Have you ever had the first meeting with a new construction client and been stumped as to how to respond to their questions about the scope and cost of the project?
If that’s the case, you’re not alone.
While providing the correct answers takes time, experience, and knowledge, nailing this piece of the puzzle is another way to ensure customer satisfaction.
This guide will provide the definitions, tools, and skills you need to fine-tune your estimating abilities if you want to start with a strong foundation.
We’ll show you how to estimate construction jobs like a pro with our step-by-step instructions.
- What is Construction Estimating?
- Why is the Estimate Important?
- What are the Benefits of Cost Estimating in Construction?
- Who Creates the Cost Estimates?
- Factors That Influence Estimating Construction Jobs
- Why Accurate Estimates Are Important?
- How to Improve Estimate Accuracy?
- How To Estimate Construction Costs?
What is Construction Estimating?
Construction estimating is the process of anticipating the expense of building a physical structure. This step is essential and one of the most crucial in the construction process. Estimators need to be as accurate as possible because profit margins (the livelihood of contractors) are impacted if any estimated direct and indirect costs for the project are off by even a slight amount. Every successful project starts with a precise and accurate cost estimate. By the end of this article, you will know the basics of estimating and learn the importance of its role in delivering successful commercial construction projects.
Why is the Estimate Important?
Accurate estimates win new projects and business for companies. In the bid estimation phase, construction documents, take-offs, and other direct costs are used to allow the estimator to determine an approximation of job costs. Customers and builders are concerned about the price of a project because of the financial impact of expenditure overrun and the failure of project completion. It is in the interest of BOTH parties to spend time researching and estimating the expenses. No one wants to lose money, and construction estimating is a useful project management tool.
What are the Benefits of Cost Estimating in Construction?
Cost estimation provides the foundation for the planning of a job schedule. The accuracy of an estimate determines whether a job meets its objectives or not. Some of the benefits of cost estimation include:
- Accurate Planning: Proper cost estimation enables one to plan the subtasks required to complete a task correctly. You can develop a work breakdown structure more efficiently and ensure your project team adheres to the project timelines.
- Increased profit margins: Poor planning and unexpected events make it impossible to finish the job on time and within budget. However, proper estimating helps one account for both expected and unexpected costs, thus protecting profit margins.
- Management of resources: With an insight into the tasks and timelines at hand, you can ensure you have the skills to identify resource gaps, hire people as needed and take on projects with confidence.
- Better reputation: Proper planning helps a builder finish the projects on time and within budget. This fosters stronger relations with the client and wins the builder’s repeat business.
Who Creates the Cost Estimates?
Construction estimators produce and revise estimates for a project. They are familiar with the design and expenses incurred in the project. They’ll also create multiple assessments on the pre-design and design phases. With each design phase, the estimates become more accurate.
During the creation of estimates, the contractor oversees the link between the budget and the schedule.
Factors That Influence Estimating Construction Jobs
As with any business process, certain aspects of construction estimating are either directly within your control or outside of it. While you might not be able to change certain aspects of your estimating process directly, you can always maintain awareness.
Some of the most prominent factors that will have an influence on your construction estimating process include:
- Who is responsible for estimating: This depends on the structure of your company and whether sales representatives or contractors lead the initial client meetings. Each of these roles could bring a unique perspective or emphasis to the table. In some scenarios, a company has a dedicated estimator on staff.
- Which method do you implement: When estimating new jobs, there are several different approaches within the industry. Depending on which one your company favours, you might get different outcomes. As a result, knowing which method your direct competitors are using could be beneficial.
- The current community environment: The cost of materials, production, and labour can ebb and flow. Many factors influence overall costs, including the current demand, economy, and availability of goods. It’s tough to predict these influences, but it is important that you consider them when estimating.
Why Accurate Estimates Are Important?
Business agreements are often contractually binding, which is why the initial stages of making them are so vital. From the first interaction, construction estimates can greatly impact both the business and the customer.
Accurate estimates in construction are important for the following reasons:
- Good estimates can save everyone money: With an accurate picture of the construction project in mind, a construction business knows exactly what to spend on completing a job. This helps prevent unnecessary surplus and overbuying, which can also save the client thousands of dollars (or more) in the long run.
- Accurate estimating practices win more work: Whether it’s helpful or not, future clients and customers will exchange feedback about their experiences. This means that if you provide a realistic estimate that a client is happy with, they might be more willing to refer you for additional work in the future.
- Honest estimates reflect company values: When you strive for accurate estimating, you’re also aiming for integrity. You might not be able to anticipate every hiccup or unexpected expense during a project, but a commitment to transparency is one of the most valuable things you can offer.
How to Improve Estimate Accuracy?
Inaccurate construction estimates are detrimental to the job in that you can quickly lose a bid or win one but lose money throughout the construction process. However, there are some tips you can employ to have accurate and growing construction estimates. Below are some of the information you can use to improve your accuracy in cost estimation.
