Costing in construction - a complete guide to profitable projects
Become the best at pricing, making you more profitable with costing. We give you our top tips for better cost control.
Updated December 2025, Reading time: approx. 6-7 minutes
Jump to: Basic calculation | Methods | Costs | Build a calculation | Common mistakes | Pre-calculate | Post-calculate | Subcontractors | Contracts & construction | Price offer vs. tender | Excel vs Systems | Digital tools | Concepts | Next steps |
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From manual spreadsheets to smart tools
In 2026, estimating is no longer just about calculating time and materials, but about having the right data and up-to-date prices. Many contractors are now moving away from manual Excel sheets and towards cloud-based tools that provide better control, higher precision and less margin for error. A modern estimating tool allows you to get real-time prices, calculate profits automatically and share estimates directly with colleagues or subcontractors.
Would you like to see prices, versions and what is included in my calc – all in one place? See how modern companies work with costing in practice, with updated price bank, automatic markups and full history. See my calc (versions and functions all together): https://www.buildit.no/kalkulasjon
What is costing?
Costing is the very foundation of the economics behind a building or construction project. It is the process by which the contractor calculates all the costs involved in the job, assesses risk, plans resource use, and sets a price that is both right for the customer and profitable for the business. In short: costing turns professional work into concrete numbers that you can manage.
In practice, the calculation functions as an economic translation of the project. All materials, hours, deliveries, machines, logistics, rigging, operations and uncertainties are transformed into a structured and documented calculation. This calculation forms the basis for price quotations and contracts, but also for purchasing, project management during the process and post-calculation when the project is completed.
In today's market – with rapid price changes, high competition and increasingly stringent documentation requirements – costing is not only useful, but absolutely necessary. Margins in the industry are often low, and even small errors in quantities, time spent or cost estimates can be enough to turn a project from a profit to a loss. This is especially true for small and medium-sized professional companies such as carpenters, electricians, bricklayers, plumbers, concrete workers, appraisers and contractors, where each project constitutes a significant part of the annual result.
A good estimate is therefore not just about “calculating a price”. It is about control, predictability and professional management throughout the project’s entire life cycle – from the initial inspection and quotation, through implementation and changes, to completion and evaluation. When the estimate is solid, both you and the customer get a safer project, with fewer surprises and a greater chance that you both leave satisfied.
What does it mean to calculate?
Estimating a project means doing a thorough, professional review of everything that goes into the job – not just “calculating materials and hours”. You consider what materials are required, how many hours of work are realistic, which subcontractors will be needed, what risks may arise, and what costs will be incurred before, during and after the actual construction phase. In practice, estimating is a combination of technical understanding, project understanding and financial management.
When you calculate correctly, you give the project a clear structure. You decide what needs to be delivered, how the work should be carried out, what quantities are needed, what resources need to be brought in (own skills, UE, machines and equipment), what costs are actually involved – and what risk and margin must be built in for the job to be profitable. Calculation is therefore about understanding the project as a whole, and translating this understanding into a realistic and verifiable cost calculation.
The actual calculation in a calculation is the easiest part. Adding up hours, quantities, materials and markups can be done by anyone – and software does it faster than us. This is where the expression comes from: A good calculation is perhaps 20% calculation and 80% professional judgment. The challenging part lies in the assessments between the lines: what the drawings actually mean in practice, how logistics and space conditions will affect production, how much time will actually be spent, and which UE reservations actually pose a risk.
It is in this space between paper and reality that the estimator's expertise lies. Experienced estimators develop their own ability to see the big picture: they know which items are often underestimated, where the risk lies, which working methods are profitable, and what is needed to complete the project within time, quality and budget.
Good calculation allows you to price more accurately, avoid underpricing, gain better control over risk, give the customer clearer expectations and build projects on solid assumptions. In short: When you calculate correctly, you lay the foundation for both a good offer and a profitable project.
What is a calculation?
