Estimating is simply the process by which the contractor determines the cost of completing a project. This process entails compiling and analyzing all the items that contribute to the cost of the job, including materials, labor, equipment, and overhead costs.
There are two basic laws in construction estimating: first, low estimates decrease profits; and second, high estimates decrease volume. The goal should be an accurate cost estimate with an appropriate markup for overhead and profit.
Requests for bids can be found in newspapers, contractor magazines, on public bidding lists,
through plan services, and through other sources. The request for bid will generally contain information
about the location, size, and type of project; where and when plans can be obtained; the bid date; and other relevant facts.
Before doing all of the work required in preparing an estimate for a project, you must decide whether or not you want the job. Any project can be obtained: all that you have to do is submit a bid lower than anyone else's. Remember that there is a binding commitment to complete the project, if you are successful in obtaining the work.
Because you can spend a lot of time preparing cost estimates, you should prepare bids for only those
projects you intend to complete and where you can be competitive with other bidders. If the prospect of
making money on the job is questionable, bidding on it may not be appropriate.
In deciding whether or not to prepare a cost estimate and submit a bid, you must thoroughly evaluate the
project. The main aspects to consider when evaluating a project are the type of work, the location of the
work, unique on-site requirements, and the ability of the contractor to complete the project.
The key questions involved in the evaluation of the type of work on which to bid include the following:
· Does this project consist of the type of work the company does?
· Is the size of the project within the normal range of the company?
· Is the length of the job in line with the type of projects the company usually accepts?
Considerations should be paid to the location of the project. The distance to the project and the quality of the roads will affect not only the cost of conveying materials and equipment, but also the time lost through travel time of employees.
Additional on-site costs or general conditions can vary greatly from one project to another and can be a
factor in deciding to bid on a project. General conditions are project costs directly associated with a specific construction project, not the contractor's general overhead. These items include:
· utilities available at the construction site (such as water, electric, and telephone);
· contractor's field office, equipment, and supplies;
· storage facilities;
· cleanup and trash removal;
· safety signs and barricades; and
· special site problems, such as:
a) obstructions to clear,
b) drainage problems,
c) preserving trees or landmarks,
d) rocky ground,
e) dust control, and
f) temporary access roads.
After reviewing the items listed above and deciding that the project looks good for the business, the process can move forward to the estimating phase.
THE ESTIMATING PROCESS
The system the contractor uses to develop estimates should be consistent and orderly. This system should follow the same sequence as the actual construction process. This helps to ensure that the estimator does not forget anything and helps schedule needed resources as the job progresses.
ACCURACY IN ESTIMATING
To produce accurate estimates, the process used by the contractor should rely on three things: a timely job cost system; a method to identify all of the material and equipment needed; and a method to predict the labor requirements of the project. Due to inflation, shortages, and other factors, the costs developed by the job cost system must be continually revised and verified against current prices. Frequently, the best output of a job cost system is the tracking of labor usage for particular tasks.
Errors in developing cost estimates can have disastrous results for a construction company. If errors cause the estimate to be overstated (high), it will not be competitive and will likely result in the loss of the job. Errors that understate the cost of the job can leave you with a reduced profit or even a loss.
Estimating errors can result from many factors including:
· math errors, such as addition, subtraction, division, and decimal point placement errors;
· omission errors, such as failing to include cost or overhead items in the bid; and
· units of measure errors, such as using the wrong unit of measure or unit cost.
To keep errors to a minimum when preparing cost estimates, follow these steps:
· double check the math or have someone else check it;
· when multiplying and dividing, use the decimal equivalent of fractions to reduce errors;
· to avoid overlooking items, carefully read all the notes and specifications listed on the plans;
· carefully review the plans for missing sheets, duplicate sheets, scale used, etc.;
· use proper abbreviations for units of measure and materials;
· use checklists to help eliminate omissions and account for the different aspects of the job;
· verify that all items are being carried forward to the estimated detail sheets; and
· to aid in accurately accumulating costs, consistently use standard forms and formats for the take-off and cost estimate.
There are several estimating methods in use today. These range from a conceptual or architect's estimate to the detailed quantity survey method. The following list of methods is in order of increasing reliability.
The conceptual or architect's estimate approximates the actual construction cost. It is usually based on cost guides for similar projects. This estimate may vary a great deal from the contractor's actual cost.
