How to Estimate the Cost of a Construction Project

Estimating is one of the most important parts of any contracting business. Providing good, accurate estimates is the only way that a contractor can be sure to make the profit they need on every job. There is a tendency to want to bid low, but providing an inaccurate bid to gain a job can be a curse, not a blessing. Bidding too low will leave you in a labor crunch and often results in little or no profit. To be sure your business is successful, you have to know how to estimate the cost of a construction project accurately every time.
How to Estimate the Cost of a Construction Project [infographic]

The Role of the Estimator

The chief estimator is a role that should not be taken lightly. In some smaller businesses, the role of chief estimator falls on the owner. Other larger companies there may have a separate chief estimator. In some large companies there may be a chief estimator who works with a separate sales staff. Often those roles can be redundant, and splitting up sales and estimating leaves room for costly errors. For most businesses, you can save time and overhead by combining the estimating and sales roles. Hiring an estimator who can place the bid and draw up the contract is ideal. This means that the bid and contract remain accurate to the initial estimate.

You Can’t Estimate Without Plans

Knowing how to read plans is an essential skill for any estimator. Trying to estimate without good, detailed plans is bound to result in all kinds of errors. To create a good estimate, an estimator needs to account for all of the construction that will go into a product. There is just no way to know that without a good set of plans.

Plans also ensure that the estimator, contractor, and customer are all on the same page. With anything short of a serious blueprint, it is possible or even likely that a customer will have a different vision than the contractor. It is amazing how often a customer will present an estimator with incomplete plans. Often, a customer will have a conceptual drawing drawn up by an architect. On smaller jobs, a plan might even be drawn up by the customer themselves. Without proper construction training, the customer is unable to flesh out the details of the job.

It is important not to proceed without good plans. They are the only way to provide an accurate estimate. If you don’t receive plans from the customer, get them to authorize you or someone else to draw up plans. The plans should be detailed enough to pass review at the local building department. With anything less you can only provide a rough approximation of the final cost of the project.

The Stick Method

One way that estimators have prepared estimates in the past is using the stick method. It is tried and true, but time consuming. The stick method involves several steps that need to be carefully followed

  1. List out each part of the job that must be completed.
  2. List out all the hours that it will take a laborer to complete each part of the job.
  3. Create a list of all of the materials required for each part of the job.
  4. Create a list of all the necessary subcontractors.
  5. Make a detailed list of everything else that needs to be purchased or rented to complete the job. This includes permits, equipment rentals, port-a-potties, etc.
  6. Go through each list and assign a cost to every item on the list.
  7. Finally, have a knowledgeable second party look at your lists and costs and check your math.

If followed precisely, this method will produce an accurate estimate of the job’s cost. From there, you just need to add in your overhead and desired profit and you have a good estimate to present to the customer.

Unfortunately, because it is so detailed and time consuming, many estimators skip some steps. If you don’t get each item right, listing each item and an accurate price, you will have problems. Errors and missed items could lead to underestimating the cost of a job. That can eat into your overhead and profits, turning a great job into a costly one.

The Unit Cost Method of Estimating

A more efficient and just as accurate method of estimating is the unit cost method. Its main advantage is speed. If an estimate takes too long, a customer may go somewhere else. In today’s market, timing is key. Ideally, an estimate should be ready in 3-5 days. At most, 7-10 days should be enough to prepare an estimate. Anything longer seems unprofessional and may raise red flags for the customer, who expects timely service. The stick method was great, but doing it right could take weeks.

The unit cost method is much simpler than the stick method, requiring fewer steps. Here are the three steps necessary for the unit cost method:

  1. Compile a list of all the assemblies required for the complete job.
  2. For each assembly attach a unit cost.
  3. Add up the numbers and have them checked by a knowledgeable second party.

That’s all there is to it. This method will get you back in front of the customer much faster, keeping more jobs and making you more money. You can get a customer their quotation quickly and then move on to the next sale.

Using Estimating Books

If you are using the unit price method, how do you know your unit prices? One classic method is to use estimating books. These books list out unit prices for a wide variety of projects. However, take care when using an estimating book. While many claim to work anywhere, they are often regional in nature. It is a fact that construction is not done the same everywhere. Different regions use different methods and materials suited to the local climate, natural disasters (floods, earthquakes, etc.), and other factors. So it is impossible for a single unit price to accurately reflect the price in every part of the country.

To solve this problem, many companies send out quarterly “modification factors”. These are intended to give more accurate local pricing for many of the units. However, the sheer number of local variations in cost throughout the country make it impossible to adjust for every location. Often, the prices in the estimating books are just a publisher’s best guess.

So how do you keep your estimating book accurate? One way is to customize it yourself. Use real information from your own jobs. After each job, take the invoices and labor times and compare them to the book. As long as the price in the book is higher you are fine. If it is lower, just scratch out the published price and replace it with your own. In two or three months you will have a pretty accurate book. Just make sure that you keep updating it.

Computerized Estimating Systems

This is the wave of the future and it is here now. Any estimator should be using professional estimating software. This software is one of the greatest improvements in construction in decades and should not be overlooked. Doing estimates the old way leaves you open to all kinds of errors. It also takes more time than necessary, and time is money.

In today’s market, customers expect quick turnaround. After looking at a job, most customers expect a quote in days, not weeks. The best and most accurate way to do this is with computerized estimating software. Needo makes some of the best software for this, giving you the ability to turnaround bids quickly and get more jobs. Contact Needo today to find out how we can help you create better estimates and get more jobs.

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