A cost estimate is a structured and detailed calculation that shows the costs, resources and assumptions on which a project is based. It functions as an internal management document and is the foundation for both planning, financial management and tendering. The purpose is to provide a realistic picture of what the project will actually require – not only in terms of materials and work, but also risk, logistics, indirect costs and margins.
A professional estimate is more than a simple cost estimate. It is a systematic review of all influencing factors that can drive costs up or down, and should be transparent enough so that everyone involved can easily understand the basis. In the construction industry, the estimate also has a formal function: it forms the basis for the bid price, serves as documentation in tender processes and gives project management a precise control tool throughout the entire execution.
Once the project is completed, the estimate is used as a measurement point in the post-project estimate. This reveals where the calculations were right, where they were wrong, and what needs to be improved next time. This makes the estimate a key learning tool – and one of the most important drivers for better profitability, more accurate pricing, and fewer surprises.
The estimate is the project's financial roadmap and a prerequisite for management, quality and control.
Why is calculation so important in construction?
Calculation is the very foundation of financial management in construction projects. In an industry with complex disciplines, large quantities of materials and continuous price changes for wood, steel, concrete, transport and energy, precise calculations are essential. Margins in projects are often low, usually between 5 and 12%, and one miscalculation of just a few percent can turn a project from profitable to loss-making.
A good estimate is not just about calculating price – it translates the project from drawings and descriptions into concrete numbers that control everything from staffing and progress to purchasing and risk. When quantities, hours or indirect costs are calculated incorrectly, the consequences propagate throughout the project: poorer management, incorrect pricing, unforeseen costs and lack of overview.
Therefore, costing is also a tool for risk management. It reveals uncertainties related to ground conditions, existing buildings, logistics, subcontractors and progress, so that risk can be priced in – not left to chance.
Correct costing provides value for the entire organization: better prices, clear direction for project management, and more predictable collaboration for the customer. In an industry where small mistakes can have big consequences, costing is the heart of the economics of all construction projects.
The methods used in calculation
In the construction industry, there are two basic methods for calculating costs and prices: the contribution method and the cost method. Both have the same goal – to find the right price – but they take different paths to get there. A professional estimator must therefore not only master the methods, but also know when each is appropriate to use.
The contribution method is most often used in small, straightforward projects where the risk is low. Here, you focus only on the direct costs: materials, hours, subcontractors, machine rental, and transportation directly related to the job. The difference between the sales price and the direct costs becomes the contribution margin, which is intended to cover overhead, administration, risk, and profit. The method is quick and practical, but allows for error if indirect costs are underestimated.
The cost-per-unit method, on the other hand, is the standard for larger projects. It includes both direct and indirect costs such as administration, project management, rigging, tools and IT systems. Then, profit is added on top. This provides a much more precise and robust basis for calculation – especially in tenders and projects with high complexity.
The right method results in more accurate pricing, better risk control, and healthier project finances. A skilled estimator must therefore consider the project's size, uncertainty, and documentation requirements before choosing a method.
Direct vs. indirect costs
Clearly distinguishing between direct and indirect costs is one of the most important prerequisites for an accurate estimate. In construction projects, this is often where margins are decided – not on the large material items, but on the small errors and costs that are not visible in the estimate.
Direct costs are those that you can directly link to the execution of a specific task: materials, labor hours, machinery, transportation, waste, and subcontractors. These are relatively easy to understand and quantify, but even so, small deviations in quantities, time, or dimensions can have a big impact on the final price.
Indirect costs, on the other hand, are costs that cannot be placed in one specific item, but are nevertheless absolutely necessary to carry out the project and operate the business. Administration, project management, HSE, rigging and operations, IT systems, vehicles, tools and warehouses are typical examples. Many underestimate these – or do not include them at all. The result is often projects that “look good” in the calculation, but where the margins disappear along the way.
A professional estimate must therefore highlight both types of costs. When direct and indirect costs are treated systematically and realistically, you get the right price level, better predictability and a budget that lasts right up until handover.