The square foot method is a formula based on the floor area or square footage of a project. The job cost records for similar work provide the source for this method. This method is easy and quick to use and will give a rough approximation of the cost, but it does not consider inflation rates, style and quality differences, or other unique aspects of the project.
The cubic foot method is a variation of the square foot method and considers both the height of the wall and the floor area. This method is somewhat more accurate than the square foot method, but has the same disadvantages.
The components or unit price method is a grouping of the component costs of an item into a particular unit in similar construction projects. For example, the cost of materials and labor for a 2x6 wood frame exterior wall, the cost of placing a 4-inch concrete slab, or the cost of exterior painting is expressed in square foot units for estimating purposes. This method provides a convenient way to compare other construction methods, and costs can be calculated with a minimum of detailed information.
The take-off, or quantity survey, method is an accurate method that lists all the materials and labor needed for a construction project. This method lists the materials and equipment needed for a job and compiles the time required to install the materials and operate the equipment. Not only does this method provide a complete material list, but it also provides a simplified scheduling of the workflow; easier determination of purchasing and cash flow requirements; and better project organization.
The quantity survey method requires a complete take-off of all materials that will be required for the project.
This can be the most important part of the estimating process, as it is frequently the greatest cost component
of a project.
Errors in compiling the materials needed for a particular project may result in overestimating the material costs. This results in turn with a higher bid that may cause you to be non-competitive with the other bidders and, consequently, to lose the job.
Over-estimating may result from:
double counting items, including materials not needed, overpricing the cost of materials, or substituting
higher priced items.
Underestimating the cost of materials will produce estimated costs that are lower than actual costs, resulting
in lower than anticipated profits. If the errors are large enough you can lose money on the project.
Underestimating may result from:
· missing items during the take-off,
· under-pricing the cost of materials,
· under-estimating the cost of deliveries,
· including lower quality products than called for in the specifications, or
· estimating the amount of waste to be lower than it actually is.
To help keep errors to a minimum during the quantity take-off process, use checklists and material take-off forms. This will help reduce omissions, duplication, and the substitution of incorrect items. The material take-off forms will also help you schedule delivery of the materials to the job site. The material take-off forms can:
· group the types of materials to the various phases of the construction project;
· identify those items requiring long ordering lead times; and
· show items that may have special delivery problems.
By grouping the materials into logical construction phases, you can:
· reduce downtime by having the materials at the job site when needed;
· keep working capital needs to a minimum by scheduling deliveries of materials when they will be needed and not before; and
· reduce the exposure to loss by theft by having minimum inventory levels at the job site.
Lump sum quotes from material suppliers are preferable over unit cost quotes because, with a lump sum
quote, the supplier submits a single bid for all materials necessary to complete a specific item of work. In
unit cost material bids, a quantity take-off is required for each item of work and the supplier bids on the
material list submitted by the contractor.
When developing the material estimate for a project, you must consider the waste or loss of materials at the
job site. The best source for this aspect of the estimating process is the company's own historical data on
similar construction projects.
Waste and loss of construction materials occur from:
· accidental breakage or spoilage,
· weather, and
· normal waste due to the standard sizing of lumber, pipe, sheet goods, and other materials
ESTIMATING LABOR COSTS
Estimating the labor costs involved in a construction project is frequently the most difficult aspect of the estimating process. Because labor costs can make up anywhere from 25% to 100% of the hard costs of a project, accuracy is crucial in developing the estimate.
The first step in estimating the total cost of labor on a project is to determine the specific work to be done from the plans and specifications. This work should be organized by type of activity to make it easier to estimate the various time frames for the work.
Next, obtain the number of hours to do the listed tasks. This can be obtained either from the company's past performance records for similar work (job cost system) or from published labor tables showing labor units for the specific tasks. The use of labor tables has the advantage of providing consistency in labor estimating, but the tables should be modified based on job cost data and experience.
As with materials, several factors can affect the total cost and efficiency of the labor estimate. These factors include:
· weather conditions,
· skill of the crew,
· experience of the field management,
· type and availability of equipment,
· size of the crew for the particular job, and
· the time allotted for the project.
When estimating labor costs, be sure to include the non-productive time that will accumulate during
construction. Such time may make up a sizeable portion of the lead man's time and time spent on:
· picking up materials,
· planning the work, and
· cleaning up.
After calculating the total hours for the various activities and making the necessary adjustments, multiply the result by the assigned standard and overtime wage rates as appropriate. Then add the labor overhead (or labor burden) to complete the labor portion of the estimate.
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