimates may vary (Bryan 1991). Depending on the use of the estimates and the information available, the take-off may include very detailed quantities of more granular information within item hierarchies and assemblies (Bryan 1991).

The time spent for this type of estimate can be broken down into three categories: identifying items and their interrelationships on the drawings and specifications, finding dimensions, and calculating and aggregating the quantities, lengths, areas, and volumes of the identified items (Günaydin & Doǧan 2004). Because providing detailed estimates takes time, experienced estimators have developed helpful procedures and automation to lessen the burden of the estimates and utilize tools varying from spreadsheets to building information modeling (BIM).

BIM-based tools have been shown to attract contractors’ attention by enabling more efficient quantity take-offs (Wu et al. 2014). Fetching the quantity information from project drawings and CAD-models assisted by unit cost information provides faster QTO’s that are not prone to errors of human calculation (Firat et al. 2010). Due to their swiftness, model-based estimates may also be efficient in comparing different design options, which is one objective of construction cost estimation (Hendrickson 2000).

Theoretically, the information needed for managing construction projects can be auto- matically obtained from building models (Lee et al. 2014). Although BIM-tools are already used for cost estimation, the intervention of a cost estimator’s subjective opinion on appropriate work items cannot be avoided since it is typically unlikely that BIM-tools contain all the necessary information to generate cost estimates (Lee et al. 2014).

2.8.2 Single-rate approximate estimating

Parametric estimating (sometimes known as factor estimating) is a cost estimating technique whereby a unit rate is used and multiplied by the number of units (Roseke 2017).

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While traditional cost estimating uses blueprints and specifications, parametric estimating assumes a linear relationship between the final cost and the essential design variables of the project (Günaydin & Doǧan 2004). Therefore, parametric estimating relies on parameters such as the type, size, and capacity of a building. Parametric methods have been developed because of the lack of information available in the early stages of the project (Kim et al. 2004; Hegazy & Ayed 1998).

The simplest form of parametric estimating is a single-rate approximation, where square meters of floor area, cubic meters of enclosed volume, or other functional attributes such as the number of beds in a hospital are used in the preparation of gross estimates (Flana- gan & Jewell 2018; Shash & Al-Khaldi 1992). Single-rate approximate methods use historical data from earlier, similar schemes in terms of the cost per functional attribute.

Judgment, knowledge, and experience are required to select the most appropriate unit price rate (Flanagan & Jewell 2018). Several adjustments are typically needed for the resulting estimate to take account of location, specification, degree of complexity, size, shape, ground conditions, and the number of floors (Flanagan & Jewell 2018). Because of its straightforwardness, a single-rate approximation may be used in cost analyses and benchmarking as a means of documenting costs of previously completed building projects (Flanagan & Jewell 2018).

2.8.3 Elemental cost plan

Multiple-rate methods are developed for estimating the total cost of projects using multiple parameters (Shash & Al-Khaldi 1992). These methods include elemental cost plan, regression analysis, and range estimates. The elemental cost plan considers the major elements of a building and provides cost estimates based on elemental breakdown (RICS 2013). The breakdown of costs for a new building can be calculated by applying the earlier proportional cost in each construction element to the second building (Flana- gan & Jewell 2018). The known unit cost for a particular element, such as assembled square meters, is multiplied by the designed quantity of the new building. The choice and number of elements used to break down the cost of the building will be dependent on the information available (RICS 2013). This type of estimate requires using cost-per-unit measures from a similar type of building (Shash & Al-Khaldi 1992). Compared to QTO, instead of using approximate quantities of the building design, the known cost of each building element is multiplied by the chosen functional attribute, such as the square me- ter area of the planned building.

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According to Flanagan & Jewell (2012), parametric methods depend on comparable projects where the actual cost of each building element is known. Active maintaining of project cost catalogs is vital for the set-up of this estimation method. Parametric estimates are generally considered quite accurate because the parametric value is often based on similar projects, but the overall estimate is only as reliable as the parametric value (Ro- seke 2017).

