Purpose of estimation

Chapter 1
Elements of Estimating

Contents
 Introduction
 Purpose of Estimating and Costing
 Qualities of good estimator
 Essential elements of estimating and costing
 Other important factors of estimating and costing

Introduction
Estimating is done for following things:
1) Approximation of the material
2) Investment involved
3) Time to be taken for the completition of electrification
project we are planning to do.

Job of an Estimator:-
1. Estimating the quantity of material and
the cost involved.
2. Analysis of the cost and selling price
3. Maintaining proper accounts.
4. Availability of material.

Project report includes:-
1. Drawing of the work.
2. Details of the necessary material with its
costing.
3. Sequence of operation to be performed.

Purpose of Estimating and Costing
 For successful implementation of the project, it is
necessary to know the material required and the cost to
be incurred before starting a new programme.
 Proper Project report should be maintained for the
successful implementation of the programme.

Contd…..
 Estimating is necessary because it gives surety about the
amount of money required, availability of material etc.
 Without estimating and costing it becomes difficult to
continue the work due to instantaneous shortage of
money or unavailability of material.

Estimating and costing have following
advantages and aims:-
 To ensure that list of material is completed before
starting the work so that chances of shortage of material
reduces.
 To ensure their should not be any misuse of the money
and the material.
 Work is completed in time.

Without estimating and costing following
problems can come in the way of work
 It becomes very difficult to purchase necessary material
in the absence of the list of material.
 The money is misused by purchasing smaller, or excess
quantities of material from market and shortage of
money can cause stoppage of work.
 Due to above mentioned hurdles, the work can take more
time for completion.

Example-Electrification of any
building
1. Designing of wiring.
2. Location of points.
3. Use of various electrical equipments.
4. Use of Conductors.

Qualities of good estimator
A well-qualified, efficient and experienced person
can made successful and economical estimates.
Hence a good estimator should have following
qualities:
1. The estimator should have thorough knowledge
and practical experience about estimation.
2. Estimator should visit the sites time to time.
3. Estimator should have good imagination and
experimenting power.

4) Estimator should keep provision for future
extension.
4) He/ She should have up-to date knowledge of
prices of material .

Specification of material
 It will be very difficult to purchase material without the
knowledge of specification.
 The specification of the material should be known at the
time of preparing report on estimation and pricing of
project.
 For example, there are so many lamp holders in the
market like pendent holders, batten holders or screw
holder etc. available in the market. If we have to choose
holder for lamp having wattage more than 200 watts, than
screw type holder will be best suited.

Latest Market cost of
material

Latest market cost of material and
market survey
 After estimating and costing of installation of project, it
becomes necessary to purchase the material. Market
survey has to be conducted for estimating the cost so that
shopkeeper could not deceive us by overcharging the
cost of material.
 After Market survey quotations are invited for the
enlisted necessary material from selected shops.
 The cost given in quotations of different shops are
compared and the material is purchased at lowest rates
offered by suppliers.

Price List
 At the time of estimating and costing
the price list of materials is really
helpful.
 This list is made by market survey.
 This list is updated time to time
 The price list available in market
includes terms and conditions of
the suppliers along with the price of
material.
 Sample of price list shown below:

Name of firm______ Applicable with effect from date_____
S.
No.
Name of item with
specification
Unit Cost Remarks
1 DPST, iron clad 250 V grade 30
ampere rating with both fuses
each 85-00
2 MCB, 250 V grade, 5, 6, 10
Amperes rating
Per Unit 60-00
3. PVC insulated, aluminium
conductor wire of size 1/1.40mm
diameter
Per
100mt
300-00

Terms and conditions of supply:
 The above price list is latest and all the lists issued before this
date should stand cancelled.
 10% discount will be given on bulk purchases.
 The prices of material can increase or decrease due to change
of prices from time to time.
 One percent(1%) discount can be given on cash payment
 Packing, delivery, dispatch, insurance charges if necessary
will be extra.
 The payment is to be made with in a week of delivery.
 All the taxes such as sale tax, local tax as applicable will be
charged extra.

 Net Prices:
Net price is that price, in which all the imposed taxes
such as sale tax, central sales tax, excise duty and other
local taxes are included. Normally above taxes are not
mentioned in the price list.
For example, If any discount is given by the factory, then
shopkeeper will deduct the discount and then will charge
the tax from the consumer. For example, if a consumer
purchases a 100watt bulb of price 10 rupees and factory
gives discount of 10%, then on Rs 10-1= 9, sale tax at the
rate of 5% will result in net price = Rs 9 + 0.45= 9.45
rupees.

