Successful construction companies are always excellent cost estimators. Calculating accurate project costs takes experience, is an art form, and is considered a necessity in the competitive home builders’ market. When you know your true costs going into a project, you can manage jobs better and be successful.
One of the ways to accomplish this is to establish standards that produce reliable and accurate results.
Getting into the habit of using best practices for construction estimating will need to be specific to you and your business. However, there are elements that are likely to be part of every successful estimator’s methodology.
The importance of accurate estimates
A survey of competitively bid contractor projects conducted by the American Society of Professional Estimators found that each project had a minimum of four bidders, and some as many as ten. The lowest spread on these projects was 3% and the greatest was 35%, with the average difference being 16%.
This tells us that estimates are approximations. However, they must still be realistic. If for example, a contractor discovers issues along the way that they could not have been aware of initially, a change order, explaining the costs and changes involved, should be agreed upon.
The priority in construction cost estimating is to achieve timely and accurate job costs — ideally a figure that sits between 1% to 2% of the final actual cost on every job. Cost estimating accuracy is a key to long-term success. The only adjustable on any bid should be the profit mark-up.
Experienced construction estimators will know what things cost. Estimate too high, and the bid will go to someone else. Estimate too low, and you may win the bid, but wish it went to someone else. The following tips should be your go-to reference to help you produce accurate and detailed estimates.
Get as many project details as possible by requesting plans, conducting site visits and more
During construction estimation, information is power. Before coming up with any costs and plans, it’s essential to get all the project details. You can do this by conducting a job site visit to get the physical dimensions of a project. This way, you can gauge how much time, labor, and money should be dedicated to the entire project.
A job site visit is also essential because you can get details about the ground conditions, the soil, access to the site of construction, and any other factors that will affect the success of the entire process. A good construction estimate allows one to visualize the process and minimize the chances of error.
You can also request plans from the homeowner to understand the project’s design. With a design in hand, you can easily estimate the cost of each task and plan accordingly.
As a professional in the construction industry, you can’t bid for what you don’t know. Therefore, you’ll need all the information and details to come up with an accurate estimate. So, head to the job site, ask the right questions and get as much detail as necessary.
Pro tip: BuilderGM automatically generates a Client Questionnaire based on the scoping process, to help you get the info you need for your estimates.
Track and collect data on all your bids and use historical info to make smarter decisions
Construction contractors in general get their jobs by bidding on projects. The process of forming a bid begins by examining plans and performing construction takeoffs. Learning your own construction process of how to develop a winning bid is essential if you want to avoid painful mistakes along the way.
That is why successful companies track and collect historical information. In doing so, they can produce an analytic review of the estimating and bid data which can add a tremendous amount of insight. This helps to create meaningful changes in the way that the construction business is managed.
Remember the industry golden rule — start with highly accurate cost estimates, and submit the lowest bid of all the competing contractors.
Use bidding solutions and construction estimating software
In construction bidding, price is always a key consideration. To save time and money, construction professionals who regularly make cost estimates for projects or bids on contracts can use technology to help streamline and manage the cost estimating and bidding process.
Bidding software naturally puts emphasis on the creation of project bids, proposals, subcontractor and project scheduling, client management, and bid analysis reporting. It also provides tools allowing the user to easily update bids and track changes. Additionally, bidding software can make project scheduling much easier by providing transparency to all parties involved.
The right software can also serve as a single location for contractors and subcontractors to schedule the individual steps that will make up the project helps to keep everyone on the same page. Scheduling with multiple subcontractors can get messy, so using a scheduling tool and calendar can make a noticeable achievement in productivity.
Putting together and submitting a bid is a varied process from estimating. That’s why it’s best to choose software companies that have added features to help manage the intricacies of bidding. Which type of tool suits your construction business needs varies on how you manage the bid process and whether elements of the process need improvement.
Pro tip: BuilderGM’s robust construction management software enables you to stay on top of all the moving parts of your projects. From creating estimates, to managing vendors, to communicating with homeowners, BuilderGM has your entire construction process covered.
Collaborate closely with stakeholders and team members
It is essential to identify and collaborate with all the stakeholders in your project. Failing to involve stakeholders and their various department functions can easily lead to not discovering errors until well into project development which could be detrimental.
Key stakeholders can make or break the accomplishments of a project. Even if all the deliverables are achieved and the goals are fulfilled, if your key stakeholders are not happy, the job is not a success. A project is successful when it achieves its objectives and meets or exceeds the expectations of the stakeholders.
Keep market fluctuations in mind when looking at supply costs
Most people understand the basic laws of supply and demand. Abundant goods are cheap, limited goods cost more. In the construction industry, there are many nuances in supply costs that can make or break a project. Therefore, understanding this relationship is key. Analyzing your market segment can help you to distribute your company’s resources in the most cost-effective way.
