First Principle vs. Unit Cost Estimating

August 26, 2022

Construction estimation uses various techniques to forecast the cost of a physical building structure. Builders need an accurate estimate of quantity take-off, take-off analysis, and unit price estimation. Other considerations such as labour, materials, equipment, overhead, and profit are also factored into the estimate. 

Construction estimating software allows estimators to streamline the process by automating many construction estimation tasks, reducing the estimating time, and improving accuracy by providing a more consistent and comprehensive approach to quantity take-off and unit price estimation. 

What is First Principle Costing?

First principle costing is a traditional technique that construction companies use to estimate the cost of a project. This approach traces all costs back to the underlying resources used to generate those costs. For example, labour costs are traced back to the number of hours worked, and the material costs are traced back to the quantity and quality of those materials.

By understanding how costs are generated, construction companies can more accurately estimate the cost of a project at the outset, which helps them to bid on projects accurately and avoid potential cost overruns. 

Benefits of First Principle Costing

First principle costing is beneficial for complex projects with a lot of uncertainty about the final cost. This approach can help to reduce the risk of cost overruns by providing a more accurate estimate of the project's true costs.

  • It provides a more accurate picture of the true cost of construction because it only includes direct costs, such as materials, equipment and labour.
  • The simple calculation process makes it easier to understand and use for decision-making purposes.
  • It is more flexible than unit cost estimating. This means that construction businesses can make changes to their production processes without having to make complex adjustments to their cost accounting system.
  • It can be used with other cost accounting methods, such as activity-based costing, to provide a more comprehensive view of costs.

What is Unit Cost Estimating?

Unit cost estimating is a process used to estimate the cost of individual units of work in construction by dividing the total project cost by the units of work done. This process provides an accurate estimate of the project costs, as well as identifies potential cost savings opportunities by eliminating the guesswork from your next estimate.

This cost estimate ensures that all provisions of labour and materials are accounted for independently. For this approach to work, however, the exact design specifications of a project are needed. 

Benefits of Unit Cost Estimating

Unit cost estimating is useful when there is a limited amount of data available or when the costs are difficult to predict. 

  • Increased accuracy: By breaking down the project into smaller units, you can estimate the cost of each component more accurately. This helps to avoid surprises later on.
  • More efficient use of resources: When you know the estimated cost of each unit in advance, you can more efficiently allocate your resources and ensure that you're not overspending in a specific area.
  • Greater transparency: This can be helpful for both buyers and the client, as it clearly explains what components are included in the final price.
  • Easier comparisons: When comparing bids from different contractors, unit cost estimating can make it easier to see which contractor offers the best project value. 

Procontractor software from Quest Construction is easy to use and perfect for those who need to get an estimate together quickly. With its simple interface and wide range of features, Procontractor is the perfect tool for any construction professional. At Quest Construction, we take great pride in our ability to deliver construction management software solutions. Contact us to find out more about Procontractor.