 Table shows a sample price list based on net prices
Name of item Rate per unit Net Price Rs.
15 ampere switch and
socket combined, 3 pin
flush type
Discount 10%
40-00 40.00
-04.00
Sale tax 5% 36.00
+1.80
Net Price Rs. 38.60

 Electrical Schedule:
It is that list or plan of the building by
which we come to know the no. of
points provided in each room of the
building under estimation.
We need to know the ceiling outlet,
single pole three way and 4- way
rotary switch, wall plugs and any other
special plug in any room of the building
under estimation.

Catalogue:
 For an up to date estimating and costing,
an estimator should always have
quotations and a bunch of price list
provided by whole sale dealers and
manufacturers
 The quotations and price list along with
specifications of material are called as
catalogue.

Preparation of List of material:
 Preparing estimation of the total material required
for project and the total cost involved in project is an
important task of estimator.
 The material required for the completition of project
report with complete specification of each item
quantity and rate of each item with total cost for the
item in the form of material list.
Sample of Material table specimen is given below:

S.
No.
Name of item with
full Specifications
Required
Quantity
Rate Total
Cost
Remarks
Qty Unit Rs. Per
1 Double pole iron
clad, main switch,
30 Amp rating, 250V
grade
1 No. 150/- Each 150.00 As main
control
switch

Determination of
Material and Labor cost

Determination of Material and
Labor Cost
 The best arrangement for the determination of required
material is to prepare a detailed material and cost list as
mentioned above.
 The total cost involved in project is completed in two
ways:
1) Quantity of material and cost determination.
2) Determination of labor charges.

1) While determining the quantity of material it is essential
to prepare plan of building, marking electrical points ,
switch boards and main board ( Energy Meter and
main switch board) on the plan.
The control starting from main switch board to each
switch board and then from switch board to electrical
points is marked on the plan.
This plan is the basis of the estimate.

2) Determination of Labor Cost
As we know labor charges are different at
different places. For eg. In cities, a trained
electrician may charge Rs.150/- a day but in
rural areas an equally trained electrician may
be available at Rs. 80/- a day. Therefore
determination of labor charges is very difficult.

 The labor rates are decided as per the prevailing rates in
the city
 The no. of days a wireman are likely to take is calculated
as under:
The no. of days one wireman and one assistant will take
to complete the work =

Labour rates and total payment
S. No. Class of
Labour
No. of
Days
Rates per day Total Payment Remarks
Rs. Paise Rs. Paise
1
2

Knowledge of purchase system
It is the prime duty of the head of the PWD department to know the
system of purchase and make the desired wiring material available
for the project in hand.
a) Purchase system and duties of purchasing department
 They are responsible for making purchases at lowest market rate
and make arrangement for storage of material.
 Market survey should be conducted time to time to know the
latest prices of the material.
 The material should be purchased which is on demand.
 Important materials should be kept stored so that it is made
available in emergency .
 The Purchase officer always take approval from their senior for
any kind of purchase.
 All the bills should be maintained properly.

Requisition
Call of
Quotations
Comparative
statements
Purchase
Order
Inspection
of Material
Release of
payment
Procedure of Purchasing

Requisition Form
Requisition Serial No._____ Date_____
To
Senior Purchase Officer
PWD Electrical Department
Loochi Nagar
NILOKHERI( Haryana)
Kindly Make arrangement for purchase of following items of material for Power wiring
of Polytechnic workshops under construction upto-dated_______
Stock Register Serial No._______ Stock Already in Hand____________
Maximum Demand Quantity________
Minimum Demand Quantity________
Signature of Store In charge _________ Signature of Requisition Officer
Department________________
__________________________________________________________________________
For Use by the Purchase order serial No.____ Name of Firm given Order
Purchase Department Signature of verifying officer___ ______________________
Signature of receiving officer___ Seal of the Department
S. No.
Complete Specification of
Material
Quantity Remarks
1.

Registered
From
Principal
School of Polytechnic(LPU)
Phagwara, Punjab
To
M/S Ghagas Eneterprises Ltd.
Ludhiana, Punjab
Memo No. Q/PK/2/200
Dated____ Subject: Quotation
Dear sir,
You are requested to send your lowest quotations and intimate the terms of payment and delivery period on our
own terms and conditions:
1. The Last date of the receipt of quotations will be …….
2. The quotation will be valid for a period of two months from date of issue of this letter.
3. Please submit the bill in duplicate for cost of material supplied along with the material.
4. The payment of bill be made within one month from date of receipt of material in good condition.
5. The material supplied by you must be according to the specifications laid down as under.
6. The railway receipt will be required to be dispatched by registered post direct to the office and not through
bank.
Principal
School of Polytech. (LPU)
Phagwara
S. No. Description of Material Quantity Required
1. M.I Ammeter portable type 0-5A 15 Nos.
2. Moving Coil Voltmeter type 0-250V 10 Nos.