However, there are certain limitations to linear models that should be considered. The assumption about the linear relationship is questionable (Günaydin & Doǧan 2004), and the estimators need to consider the relevant range of the linear functions. The cost equa- tion may provide satisfactory estimates for certain activity levels, but it may not do so for activity levels outside this range of observation (Drury 2013).

2.8.4 Regression analysis

To develop parametric estimating models, statistical methods such as regression analysis and neural network techniques have been developed (Sonmez & Otenpeli 2009). In the field of statistical analysis, regression analysis is a set of processes for estimating the relationships between the dependent variable and one or more independent variables (Freeman 2009). For estimating purposes, this could be used as both an analytical and predictive technique in examining the contribution of potential new items to overall estimate reliability (Kim et al. 2004). The most common form of regression analysis is linear regression, in which the researcher finds the line that most closely fits the data according to specific mathematical criteria (Freeman 2009).

In cost estimation, there are different approaches for finding the best fitting line for the data, which in this case means estimating the cost function for a set of actualized costs from past cases. Examples of these approaches are the graphical- or scatter graph method, high-low method, and least squares method (Drury 2013; Horngren et al. 2012).

Different approaches have also been seen as a disadvantage of regression estimating models because a specific, clearly designated approach to choosing the best cost model that fits best the historical data for a given application does not exist (Hegazy & Ayed 1998; Kim et al. 2004). Regardless of criticism, regression cost models have been used for estimating construction costs since the 1970s because they have a well-defined mathematical basis (Kim et al. 2004).

Regression analysis is used generally for two different purposes. First, it is used for prediction and forecasting. Second, in some instances, regression analysis can be used to

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define causal relationships between the dependent functions and potential cost drivers, which is also known as the test of reliability (Drury 2013).

2.8.5 Neural network method

Neural network modeling is a computing system that simulates the learning process of the human brain by including a set of algorithms to recognize patterns. Neural networks are widely applied in many industrial areas, including construction cost estimation and tender price prediction (Adeli & Wu 1998; Kim et al. 2004). Researchers have explored the application of neural networks to improve the accuracy of cost estimating beyond the regression model. The learning ability of neural networks gives an advantage of solving complex problems whose analytic or numerical solution would be otherwise hard to reach (Günaydin & Dogan 2004). Neural networks are a viable alternative for predicting construction costs because this method eliminates the need to find a good cost estimating relationship that mathematically describes the cost of a system as a function of the variables that have the most effect on the cost of that system (Kim et al. 2004). Also, multi- linear and non-linear relationships of input variables, potential cost drivers could be stud- ied (Emsley et al. 2002; Hegazy & Ayed 1998).

Because of its advanced nature, estimating costs using the neural network method has certain limitations. The knowledge acquisition process for the model is very time-consuming (Hegazy et al. 1998), and a typical application of the model is a black box technique (Kim et al. 2004). Likely, the user won’t be able to explain the results of the model, and compared to other estimation methods, updating the model is hard and time-consuming (Kim et al. 2004).

2.8.6 Qualitative methods

Instead of algorithms and numerical data, qualitative methods utilize qualitative knowledge in generating estimates. These include the assumptions and judgments that cost estimators and engineers make during the estimation process. Assumptions and judgments are related to analogies from past projects to serve as the basis for newly generated estimates (Rush & Roy 2001).

Facing subjective biases, qualitative methods are generally not as scientific as cali- brated, repeatable use of algorithms, but in any type of estimating, cost estimator must use their judgment concerning the validity of the estimate data and the variables involved (Rush & Roy 2001).

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In some instances, the required level of accuracy and detail for estimates is provided by intuition, guessing in comparison to past projects based on personal memory (Bryan 1991). However, in case the estimate is challenged, it would be difficult to defend (Bryan 1991). Even if providing estimates by informal means is noted to be present, these procedures are not encouraged because they are prone to biases (Lederer and Prasad 2000).

