Cost estimation in construction involves understanding material and labour costs. It’s not easy and can lead to delayed projects if done inefficiently. Here’s what you need to know about speeding it up.
Speed is more important in the construction industry now than ever before. New technologies breed new expectations. Your clients expect you to have cost estimation software that can produce an estimate in no time. You no longer have several weeks to go over the figures. Many clients expect them in a matter of days.
You need a fast estimation process that’s also accurate.
The rise of Building Information Modelling (BIM) puts even more pressure on construction crews. Focused on data and accuracy, BIM paints a clearer picture of what your clients need from you. As a result, they’ll expect your estimates to come back faster. After all, they’ve provided all of the information that you need.
Simply put, it’s all about efficiency in the modern construction industry.
Quick estimates have other benefits too. They inspire client confidence because they show that you know what you’re talking about. There are few things worse than leaving a client waiting for your response. That’s time that they’re spending on wondering why you’re taking so long. Many will go with the firms that provided faster estimates.
Moreover, fast estimates get projects moving. Everybody’s worked with impatient clients who want everything done as soon as possible. It’s understandable when the project has a deadline. Delays in your construction cost estimation process can delay the entire project.
Despite all of this, many companies bog themselves down with inefficient methods. Some stick to the way they’ve always done things, ignoring technological advances in the process. Others may not even realise that there are other methods of cost estimation in construction.
This article examines some of those construction cost estimation processes. It also looks at what you need from your cost estimation software and your cost database.
The Different Estimation Processes
There are three main construction cost estimation processes. These are:
- Stick Cost Estimation
- Manual Estimation
- Unit Cost Estimation
Each has its pros and cons. However, one is much faster than the other two. Let’s look at them individually.
Stick Cost Estimation
Some would argue that stick cost estimation is the most accurate estimation process. It accounts for every single material you use and each hour you’ll spend on the project. There’s a bunch of other things you count as well.
That’s all well and good, but it makes the process very inefficient. Here’s the entire process:
- Break the job down into different parts.
- Write down the amount of hours that you’ll need to complete each part of the job.
- Write down all of the materials that you’ll need for each part.
- Make a list of the subcontractors you need to complete each part of the job.
- Figure out the additional expenses related to the project. These can include rental equipment and any permits you need to secure.
- Read over the lists, assigning an individual cost to each item.
- Double-check your maths to ensure you’re not sending an incorrect estimate.
That’s a lot of manual steps and a lot of numbers for you to get wrong. A single miscalculation can lead to a bad estimate.
Once you’re confident in the numbers, you still have to apply your mark-up.
Few construction companies spend as much time on stick cost estimating as the process demands. As a result, they underestimate their needs, leading to them losing money on the job.
Get everything right and it’s the most accurate form of estimation. But the amount of time that it takes eliminates any accuracy benefits it may provide.
Manual estimation is even less efficient than stick estimation. It’s essentially the same process, but you’re doing it by hand. You’re also approaching each project without any pre-set figures for costs. Instead, you’re figuring out the cost of each item on the fly before bringing it all together.
Manual estimation is mostly extinct in the modern business environment. Furthermore, it’s practically impossible to use efficiently on large-scale construction projects.
Unit Cost Estimation
Unit cost estimation simplifies the stick cost estimation process, while retaining its accuracy.
With this method, you reduce the seven steps of stick costing to three. They are as follows:
- Make a list of the line items for the job. A line item is essentially anything that you estimate a cost for separately. Materials is a line item, as is the cost of labour. The key difference here is that you’re working from the totals for the entire job. The stick method requires you to break line items down into separate parts.
- Attach a full unit cost to each of your line items.
- Add the numbers together and apply your mark-up.
This reduces the time you take to get back in front of your customer. A stick method can take between three and four weeks because you spend time breaking everything down into smaller parts.
Unit cost estimation cuts that down to less than a week on all but the largest projects. Furthermore, it’s more compatible with cost estimation software.
Which Is Best?
If you’re looking for a good mix of speed and accuracy, unit cost estimation is the way to go. Manual estimation doesn’t have a place in the industry and stick costing takes up too much time. The latter also creates more chances for error due to the many parts involved.
What Do You Need from Your Estimation Software?
Most of you probably already use software to help with cost estimation. The automation alone leads to faster estimates. If you can plug in some more numbers, you can speed things up even more.
Nevertheless, many people don’t use their estimation software to its full potential. Some also don’t realise what they need to look for in a good estimation software. Again, this can lead to the sorts of delays that encourage potential clients to look elsewhere.