 Specimen of Purchase Order
From
Principal,
School of Polytechnic
LPU, Phagwara
Memo No.____
Dated:_____
To
M/s Ghangas Enterprises
Khangura Nagara
Ludhiana (Punjab)
Subject: Purchase order for supply of material to School of Polytechnic
Sir,
Reference to your quotation letter no._____ dated____. The rates offered by your firm have been found to be minimum and the terms
and conditions offered by your firm have been acceptable.
Kindly supply the following material on terms and conditions already agreed upon.
The terms and conditions are once again reproduced here.
1. Last date for receipt of material is ____
2. For all legal disputes, the jurisdictions will be Phagwara
3. Send 20% of the cost of material as earnest money before supply of material is undertaken.
4. 50% of the cost of material is deposited in your bank account and the balance amount will be paid only when material quality is
verified and material received in good condition.
5. Form D will be issued to your firm for exemption in sale tax
6. All local taxes will be paid by us.
Signature
Principal
SOP, LPU Phagwara
S.
NO.
Name of items with full
specification
Quantity Rate Total Amount Remarks
1.

Tenders
An offer in terms of rates made by the supplier or
manufacturer on a prescribed form enclosed in a
sealed envelop, in reply to a tender notice for
supply of material on the basis of some terms and
conditions is called Tender.

Tender Notice: The information to be made available for
certain heavy purchases through the news paper is called
Tender Notice.
 The Tender Notice is given for large scale purchases of costly
equipment such as installation of power wiring in a large
industry, for installation of sub-station, for purchase of
heavy duty generator etc.
 The tender notice contains information of material to be
purchased, i.e. complete specifications, its approximate
cost, quantity , last date of receipt of sealed tenders, cost of
tender form and the earnest money to be deposited along with
the tender.
 The supplier can quote rates only on tender form
prescribed by the department. The tender form contains all
the information.

Guidelines for inviting Tender
 The tenders are invited on a tender form prescribed by the purchase department.
Once the tender notice is published in newspaper, the changes if any, are also
got published in the same news-paper.
 The sealed tenders are invited publically through newspaper.
 The tender notice should have following information mentioned clearly:
I. On what dates and timings the work site or further details of purchases can
be seen and examined by the supplier or contactor.. The offices where tender
forms or relevant information is available, the amount of earnest money etc.
II. The date, time and place where tenders are to be opened.
III. The amount of earnest, security deposits and the mode of deposit i.e. through
bank draft, cheque etc.
IV. The officer authorized to accept, reject or open the tender.
 For heavy purchases, supplier should be given at least 1 month’s time from the
date of issue of tender notification to file their tenders.
 All tenders for the concerned work should be opened in the presence of
contractors or their representatives.
 The earnest money to the unsuccessful contractors should be returned at the
earliest, probably on the same day.
 Normally tenders offering lowest rates are accepted but contract can be
rejected if full earnest money is not deposited.

Other Important Factors of Estimating and
Costing

1. Contingencies: During completition of the project, there can be
certain emergency expanses which can’t be calculated while calculating
the material cost and labour expansion for the project. These
expanses may be due to increase in Labour or material cost. For this 2
to 3% considered as contingencies in order to compensate the
additional charges.
2. Overhead Charges: In addition to total estimated expenditure
involved, there are other expanses which are to be incurred such as Govt.
taxes, additional expanses on labour etc. are called overhead charges.
These charges incurred daily for eg. salary of administrative staff, rent
( if any), travelling expanses, advertisements, insurance repair etc. are
part of overhead charges. Normally 10-15% of total estimated material
and labour expanses are spent on overhead expanses. The overhead
expanses are divided into two categories:
a) Maintenance Overhead charges.
b) Administrative overhead charges.

a) Maintenance overhead charges: This expenditure is on
keeping the machines in working order i.e. expenditure involved on
overhauling and spare parts of the machines which normally occur
due to wear and tear of the machines. Apart from this, the water
charges, electricity charges, house tax and depreciation charges on
components and instruments also falls in this category.
a) Administrative overhead charges: Funds are required to run
administration of various departments and their employees properly and
efficiently. The expenditure involved on functioning of the departments
such as purchase section, sale section, salaries section, accounts
section etc. falls in this category. The other expenses such as office
furniture, stationary, reception and stay arrangements of guests,
payment of commission on sales, publicity, of products, dispatch of
material, price control, transport, sales tax, payment of salaries to
employees etc., are part of administrative charges.

 Supervision charges:
A contract is given to professionally trained and expert engineers to
supervise the project work and offer expert opinions on various aspects
of the project. The expenditure on supervision charges is 1% to 1.5% of the
total cost.
 Production cost: when cost of material for the project is added to labour
cost on the project and overhead charges on this product, it is called
production cost
Production cost= cost of material + overhead expense

Purpose of estimation

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