Would you like to delve deeper into this topic? Read more in the supporting article: "Direct and indirect costs – why the margin is falling"
How to build a spreadsheet
Calculating a construction project is more than “finding a price”. It is a structured working method that provides control, predictability and profitability. The recipe is the same every time: map the assumptions, break the project down into clear tasks, agree on quantities and hours – and price both risk and profit consciously.
Start with a thorough mapping of scope, delivery, drawings/descriptions (NS 3420/NS 3451), material selection, HSE requirements and logistics. Then divide the project into manageable sub-activities (for example by building components), so that nothing “disappears between the lines”.
Quantities are the backbone: calculate from drawings and inspection, add in waste, details and complexity. Hours must be realistic, not ideal time – adjust for tight conditions, coordination and likely interruptions.
Once you have the quantities and hours, price all cost elements: materials, wages/hourly rates, overhead, machinery, transport, waste and rigging/operation. Then you add profit and a specific risk premium. A professional quote clearly summarizes what is included/not included, reservations and validity.
Finally: follow the calculation along the way as a management tool, and do a post-calculation. The learning from there will make the next calculation sharper – and the margin safer.
Would you like to see this used in practice? Read more in the supporting article: "How to build a construction estimate - step by step"
Want to see what this might look like in practice?
With my calc you can combine calculation, price bank and profitability analysis in one cloud-based tool. It provides:
faster and more precise calculations
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Contact us if you want to see what your calculation process might look like.
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Common mistakes in calculation and how to avoid them
Calculation errors rarely occur because the tradesmen lack technical knowledge – they occur because construction projects are complex, time-consuming and often based on incomplete information. When margins are tight, a single item error is enough to cause the entire project to end up in the red.
The same mistakes are common in large parts of the industry, but the positive thing is that they are predictable and can be eliminated through structure, routines and better data.
The most common mistake is incorrect quantities. Quantity calculation is the foundation of any calculation, and even small deviations – a forgotten membrane, the wrong unit, missing shrinkage – create unrealistic costs.
This is followed by outdated material prices, which quickly result in underestimated costs in an industry where prices change frequently.
A third recurring issue is low hourly rates, which are often based on ideal hours, not real working hours with logistics, coordination and waiting time.
In addition, indirect costs and small items are underestimated, lack of risk assessments makes calculations too “pretty”, and weak tender documents create ambiguities and disputes.
In the end, many people fail at post-calculation – without it, you never learn where you hit or missed.
Good calculation is therefore about more than math: it is about systematicity. High accuracy comes from good routines, not luck.
These mistakes are common in many projects: Read more in the support article: "Common mistakes in calculation - and how to avoid them"
See also how my calc reduces errors with structure, price bank and control
What is a preliminary estimate?
A preliminary estimate is an early and overall cost estimate that is prepared before a building or construction project is started. The purpose of the preliminary estimate is to give the client, contractor or developer a realistic picture of what the project may cost, based on available information at an early stage.
In the construction industry, the preliminary estimate is used as a key decision-making basis. It forms the basis for assessing whether the project is economically feasible, whether it should be further developed, adjusted or possibly shelved. The preliminary estimate is also used to compare different solution alternatives, material choices and contract forms.
A preliminary estimate is often based on rough quantities, experience prices, key figures and previous projects. The uncertainty is therefore higher than in later estimates, but that is precisely why the preliminary estimate is important: it makes risk, cost drivers and financial limits visible early on.
Typically, a preliminary estimate includes costs for construction, technical services, rigging and operation, engineering, uncertainty and mark-ups. In some cases, land costs, financing and reserves are also included.
In short, the preliminary estimate is a management tool in the early stages – not a definitive answer, but a necessary basis for good financial decisions in construction projects.
Read more in the supporting article: "Preliminary calculations in construction - purpose, content and practical use"
Are there calculations between pre-calculation and post-calculation?
