"Fast is fine, but accuracy is everything." - Wyatt Earp
A key ingredient to a successful construction project or program is an accurate, reliable cost estimate.If an estimate is not accurate, there is a risk of losing money on the project or running out of funding that will require cuts in scope or quality.There are some key steps that must be followed to help ensure that estimates are accurate, reliable and on point for every construction project or program.
Evaluate
You should begin every estimate by evaluating the project that you are estimating.Visit the site, analyze all project documents, and listen to the client and designer’s needs, goals and vision.When visiting the site, identify any special circ*mstances that will need to be addressed.How will the materials be fed into the project? Is there enough staging area for a crane? Is there potential of underpinning the adjacent building?These site-specific items need to have appropriate costs included in the estimate.
Continue your evaluation by diving into the Project Specifications.Look for any potential inaccurate or missing information.Do not be afraid to ask questions for anything that does not make sense and be sure to ask questions early in the development of the estimate to allow the design team the appropriate time to respond.
Next, review the drawings.Again, look for anything that does not make sense and ask the questions early.You need to give the design team the time to get the answers during the estimating period.Missing or inaccurate information is a risk and this risk must be addressed in the estimate.If the risk is priced too light or too excessive, the estimate will not be accurate.It is better to have the drawings and specifications accurate during the estimate phase so that risks and contingencies are kept to a manageable level that does not inaccurately impact overall project budget.
At this point of your evaluation, you should have completed your review of the project and Established the Scope of Work for the Estimate.
Quantities
In order to provide an estimate, quantities are needed.Using a digital takeoff tool is the recommended method for accuracy, ease of use and the ability to share the information with your team in a digital cloud.The most important aspect of quantity takeoff is the attention to detail.Take your time, look closely and carefully at all components and focus.Missing something in your estimate can be fatal.Ensuring your quantities are accurate and complete are key to a successful estimate.
Pricing
Once quantities are established, it’s time to assign a price to everything.Take the quantities developed from the takeoff and specifications and obtain current pricing on these products from manufacturers and distributors. Current pricing is critical to the accuracy of the estimate, but when current pricing is not available, utilize your historical database, as well as cost publications.
It is important at the pricing stage to understand the construction start and end date.This will allow the estimator to forecast the labor and material escalation based on the proposed time of construction.
Many people think that increasing the overhead, markups or contingencies to allow for material and labor escalation costs is an appropriate estimating technique.This is not an ideal method as it skews the project’s real costs and creates confusion when evaluating project costs later in the construction process.The best estimates will have the pricing as accurate as possible and have separate line items to address escalation, risk analysis, markups, and contingencies.
Determining Labor Cost
Determining the labor cost is an important step in building your estimate.To be accurate, you need to have the knowledge of the trade, knowledge of the current market conditions and experience.Estimators need to get out in the field and see what’s happening on jobs, as well as be in constant contact with the trade and vendor community to stay sharp on the market conditions.
Consider the crew size, how many crews will be needed to meet the schedule and how long it will take to perform the different aspects of the project.What quantity can the crew install in a day? What site-specific factors will affect the productivity?Are there limitations on work times? Are there any market condition impacts?These all need to be addressed when determining the labor costs in the estimate.
Markups
With the cost of materials, labor, and equipment completed, the final step is to include the rest of the costs including general requirements, general conditions, temporary facilities and utilities, insurance, overhead, and burden.During the early stages of estimating (program thru design development), these costs are typically percentages or mark-ups based on the direct cost of work (labor/material/equipment).As you progress through the design, it is important to refine and adjust these costs as additional information and/or quotations are provided.Don’t forget about other miscellaneous costs that can be associated with the project such as permit, engineering or even sidewalk closure fees for city projects.
Define the Project Risks and Factor in Their Costs
Once your initial quantities and pricing are completed and input into your estimate, it is time to assess, analyze and evaluate the project risks and factor in costs to minimize and/or account for these potential risks.Some of the risks that must be addressed are:
- Quality of Design Documents
- Complexity of Project
- Scale/Scope of Construction
- Market Conditions
- Availability of resources
- Reasonableness of Schedule
- Location of Project
To address the risks, the estimating team should include contingencies to factor against the likelihood of the risks.These risks need to be communicated to the project team, as well as analyzed based on the potential impact as well as the potential of occurring.If there is a high likelihood that the risk will occur, there should be a larger cost included to address that risk.The key is in the communication, if all project stakeholders are aware of what is included in the risk register, they are more likely to understand the overall estimate.
Estimate Submission
Once you have completed the quantities, direct cost pricing, markups and analyzed the risk, the final step is to prepare your estimate submission.Every estimate should at a minimum include the following information:
- The Services
- The Project Scope
- The Costs
- The Assumptions, Clarifications, Inclusions and Exclusions
- The Timeline
- The Start and Completion Dates
- The Terms that are necessary for the project
This information is known as the “Basis of Estimate”.It communicates the estimate to all project stakeholders.Communication has everything to do with the success of a project and it starts with the estimate!By providing an accurate, well communicated “Basis of Estimate”, the project stakeholders will have a complete understanding of the estimate.Through this clear and transparent communication, you will be well on your way to providing an accurate, reliable estimate.
Lessons Learned
As with every great process, you are never really done. We must always continue to learn and improve.The final step with every estimate is the “Lessons Learned”.What was effective? What needs improvement? Where are the discrepancies with the actual bid? Cost at Completion?Did we make the correct assumptions?What flaws were encountered?As true professionals, we must always strive to improve. There are hundreds of things to evaluate and improve upon as we strive to provide the best service and it all starts with the estimate.“Every successful construction project starts with a GREAT estimate!”