The good news is that you don’t have to invest a lot of money to get a good software package. You just have to ensure it has the following features.
A Takeoff Tool
Takeoff tools assist you with the early part of the estimation process. Once you’ve made your measurements, the takeoff tool will transfer them into the estimation software.
The best tools can do this from both digital and paper plans. This saves a step if you’ve taken measurements on paper. You no longer have to input them into the system because the tool handles it for you.
A Cost Database
The article will cover cost databases in detail later on, so let’s look at the basics here. A cost database allows you to input costs for different items, such as materials and labour.
The software can then pull from this database to create cost estimates based on the information you input.
For example, the database may have a cost of $50 attached to each hour of work. Just enter the number of hours the work will require and you get an instant estimate.
Some cost databases also make use of industry data that you can purchase for estimating. RS Means is a good example. This database offers a list of up-to-date costs, updating as the industry changes. Such a link improves the accuracy of your cost estimations.
Compatibility With Other Software
You may work from other professionals’ datasheets during your project. This is especially true if you’re part of a project using the Building Information Modelling method. The collaborative nature of BIM means you’re getting even more data from several sources. It’s a lot to handle manually.
A good estimation software allows you to import files from other software packages. For example, it may allow you to import computer-aided design (CAD) files that the architect provides. It can then extract the data from them to create more accurate estimates.
Developing Your Cost Database
Let’s assume you haven’t linked your cost database to a commercially-available one. That means you need to do it yourself.
Some estimators skip this step, which wastes more time. They have to figure out the individual costs again whenever they take on a new project.
Again, that’s inefficient to the point that it can add several days to the construction cost estimation process.
You need a database, and these are the steps to building a good one.
Step #1 – Enter out Your Unit Cost Based on Schedule
Remember the unit cost estimation process mentioned earlier. You can use that to create a more general unit cost for use in your database.
Let’s say you’ve just completed a three-week project that you charged $30,000 for.
That means the project earned a weekly revenue of $10,000.
You can even break it down into a daily revenue of about $1,430.
That’s your schedule-based unit cost. Enter this into your database and use it to estimate costs based on the number of weeks a project will take.
Step #2 – Work out the Unit Cost Based on Assembly
One of the issues with stick estimation is that you’re providing an estimate for materials and labour before you’ve even sold the job. That’s not an estimate. It’s an invoice.
It’s much easier to use a unit cost for the assembly of units.
You’ll call on the item costs that you created as part of the unit cost estimation method for this. For example, if you’re building a roof you’d base the cost on labour, materials, and perhaps each square foot of roof.
This gives you a general cost for that job. You can then customise this as needed for specific project requirements.
Repeat for every job type that you may take on to create a database of assembly-based unit costs.
Step #3 – List Your Production Factors
The first two steps give you some general numbers to work with based on your own experiences.
However, these aren’t the only issues that affect the cost of a job. Several production factors can come into play, depending on the project.
Such factors can include different weather conditions or specific customisations. List out anything that affects the costs outside of schedule and assembly. Enter them into the database and you can apply them as needed to each estimate.
Step #4 – Making Adjustments
Costs change over time. Materials may become more expensive and inflation leads to higher costs per hour of work.
You’ll need to account for this in your database to create accurate cost estimates. That means going back to it every so often.
Compare the numbers in your database to the actual cost of recent jobs. Ideally, they’ll match up closely. If the actual costs exceed the estimated ones, despite you taking all relevant factors into account, you need some updates.
Do this every month for the first year of database implementation. This will help you to nail down accurate cost estimations for each unit and factor. After that, analyse the database quarterly.
Cost estimation isn’t a simple task. It can involve a lot of work that leads to you spending weeks on getting an estimate to clients. Those with more efficient processes will jump ahead of you. They impress the client with speed and accuracy, while you lumber along with seemingly no idea of what you’re doing.
This article covers the basics of cost estimating. Adopting unit cost estimation speeds up the process. Combining that with a compatible estimation software ups the efficiency. After that, it’s a case of creating a good database and updating it in-line with the information you get from each job.
Bring all of that together and you’ll cut your estimation process time by weeks. You’ll move projects forward faster and be able to provide estimates to more clients in a shorter time period. This efficiency leads to more jobs, which generate more revenue. From there, you can invest in the company and help it grow.
A quality estimation process also means you have more confidence in the figures you present. Clients can sense this, which helps you to develop your reputation in the industry. Moreover, you’ll automate several processes that usually take a long time to complete.