Factor in risks, delays, and issues into your estimate
By evaluating your estimate for prospective challenges ahead of time and developing strategies to address them, you will enhance your chances of having a profitable project.
All your risks may not be evident when you first analyze the project. Therefore, it is worth your time to examine job cost records for comparable projects. Acquaint yourself with the issues that dogged previous projects.
For example, if you plan to outsource part of the project or use a specific supplier, talk to those who have used these resources. Brainstorm the project with your estimating team. Consult with project managers within your company who have overseen similar projects and identify problems they encountered.
Review how consistent your estimates have been in the past. Pay close attention to duration and estimates that are aggressive. Look for tasks for which you have limited resources.
Also, take special note of tasks with several predecessors, as there could be some red flags there. The more dependencies a task has, the greater the likelihood of a delay. Do not overlook time-consuming jobs that require a lot of resources. The larger the task, the more likely the estimate will be inaccurate.
With due diligence to preplanning and communications with project management, you can significantly decrease the risk to your future projects through risk assessment estimating. Most importantly, review the schedule.
Choose the right costing method
The most important classification concerning construction cost estimates is the degree of accuracy. A clear understanding of this process determines how and when you use a particular cost estimation technique in construction projects.
There is a two-step process for estimating every construction project: determine your costs and apply a markup that will generate the appropriate profit after expenses.
It’s straightforward, but it’s not always easy, especially if you don’t have a systematic method for producing an accurate estimate in a timely fashion.
Here are some of the common costing methods used in construction.
Unit cost method
To deliver fast and accurate construction estimates, you could choose to develop a unit cost method for estimating your construction projects. This popular method divides the project into billable units of work to develop a comprehensive breakdown of your project’s expenses. Combining a unit cost method with the correct estimating software is the fastest, most accurate, and cost-effective way to generate construction estimates for your business.
Another option is stick estimating — i.e., counting every piece of material and determining every hour of labor. Stick estimating is an accurate way to determine your labor and material costs, but it can be extremely inefficient and time consuming. It can also lead to oversights if the project plans are not complete, or you miss a scope item. However, many contractors choose to use this method on small and straightforward projects.
There’s also resource-based estimating. With this method, you are not looking at the average number of hours you use for the installation of materials and equipment. Instead, you plan the resources you need using calendars and schedules.
Construction estimators choose to use various types of estimates for different purposes. For example, you might use one type of estimate to evaluate whether a project aligns with your budget and use another type of estimate to calculate how much a building costs to operate once you complete it.
Choosing the right costing method also means comparing estimates from other contractors to submit a winning bid.
Mind your subcontractors’ estimates
Most construction-related businesses rely on subcontractors to perform a portion of the scope of work. Knowing how your subcontractors’ price their work will help you correctly calculate the costs of your construction projects and will eliminate a lot of the guesswork involved in the early stages of determining your clients’ budgets.
No matter how good your data is, you always want to make sure your subcontractor quotes the work based on the plans and specifications. Experienced contractors can look at the plans and get a rough idea of where the price will be, but you want to ensure that your subcontractors always base their costs on the plans and specifications.
If you take the time to perform a plan-based review with your subcontractors, you will develop a system of predicting their prices. You will also be able to detect when your subcontractors’ pricing is changing. Good subcontractors will tell you how they price their work.
Be mindful of labor costs
If your rate is padded, you are too expensive, and if it is not complete, you will bid too cheap. Review it for accuracy to include taxes, workers’ compensation, medical, liability insurance, safety training, small tools, vacation, union dues, overtime, and down-time. Remember, accurate labor rates are vital for accurate estimating.
Use checklists and documentation to keep everything on track
When you have a lot of moving parts in your job and things to check up on, the checklist is crucial. It helps keep you on track and limits the time you spend on unnecessary or less critical tasks. No matter how you go about using your checklists, whether for a daily to-do list or if you utilize checklists for all your estimating processes, you can find a ready-made, ready-to-be-used checklist template that will help streamline your workflow.
Choose your projects wisely and strive to bid on projects with a high chance of success
Want to win more bids? Understand how the bidding process works. Know your competition and the jobs you want to bid for. The bidding process gives an overview of your capabilities to carry out the work to completion. Before the bidding occurs, a company must perform proper due diligence to see if a project is right for them.
A winning bid is not just a comprehensive proposal of your abilities, but it should be an announcement of your value addition to the table. You’re advertising yourself as the one with the better services. Do your homework and break down your bid so that the client feels you can meet or exceed their expectations.
This list is not exhaustive, the more questions you ask the better and more accurate the project estimate will be. In fact, the project estimation process is a road full of asking all the right questions.
Want to make lots of money? Make your bid more than just a guestimate. Make each estimate an accurate forecast of what it will take to build every project. Install accurate estimating systems and controls and watch your bottom-line results improve significantly.
BuilderGM can streamline your processes, so you can come up with accurate estimates, faster. Schedule a demo or click here to learn more.