Between preliminary and final estimates, there are several types of estimates used to improve precision and control in construction projects. These estimates follow the project's development from idea to completion and serve as central management tools.
As the project is designed in more detail, rough estimates are replaced by more precise calculations. The most commonly used intermediate estimate is the detailed estimate , which is based on complete drawings, descriptions and quantity calculations. This is often used as the basis for quotations, contracts and budgets.
In the implementation phase, management estimates or budget estimates are often used. This is based on the contract amount, but is adjusted for internal assumptions, progress plans and risk assessments. The management estimate is actively used for cost monitoring and deviation reporting during the project.
Some projects also operate with revised estimates , where the cost picture is updated in the event of changes in scope, market or technical solutions.
Finally, when the project is completed, the final cost estimate is prepared, which shows actual costs and forms the basis for transferring experience. Overall, these estimates provide continuity and control in the project's financial management.
Read more in the support article: "Calculation types between preliminary and post-calculation in construction"
What is a post-calculation?
A post-cost estimate is the systematic review you do after a project is complete. It serves as a measure of how accurate the preliminary estimate really was, revealing the difference between what you thought the project would cost – and what it actually cost. While the preliminary estimate is about assumptions, estimates and planned quantities, the post-cost estimate shows the real numbers: hours, materials, subcontractors, rigging, operations, administration and indirect costs. It is in the discrepancy between expected and actual results that the valuable learning lies.
For construction companies, the cost estimate is one of the most important sources of improvement. It provides clear answers as to whether the hours used were kept, whether the material quantities were correct, whether the UE delivered as agreed, and whether the margins were as expected. Many discover that hours have been underestimated, that small costs have been forgotten, or that coordination between disciplines has cost more than estimated.
When recalculations are carried out regularly, each new calculation becomes more precise – and profitability increases. The experience from one project becomes a competitive advantage in the next. This makes recalculation one of the simplest and most effective measures to improve offers, increase accuracy and create stable margins in a tough industry.
Do you want to use your experience to earn more on your next project? Read more in the support article: "Recalculation: the key to better margins in future projects"
See how recalculation and history are connected in my calc
Purchasing subcontractors – and why it affects the calculation
Subcontractors make up a significant portion of the cost picture in most construction projects – often between 30 and 70 percent of the budget. Yet subcontractors are among the most uncertain and least precisely calculated parts of many economies.
When UE delivers large subject areas closely related to technical requirements, progress and interfaces, even small errors in the assessments can lead to delays, additions and, in the worst case, projects losing money.
Therefore, subcontractors must be seen as a strategic part of the calculation, not an item that is “taken later” when the offer comes.
The real UE cost is never just the price of the offer. It also includes coordination, logistics, quality control, project management, risk and interface clarifications. If this is missing from the calculation, margins are quickly eaten up. Incorrect quantity calculations, unclear reservations or unrealistic progress are three of the most common causes of financial deviations.
Professional handling involves a clear basis, historical assessments, realistic mark-ups and active risk analysis. In addition, digital tools make it easier to standardize the process, ensure documentation and improve accuracy from project to project. When UE is handled correctly already in the calculation, risk is reduced – and margins are both better and more stable.
Read more in the supporting article: "Get good at purchasing: the construction industry's most profitable purchasing system"
What kind of contract strategy and form of contract should you choose?
Choosing a contract strategy and contract form is more than a legal exercise – it is the very foundation of the economics of the project. The model you choose determines who bears the risk, how detailed the calculations you need, how much coordination you must take responsibility for, and what mark-up is required to have a healthy margin. Yet many contractors fall into the same trap: They calculate almost the same regardless of whether the project is a turnkey, main contract, shared contract or joint venture. The result is often a price that does not reflect the actual responsibility – and thus a margin that disappears along the way.
A simple rule of thumb always applies: The more risk you take, the more detailed the calculation must be – and the larger the markup you must have.
