Good Cost Estimating Is Crucial to Your Company’s Bottom Line

//Good Cost Estimating Is Crucial to Your Company’s Bottom Line

Let’s face it. Is there anything more decisive to your business than accurate construction cost estimating?

Guess right and you could make a tidy profit on a given project. Guess wrong and you may lose money on that same project by overspending on supplies and contractors.

It’s really tough to get it right! Every construction project has its own unique set of variables, from the specifics of the site to the building’s design and how tight the labor market is, let’s say for carpenters, at the time and the place you need them.

No two construction projects are exactly alike and there’s certainly no lack of pitfalls that can cost you big time.

No doubt, construction management software can assist, but there are those pitfalls that even the most veteran construction manager can fall into if not watchful. That said, we’ve pinpointed some of the major areas where construction managers are more likely to make mistakes and come up with some tips on how to avoid making them yourself.

Before proceeding, however, let’s quickly look at why you need to cost estimate your project before getting started:

  • Estimates provide a price. This may sound rather simple, but you need to know what you’re going to charge the customer, so he/she can decide whether it’s worth investment to proceed.
  • Estimates provide clarity. When you know the customer’s budget, the process of producing an estimate helps define the overall approach, roles, responsibilities, deliverables, process and resource planning.
  • Estimates provide milestones. By breaking your project into phases and tasks, cost estimation provides the opportunity to “pulse check” a project so you can know whether it’s on track or not.

Estimating Fact: The practice of construction cost estimating dates its origins back to the 18th century with British quantity surveyors. Since then, estimation techniques have grown considerably in sophistication.

 

Only bid jobs with the highest chance of success . . . or don’t be afraid to say NO

Even more difficult than putting together an estimate is knowing when to say NO. Let’s face it, no one ever wants to turn down an opportunity to earn a bid and make more money. Nevertheless, if you are given a project to bid that simply is not in your skill set or you can’t dedicate the time necessary to bring it to a conclusion, just say “no thanks” and refer someone else you know can do the job.

Customers will no doubt give you a call back when they have a project they figure is right for you or they may pass your name to others they know. This is an excellent way to produce leads even if you can’t take the job you were initially contacted for. No doubt, knowing when to say no is tough, but can produce more business for you in the long run.

 

Know how to complete a good take-off

So, what’s a take-off? No, we’re not talking about flying a plane. It’s merely the process of “taking off” all the important information about a construction project. You take off the quantities you need to count so you can develop a cost estimate. They key is knowing which information is critical to developing an estimate and which isn’t.

 

Actually, completing a take-off is not a simple procedure. You have to be familiar with the types of quantities that the various materials are measured in. For example, a roofing estimate would need to be in square feet. If it involves excavation, it’s cubic yards.

Take-offs are performed by reviewing a set of plans or visiting the construction site. Of course, it you’re dealing with new construction, they probably isn’t a site to visit. If this is the case, you need to rely on the plans provided. Learn to read them and learn to ask good questions.

If a site visit is possible, do so. Visiting a site might help you understand the topography of the land and the challenges your crew will face in completing the project.

Conduct due diligence

Due diligence is the technique of asking good questions and looking for good answers. Good estimators ask great question. They look for answers to their questions. Professional estimators appreciate that minus the answers to their most pressing questions their estimates will be, at best, educated guesses.

A few tips:

  • Visit your project sites. Don’t let technology do all your work as an estimator. Use tech to enhance your estimating, not replace you as the estimator.
  • Ask questions of your site. Look at the project and ask where the biggest challenges are going to come from you need to identify these challenges during the estimating process and guard against areas of risk.
  • Listen to the customer. Great estimators possess the ability to listen to their customers.

Aim for one-stop shopping

The construction industry has a huge amount of specialty trades. When reviewing construction schedules, a project can predictably be built more rapidly when a smaller amount of trades is onboard. Less time means less labor, which is the key variable in construction estimates. It’s just more cost effective to take full advantage of the amount of work one trade can accomplish.

Several trades might be needed to produce one segment of a drawing detail in the construction documents. If that detail can be adjusted a tad to lessen the number of trades involved, then savings will likely be produced through a compressed installation time.

Use a master checklist

It’s often easy to forget things like permits, landscaping, etc. Use a master checklist to help assure you aren’t forgetting necessary steps and items. The folks at buildingadvisor.com have a free worksheet that includes formulas to assist in your estimating.

Of course, you might want to also consider using some professional construction bid software. Here, the advantage is having all the information in one place, enabling you to track costs and help reducing errors.