Consulting a cost estimation expert or group of experts to use their experience and understanding of the proposed project is referred to as the expert judgment method (Rush

& Roy 2001; Wu 1997). The experts solve the problem by observing the key attributes of the problem, identifying these attributes in similar previous problems, and adjusting the learnings to the new problem (Kim et al. 2004). The advantage of expert judgment is the possibility of factoring in qualitative information on top of quantitative information, such as estimation issues, the introduction of new technologies, personal traits of project personnel, et cetera (Wu 1997). Disadvantages to this method are typical to qualitative methods: different types of biases are present, and it is difficult to quantify and document the factors used in generating the estimates (Wu 1997).

In turn, case-based reasoning (CBR) seeks to increase the level of standardization. CBR approach is similar to the use of expert judgment that relies on experience to solve problems (Kim et al. 2004). In CBR, old cases that contain experiences of past projects are stored in a case base. When a new case is introduced, past cases with similar characteristics are retrieved, and the problems of the new case are attempted to be solved using the adaptation of past cases. (Duverlie & Castelain 1999; Kim et al. 2004).

CBR is regarded as rather advanced among qualitative estimation methods. The system requires a vast number of past cases to be effective (Rush & Roy 2001), and utilizing the data from past cases may be tedious (Kim et al. 2004). In more advanced implementa- tions, case indexation, computer-assisted similarity comparison, and adaptation procedures may be utilized in improving estimation efficiency (Chou 2009).

2.8.7 Contingency allowance

Part of project cost estimating is linked to project risk management since cost estimates may include contingency allowances to account for cost uncertainty (PMI 2013). To mit- igate the consequences of constructional challenges, the practitioners should identify the project risks and estimate the costs of contingencies (Kermanshachi & Safapour 2019).

Typically cost allowances are used to address known unknowns that may affect the project, for example, the anticipated possibility of rework on some parts of the projects (PMI

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2013). Allowances not spent for construction can be released near the end of construction to the owner or to add additional project elements.

This contingency amount may be included within each cost item or be included in a single category of construction contingency (Kubba 2010; PMI 2013). In practice, contingency allowance may relate to, for example, design development changes, schedule adjustments, general administration changes, unexpected site conditions, and third-party requirements imposed during construction. The amount of contingency is based on historical experience and the expected difficulty of a particular construction project (Carr 1989;

Kubba 2010). For unforeseen events, this point of view is problematic since the estimator may not possibly know what can happen (Carr 1989). To be respective to estimate accuracy demands, unforeseen events should be covered by contingency allowances. For example, when construction difficulties occurred in past projects of little constructional experience, not adding the cost of contingency in estimates would not accurately reflect the best estimate of final costs (Carr 1989). However, the estimates often do not include an allowance for exceptionally severe risks because they are highly difficult to quantify and price (Laryea & Hughes 2011).

2.8.8 Range estimating

Instead of a single point estimate, many researchers recognize that estimates should be presented as a range (Chapman & Ward 2003; Chou et al. 2005; Touran & Suphot 1997).

Range estimating incorporates uncertainty of project estimating by producing a range of estimates (Shash & Al-Khaldi 1992). This range is more respective to the variability of different possible outcomes of future activities and considers risks of over and underes- timation (Curran 1989). However, the contractors may have to weigh the risks of the projects when deciding if a range of estimates should be incorporated. Range estimating is found to be a useful method, especially when quantifying uncertainties in high-risk activities (Shaheen et al. 2007). In many projects, the risks are too low for range estimating to be profitable (Curran 1989).

Range estimating consists of a range of project costs with associated probabilities. The cost basis may be generated by using any cost estimation method. An important notion is that range estimating is used in adjunct to other methods, such as quantity take-offs (Curran 1989). In its simplest form, range estimates are referred to as three-point estimates, in which assumed, optimistic, and pessimistic cost scenarios are presented with their respective probabilities. In a more statistical setting, different probability distribu- tions may be introduced. Further, the amount of uncertainty may be quantified by using

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Monte Carlo simulation and sensitivity analysis when the probability- and cost of each component are known (Shash & Al-Khaldi 1992).

2.9 Synthesis

As presented in the literature review, the sub-process of project cost management, cost estimating, is utilized for multiple purposes during different phases of construction projects and is characterized by a variety of objectives, issues, and methods.