1. DEVELOP A TEMPLATE FOR EVERY JOB
Developing a template ensures that you do not leave out anything when developing a construction estimate. Templates include all line items within the project’s scope of work. For example, for some subcontractors, a template can consist of materials and labour. On the other hand, the electrician’s or plumber’s template includes more items, such as fixtures, controls, and transmissions. The template can also include insurance limits and administrative costs.
Depending on the project, items can then be added or removed from the template.
2. REVIEWING PAST PROJECTS
A review of past projects is very educational when it comes to putting up proposals. We can learn from past mistakes that help make our estimates accurate. A project of a similar size and scope is likely to have a similar construction estimate. Of course, no two projects are the same but breaking down the construction job costs enables you to evaluate the calculations more accurately. Continual improvement is impossible if you do not look where you started from.
3. ACCURATE TAKEOFFS
The more accurate your take-offs are, the better your construction estimates. You can use take-off software to improve the accuracy of your take-off without having to print anything. As a result, you can determine areas and lengths more accurately within much less time. You can also break down your project into a work breakdown structure, ensuring that your project is not missing any major components. Do not, however, count every screw in the project. Instead, stick to the big stuff that matters.
4. CHECK YOUR LABOUR COSTS
Labour costs are one of the most expensive costs in a project. To make money, you need to know how productive your crew is and their completion time. Labour costs are not just the hourly wages, but they also entail the labour burden to the company. They can be summed up in indirect costs such as retirement, union contributions, tools, benefits, and more. A comprehensive labour rate sums up all these expenses.
Even in the best of conditions, no two people work at the same rate. Therefore, when calculating the labour rate, you should also factor in the weather conditions, skill rate, training, and personal issues. This way, you will accurately predict the person-hours required for the project and factor it into your cost estimate.
5. COUNTERCHECK SUBCONTRACTOR PROPOSALS
Subcontractors in a project bid for different jobs, and you, therefore, need to dig through the proposals and see what is included and what is not. Sometimes subcontractors may miss part of their scope or omit it altogether.
After skimming through the bids, you can choose the project’s best offer. Checking other proposals is an excellent way to counter-check subcontractors’ work and ensure they do not overquote the price.
6. CHECK YOUR FORMULAS
Nothing is more embarrassing than preparing a reasonable cost estimate yet riddled with mathematical errors. Check formulas on the spreadsheet or software before submitting your bids. Minor errors in calculation can accumulate into huge sums and ruin the entire estimation process.
How To Estimate Construction Costs?
Estimating construction costs is one of the most important yet neglected stages in construction. It is time-consuming, and the myriad of activities involved in construction leads many to neglect the exercise.
Methods of Estimating Construction Costs:
There are different ways of estimating construction costs, as we will discuss below.
UNIT COST ESTIMATING
Unit cost estimating is a quick, easy and clean way of estimating construction costs. Cost estimators assign a unit cost to each component of the construction process. Setting the unit prices refines the process over time, as you can alter and modify subsequent projects for better estimates.
Stick estimation is a prevalent method in cost estimation but is also relatively cumbersome. One uses this method by listing every single possible cost on the job. It is an accurate estimation method but very time-consuming.
EMPIRICAL COST INFERENCING METHOD
This method uses statistics and regression models to determine a project’s cost. It is, however, not recommended if you do not know how to use this method. It would help if you had someone on your team that explicitly does this.
Production function relates the amount built to factors such as labour and materials. To achieve a given output, you must look for the optimal input. It can be pretty accurate in estimating project input and output relations.
The Five-Level System of Estimate Accuracy:
The accuracy of cost estimates is pegged upon the well-defined project plans in the design phases. The American Society of Professional Estimators subdivided the system into a five-level system that improves over time and is very reliable. The five-level system is subdivided as follows:-
LEVEL 1: ORDER OF MAGNITUDE ESTIMATE
This is made before the project takes off and is only used to determine a project’s feasibility.
LEVEL 2: SCHEMATIC DESIGN ESTIMATE
This is the estimate produced in line with the schematic design.
LEVEL 3: DESIGN DEVELOPMENT ESTIMATE
This is the estimate in the design development phase
LEVEL 4: CONSTRUCTION DOCUMENT ESTIMATE
This is the estimate that is taken off from construction specifications and drawings.
LEVEL 5: BID ESTIMATE
This is the estimate based on the construction documents by the prices offered to the client.
A Simplified Approach:
There is a more straightforward method of classifying the costs that groups the estimates into just three categories. These are design estimates, bid estimates, and control estimates. The names reflect the usage of the estimates.
These are the estimates prepared during the design phase of a project. They start with the order of magnitude to determine a project’s feasibility. There are then the preliminary and conceptual estimates that are purely based on the schematic design. Then follows the detailed estimate from design development, and lastly, the engineer’s estimate taken off from construction documents.
Contractors prepare these estimates during bidding as they look for data points such as direct costs, supervision costs, and other hidden costs to prepare their estimates.
This estimate is prepared after the contractor gets into a contract with a client and before construction starts. This way, contractors can plan for upcoming costs.