Check for double buys

A “double buy” happens when a portion of work is contained in the contract of various subcontractors or vendors. Basically, you’re going to pay twice for one item of work. This happens for assorted reasons, but mostly it’s the consequence of owner’s contractors duplicating work the general contractor has included, because it’s displayed in the construction documents.

One recommendation is to consider a coordination meeting between the designers and owner during the preparation of the final construction documents to verify what, if any, portions of the work the owner expects to complete with separate contractors. At this time, the owner should get proposals from its contractors to help the designer understand the scope to incorporate into the construction documents. Estimators can then accurately price the project to eliminate those double buys.

The most common areas for double buys include audio visual, security and HVAC control systems portions of the construction documents.

Eliminate proprietary specifications

Within a project’s specs, materials and products are itemized based on specific manufacturers. Proprietary specs arise when just one manufacturer is stipulated for a certain material or product in a trade item of work. This “tradition” results in a greater cost for the item since there is no competitive pricing.

It’s reasonable for the designer to come up with a “basis of design” product in mind when preparing the construction documents. Nevertheless, it’s also essential to include an array of product alternatives to allow for competitive pricing and estimating.

One proposal is to specify at least three equal materials or products that will nevertheless bring about a comprehensive, functional design that meets the owner’s expectancies.

Account for project support and operations costs

Keep in mind when putting together your estimates, there are costs related to your project that fall outside of direct labor and material costs.

Some of these costs include:

  • Administration and project operation costs
  • Land acquisition costs
  • Architectural and engineering services
  • Legal services
  • Job site offices
  • Utilities
  • Shipping and storage

Also, don’t be afraid to account for miscellaneous items

When putting together your calculations for the estimate, don’t overlook the little things. These have a habit of adding up if not accounted for and will give rise to a very upset, disappointed customer.

As much as you aim to maintain lower costs, make an effort to account for as many miscellaneous items as possible, things such as dumpsters or permits. The more you get nearer to your estimate when the job is done, the better the probability you have at keeping another dependable customer.

Sustainability and LEED certification

Something of a hot topic in construction nowadays, LEED certification is a point system for rating buildings based on their environmental impact.

The responsibility of an estimator in projects seeking LEED certification includes calculating the cost of scoring LEED points and communicating these to the client. These concern not only direct costs, for example, using environmentally friendly materials, but also a boost in administrative costs for ensuring compliance with LEED standards.

Estimators in LEED projects need to be involved during the construction design phase so they can provide information about costs connected with particular LEED points.

Do provide an estimate in writing

Even if you’ve quoted a price verbally to the customer via the phone or in person, make certain to always include your estimate in writing. This is helpful to both you and your customer, as you both now have an awareness of what is entailed on both ends of the project. The customer can see the costs and assess your estimate. This also helps prevent misunderstandings on the agreed upon cost of the job down the road.

Do use technology to help

Who doesn’t want to go above and beyond? Technology presents an opportunity to go above and beyond in your estimating. By creating a template in excel or word, you can readily plug in items and costs. The program will then do the math for you. You’ll save time and deliver a more precise estimate to the potential client.

If possible, keep an iPad or similar device with you during your consultation to take notes and easily evaluate the project on the spot. By maintaining a template in excel or word on your device, you can deliver real-time estimates that will put you ahead of the rest.

 

Play it safe or play it risky?

Construction managers have the obligation to deliver a project with a profit and on budget. So, perhaps, the safe option would be to simply over-estimate and add lots of fat to assure you won’t go over budget. Of course, the problem is that your estimate is too high, and you lose the bid.

The other temptation is to come up with a budget that you know isn’t nearly high enough, but you’ll be pleasing the client. That’s not good either, since, no doubt, you’ll have to add more dollars down the road and incur the wrath of the client.

We realize that money talks and that project budgets are the overriding factor that usually trumps everything else.

That means there’s a lot of pressure when creating your estimate and it probably involves a certain amount of guesswork. Remember, that’s why they call it a cost estimate, not an accurate forecast.

 

Remember, too, supplying an estimate is not a favor or courtesy, but rather an important part of the service you offer. Estimates should be looked at as a roadmap to the ultimate contract and enhance clarity for both you and your customer. It should achieve a win-win result for both parties.

By employing some of the above tips, you’re going in the right direction toward winning the bid and developing new, loyal customers.

If you need some help in putting together a sound, well thought out estimate on your next construction project, simply contact PDDM Solutions at www.pddmsolutions.com or (724) 788-4040.

2019-04-06T12:30:53+00:00
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