The Benefits of Real-Time Cost Estimating

Winter 2021/2022 Issue
  • By:
  • Michael O'Reilly
Real-time estimating for construction costs involves more frequent examination of costs than traditional milestone-based estimating processes. Getty Images

The technique can save money, but it’s important to understand how it differs from milestone-based estimating.

Real-time construction cost estimating offers owners some important advantages over the traditional milestone estimating model. With estimators supplying pricing data quickly and frequently, instead of only at established points in the design process, costs are proactively managed rather than reactively summarized.

In milestone-based estimating, building costs are developed using historical data, benchmarked expenses or an overall price per square foot. As the project moves ahead, with specific materials, systems and details coming into focus at the design development phase, the cost estimate becomes more fact-based and precise, but the possibility of “sticker shock” also looms as the design coalesces. This has its own set of consequences. Budgetary bombshells at this late stage can often trigger a protracted period of value engineering, possibly putting the schedule in jeopardy as the drawings are revised to reflect the redesigned project.

An alternative to conventional milestone estimating, real-time estimating (RTE) entails making more frequent, albeit less comprehensive, checks on costs. Rather than waiting weeks or months for each milestone to wrap up before running the numbers, RTE takes the pulse of the project at every incremental step. 

The design team provides periodic updates (usually in the form of a 3-D model, or BIM) for the estimating team to review. With each decision made by the team, it’s possible to track their impacts on the budget in real time. Providing owners with this information enables them to clearly see the cost implications of their decisions earlier, helps them balance their priorities, and ultimately steers them to make more informed decisions about critical issues before cost-based conflicts become a serious problem.

This is especially critical now, as current supply chain issues are creating significant impacts on the schedule and costs of construction projects. RTE provides a positive strategy to help mitigate those impacts because it calls for increased involvement during the evolution of the design. In this way, RTE allows teams to flag potential issues as they occur and before final decisions about construction materials and assemblies are made. By giving owners early notifications about long lead times and potential cost spikes for certain materials, they can resolve any potential issues in real time.

Evaluating Choices

Real-time estimating is extremely flexible. It can be performed on a project as a whole, or it can zero in on a specific segment of the scope that the designer or owner is particularly concerned about, such as materials, building performance or mechanical systems. This kind of targeting is not possible with ground-up, milestone estimating.

The nimbleness of RTE does have some trade-offs when compared to milestone estimating. Because real time estimating is an ongoing series of updates, essentially snapshots of a design-in-progress, it may not be as comprehensive as a milestone estimate. It may not capture everything, and as a result it may be less accurate than milestone estimates. RTE may also incur a higher fee than milestone estimating because of the ever-moving line in the sand, but its value typically offsets that cost.

To RTE or not RTE?

Certain types of projects stand to benefit from RTE more than others. Large buildings, where the cost of small details is exponentially magnified due to the scale of the project, are good candidates for the technique. For instance, when a designer adds a light cove running around the perimeter of a sports stadium or airport terminal late in the project, they might be unaware of how large an impact that can have; if it’s priced out at $500 per linear foot, it could result in a $1 million surprise as the project heads into the construction documents phase. The same reasoning can be applied to highly repetitive buildings — such as hotels and high-rise office buildings — where every design element and decision is multiplied hundreds of times over.

Real-time estimating is also useful with complicated projects that require evaluating and comparing numerous design alternatives and options for siting, earthworks, life-cycle studies or sustainability/performance goals.

Early Integration

To implement real-time estimating, cost estimators need to be on board from Day 1 of the project, at the onset of the programming/concept phase. This is when many key decisions are made, and estimators can collaborate and coordinate with owners, designers and all stakeholders to help establish the parameters of the project. Jumping in any later can dramatically curtail estimators’ roles. Integrating the cost estimator with the team early on will help align project expectations with budgets.When construction cost estimators are a foundational part of the project team, real-time estimating isn’t just a service; it provides clients with cost certainty, enabling them to maximize both their investments as well as their returns.

Michael O'Reilly

Michael O’Reilly is an associate principal at Rider Levett Bucknall, leading the firm’s Boston office.