The most common types of contracts have different risk profiles:
Turnkey contract (TC): Highest responsibility, highest risk. Requires very detailed calculations.
Main undertaking (HE): Medium risk, significant UE management.
Shared contracting: Lower risk, but sharp boundaries.
Interaction: Shared risk and open calculation, but requires strong calculation skills.
Additionally, you need to choose the right pricing strategy: fixed price, bid or invoice. This affects how you need to structure your estimate, what markups you can use and how you can protect yourself against changes.
The key is to let the contract form drive the calculation – not the other way around. Once you have clarified the risk, responsibility and pricing model, it becomes much easier to hit the right price and margin.
The difference in calculating between price quotes and tenders
When you calculate the price of a regular price quote compared to a tender, you are in practice working within two completely different frameworks - even if the result ultimately looks like "just a price."
In a price quote, you have more room to maneuver: you can suggest alternative solutions, adjust the scope, use your own experience and optimize the delivery in a way that you believe gives the best value. The calculation is often more pragmatic, where you assess risk, add appropriate markups and adjust the price based on the customer, the market situation and how well you know the project.
In a tender, the situation is fundamentally different. Here you must price exactly what is stated in the description – nothing more, nothing less. The process is formal, often tied to standards such as NS3420 and NS3451, and every item must be calculated line by line with no room to adjust quantities or change solutions.
The risk of errors is greater, because deviations, misunderstandings or underpricing can rarely be corrected afterwards.
Therefore, tender calculations require structure: control calculations, documentation, clear reservations and sharp precision in both quantities, prices and internal assessments. While a price offer can withstand dialogue and flexibility, a tender requires a methodical and rule-based approach where the calculation must be completely watertight.
Read more in the supporting article: "The difference between a price quote and a tender - a complete guide for construction"
Calculus is a separate subject
Costing is not just “doing a little math on a job” – it is a profession in itself. A good cost estimater combines economics, project understanding, technical insight and industry experience in one role. You need to understand how building systems are interconnected, how different disciplines affect each other, what drives costs, and where the risks in the project actually lie.
It's as much about asking the right questions as it is about entering the right numbers: Are the quantities correct? What have we forgotten? Where could this go wrong? What caveats need to be included in the quote? The best cost estimators think like a construction manager, project economist and risk manager all at once.
Therefore, costing is a field that should be built systematically in the company – with methods, routines, tools and empirical figures – not just left to “gut feeling” and individuals.
Digital calculation – why the industry is moving away from Excel
For many years, Excel was the standard for costing in the construction and trades industry. It was flexible, accessible and gave contractors complete freedom to develop their own templates. For small projects with simple structures, this still works well — especially when one person has all the expertise and works from a system they know inside and out.
But as projects have become larger, prices more volatile, and requirements for documentation and traceability have become much higher, the weaknesses of Excel have become increasingly apparent. The spreadsheet is simply not designed for industry-specific needs, and the risk of error increases rapidly when multiple people are collaborating or when margins are tight.
This is where modern costing tools stand out. They combine structure, updated price banks, version control and industry standards in one system. The result is not only more precise calculations, but also better management, fewer errors and less personal dependency.
| Excel vs. modern calculation tools – briefly summarized | Excel | Modern calculation tools |
|---|---|---|
| Error risk | High – manual routines | Low – built-in checking and validation |
| Price update | Manual | Automatic price bank |
| Structure | Homemade and personal | Based on NS 3420/3451 |
| Cooperation | Difficult, many files | Multiple users, simultaneously |
| Documentation | Weak | Automatically generated |
| History | No version control | Full traceability |
The conclusion is simple: Excel has its place, but it is no longer good enough when requirements increase and quality must be predictable. That is why more and more companies are switching to digital calculation systems that reduce risk, provide better financial control and make the quotation process more professional.
Not sure when Excel is no longer good enough? Read more in the support articles:
– “mycalc compared to MS Excel: See why you should use a calculation system for your calculations!”
