Estimating the cost of a construction project is easier said than done. It requires striking a balance between outbidding your competitors and ensuring a strong profit margin. Because construction projects depend on so many factors — environmental, economic, and material — it can be challenging to develop an estimate that’s both viable and profitable.
According to research by QuickBooks and TSheets, about one-third of construction companies don’t meet the profit margin outlined in their estimates, and a quarter of survey respondents believed that it would only take two or three bad estimates to tank their business. That’s why it’s pivotal to your company’s success to make your estimates as accurate as possible.
To develop an accurate estimate that keeps you profitable but also appeals to the client, it pays to do your due diligence and build contingencies and risk assessments into your approach. Unfortunately, some estimators don't capture the real costs of labor and materials, or they base their estimate on inaccurate takeoffs, which can derail the whole process. Here are some common mistakes made in the estimating process — and what to do instead.
Some things can only be discerned once you are physically on site. You can’t rely on hearsay or projections. Everything from the topography and climate to the physical dimensions and environmental impact of a construction site impacts its viability and profitability. It’s worth your time and effort to take measurements, assess your storage needs, and figure out your action plan by inspecting the site. Do you have sufficient road access? What is the risk of erosion, runoff, or water intrusion? Are there any environmental protection efforts that need to be made?
Without a full portrait of the site and its unique needs, you’re essentially driving blind. You should also welcome your subcontractors to the site if their work would be impacted by its physical factors.
As the saying goes, measure twice, cut once. The same is true for major construction projects. Takeoffs are crucial to accurate project planning. Make sure your takeoffs are accurate and comprehensive, encompassing labor, equipment, and material needs. Until you do this, there’s virtually no way to accurately estimate your labor and material costs.
There are a few great software options that can help you estimate takeoffs and incorporate them into your project plan. Not only does this software save you valuable time, but it also helps you organise your documentation, share critical information with stakeholders, account for variances, and avoid simple typos or errors that could cause problems down the line.
In a perfect world, you’d be able to predict the number of hours and total cost of your labor for any given project. Unfortunately, we don’t live in a perfect world, and it can be difficult to assess true productivity and labor costs until a project is well underway. That’s why it pays to be flexible with your estimate — but ensure that you’re clearly identifying the number of workers, their experience level, and their day rate in your estimate. Experienced workers tend to be more productive but more costly, and inexperienced workers are cheaper but may take longer to complete tasks, which might cost you more in the long run.
As the job progresses, you can track daily output and costs to inform future estimates. Eventually, you’ll be able to identify the mix of labor type, experience, and salary that you need for any given project. Again, it’s vitally important to account for variances on your project in order to avoid cash shortages and ballooning budgets.
Material expenses are one of the greatest drains on construction projects, simply because they are so difficult to estimate accurately. You might assume that materials will cost you a certain amount, only to find out that you can’t obtain the amount you need or that the materials cost more than you expected due to industry shortages or local price fluctuations. Plus prices can fluctuate depending on the timing and quantity, which means that even your best estimate might not capture the true costs.
Establishing strong relationships with manufacturers and suppliers will help you lock in great prices and know exactly what you need for your project. Should something be out of stock, your preferred vendors may be able to help you find suitable cost alternatives. Again, it’s important to make accurate takeoffs part of your estimate so that you don’t risk coming up short as the project proceeds.
The right estimating software could also allow for a direct link to your supplier’s price list, allowing you to work off the latest and most up to date prices for each project.
According to Murphy’s Law, anything that can go wrong will go wrong. So, it is a good idea to incorporate risk assessment and flexibility into your estimate. How might environmental, economic, or weather-related factors impact the project? Are there innate risk factors that could cause delays? By rolling a comprehensive risk assessment into your estimate, you can be prepared for many surprises. And with preparation comes the ability to accommodate extra costs should they arise.
Build contingencies into your estimate to accommodate any unexpected outcomes your project might experience. And be willing to pass up a project if the risk is too great. Risk assessment should always be a pivotal part of the estimating process.
Your previous projects’ costs and performance data are the best sources of insight into how you should estimate future projects. Still, you can evaluate job costs for every project by taking note of current market rates and any applicable costs for inspections, fees, and additional materials. Even if you’ve been in construction for years, things change — so don’t ignore current rates and trends in your estimate.
By the same token, costs of labor and materials may vary by season and type of project, so it’s important to take those factors into account. Automate your estimating process through takeoff and estimating software to get a much more accurate picture of all costs and save yourself the guesswork.
To err is human — but failing to check your estimate for simple errors could completely derail your project. Ensure that you create a completely detailed, highly accurate estimate that encompasses any variations your project might experience. Double-check your units of measurement and make sure nothing is omitted or underestimated.
Estimating software can help ensure your accuracy and automate the process to form a detailed estimate. It pays to take your time: an underestimated quote can leave you with cost bloat, and an overestimated quote could lose you the project. Check carefully for any mistakes and inconsistencies.
All subcontractors should submit estimates with a thoroughness to rival your own. Both parties need to fully understand the schedule, scope of work, and costs of the labor involved. You’ll need to look at quotes closely to ensure that there is no duplication of effort. It’s always a good idea to welcome your subcontractors to your site visit as well to ensure that they can make an accurate estimate and be apprised of changes.
Accurate estimates that help win the project and ensure its profitability are not easy to do. However, with due diligence and the automation of much of the manual processes, estimators are much more likely to avoid common mistakes. Both project managers and business owners can benefit by adding takeoff and estimating software to their toolkit, since it’s then much easier to develop estimates that capture all factors and prepare for potential unexpected circumstances in a project’s cost. The more accurate the plan is, the more likely you are to win the job, finish on schedule, and make the project a profitable one.
Costminer Estimating Software not only removes an extremely difficult and time-consuming task from your plate, it also helps you deliver fast, accurate estimates to potential clients. Once the project begins, it ensures things are running smoothly and helps to keep the budget on track. By implementing Costminer you are creating a more productive and efficient construction job and guaranteeing your clients get the best work possible, while keeping your bottom line in mind. Get in touch to find out more about how you can save time and money on your next project.