None of the literature sources covered a full list of cost estimation methods used in the construction industry. The reason for this may be that construction as an industry is traditional, and the practice has existed for a long time, which has resulted in several established methods and their variations. However, the development of information systems and software applications has introduced new possible methods that likely will increase the efficiency of the practice but are yet to be adopted by the industry. The summary of recurring cost estimation methods in the literature is presented in table 2.

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Table 2. Recurring cost estimation methods in the literature.

Estimation method Description Context of study

Quantity take-off

The amount of material, labor, and equipment needed for completing an activity is calculated based on project drawings. Unit costs are assigned to get a cost estimate.

Apartment building projects (Günaydin & Dogan 2004), Variety of construction projects (Akintoye & Fizgerald 2000; Flanagan & Jewell 2018;

Chau & Long 2015; Law 1994), Estimating electrical construction materials (Bryan 1991)

BIM-based QTO

Automated quantity take-off method that combines building information model and item cost information.

Apartment building projects (Firat et al. 2010), Summary of multiple BIM-researches (Wu et al. 2014), Product design of railway diesel engine pistons (Duverlie & Castelain 1999)

Single-rate approximation

The functional attribute of a building is multiplied to provide a gross cost estimate. A linear relationship between the final cost and design variable is assumed.

Variety of construction projects (Flanagan & Jewell 2018), Product design of railway diesel engine pistons (Duverlie & Castelain 1999), Apartment building projects (Günaydin & Dogan 2004)

Elemental cost plan

The elemental cost plan considers the major elements of a building and provides an order of cost estimates based on the elemental breakdown.

Apartment building projects (Günaydin & Dogan 2004); Estimating electrical construction materials (Bryan 1991), Product design of railway diesel engine pistons (Duverlie & Castelain 1999)

Regression analysis

Statistical method for estimating the relationships between the dependent variable and one or more independent variables.

Residential building projects (Kim et al. 2004; Kouskoulas & Koehn 1974; Lowe et al. 2006), Multi-storey office buildings (Karshenas 1984)

Neural network modeling

A computing system that simulates the learning process of the human brain by including a set of algorithms to recognize patterns.

Apartment building projects (Günaydin & Dogan 2004), Residential building projects (Kim et al. 2004; Kim et al. 2005), Highway projects (Hegazy & Ayed 1998), Concrete pavements (Adeli & Wu 1998), Multi- storey office buildings (Karshenas 1984), Variety of building projects (Emsley 2002)

Guessing, intuition

Subjective and informal method of generating cost estimate based on feelings, personal memory, or guess.

Variety of construction projects (Akintoye & Fizgerald 2000), Estimat- ing electrical construction materials (Bryan 1991), Highway bridge construction (Chou et al. 2006)

Expert judgment

Consulting a technical expert, estimation expert, or group of experts to use their understanding and experience in generating cost estimates.

Residential building projects (Kim et al. 2004), Cost estimation models (Rush & Roy 2001)

Case-based reasoning

An analogical method for evaluating the cost of a project using past experiences from a similar set of systems.

Residential building projects (Kim et al. 2004), Pavement maintenance project (Chou 2009). Product design of railway diesel engine pistons (Duverlie & Castelain 1999), Cost estimation models (Rush & Roy 2001)

Contingency allowances

Allocated cost during planning for treating causes for contingencies, such as unplanned events.

Variety of construction projects (Flanagan & Jewell 2018), Construc- tion project bidding process (Laryea & Hughes 2011), Construction Cost estimation principles (Carr 1989)

Range estimating

A technique that incorporates uncertainties by providing a range of estimates with their respective probabilities instead of single- point estimates.

Variety of construction projects (Akintoye & Fitzgerald 2000), Estimat- ing project cost and time in construction applications (Shaheen et al.

2007), Highway megaprojects (Molenaar 2005)

Cost estimation methods vary greatly by their characteristics, which suggests the pros and cons for companies utilizing them. The pros and cons of different cost estimation methods are presented in table 3.

Improving cost estimation process in a modular construction company

Aleksi Virtanen