– "That's why contractors are switching from Excel to mycalc"
If you recognize yourself in the Excel challenges, you can see how my calc solves price bank, version control and markup in one place: Calculation program
Digital calculation systems – the future is here
Digital calculation systems have gone from being a "nice to have" to becoming the clear standard in the construction industry in just a few years. More and more contractors are abandoning Excel and heavy installation-based programs in favor of cloud-based solutions that deliver both speed, accuracy and far better profitability control.
Where previously you had to rely on custom templates, updated price lists, manual summaries and complicated file structures, modern calculation tools bring everything together in one platform. The result is a workday with fewer errors, better overview and a financial picture that changes in real time – something Excel was never designed for.
Cloud-based systems have become the industry's new normal. With automatic updates, secure storage, and access from any device, the risk of outdated versions and lost files disappears. Multiple users can work simultaneously on the same calculation, with traceable history ensuring clean processes and professional documentation at every stage.
One of the most important differences from traditional spreadsheets is the integrated price bank. Updated material prices, machine costs, hourly rates and UE conditions provide a far more precise picture of cost. Combined with support for NS 3420, NS 3451 and NS 3459, the estimate is automatically built according to industry logic – a major advantage in tenders, interaction phases and professional offers.
Modern tools also provide ongoing profitability analysis. When quantities, markups or material selections change, the calculation is immediately updated with margin, contribution margin and risk picture. This provides a completely new level of security in decisions – for both cost estimators, project managers and managers who closely monitor margins.
Digital calculation systems eliminate manual work, increase accuracy and lay the foundation for more stable and predictable projects.
Read more in the support articles:
– “Calculation tools compared in 2026: mycalc vs. SmartKalk, Cordel, Proresult, ISY ByggOffice and Svenn”
– “How to choose the right calculation tool for construction and civil engineering”
Important concepts explained – understand the fundamentals of calculus
Costing in construction is based on a set of technical terms that govern how projects are priced, managed and evaluated. Incorrect use or misunderstanding of these terms is one of the most common causes of poor profitability – even in projects that are otherwise well executed. To price correctly, you need to understand how the key figures are related and affect each other.
The core of a good calculation is the relationship between direct costs, indirect costs, contribution margin and profit. Direct costs are everything that is needed to do the job: hours, materials, overhead and machinery. Indirect costs – often underestimated – consist of administration, project management, vehicle maintenance, IT, tools, rigging and operations. The sum of these constitutes the cost price.
To cover this and at the same time create profit, one works with contribution margin (DB) and contribution margin (DG). The terms describe what is left after direct costs, and how large a proportion of the sales price is available for indirect costs and profit. In addition, the pricing basis must take into account mark-ups, margins, and not least risk, which should be priced systematically.
Finally, the preliminary and final estimates are compared to see what actually worked – and what needs to be improved for next time. With the right understanding of these concepts, you will have a solid foundation for accurate pricing and good profitability.
Read more in the support articles:
The most important concepts you need to know to master construction projects
The next step is to move from method to tool: see how mycalc is structured, which versions exist, and how to get started without a course.
See mycalc here: https://www.buildit.no/kalkusjon
Next step – from theory to practice
If you recognize yourself in the challenges and topics in this guide, the next step is to make costing a conscious focus area in your company:
• standardize the way you calculate
• carry out post-calculations systematically
• use a modern, digital tool like my calc as a common platform
Then, calculation goes from being something you “have to do” to get a quote sent, to becoming a competitive advantage that gives you the right prices, better projects and stable margins over time.
Would you like to see how this can work in practice for you?
Contact us for a no-obligation review of how you can build a modern calculation process in my calc .
Next step – turn costing into a competitive advantage
- See a complete overview of my calc – calculation in the cloud
- Find the right solution for your business my calc-light-standard-pro
- Compare my calc with other calculation tools
Do you need help with calculations?
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