Getting construction estimating right is vital to a successful project, whether an enormous build or something more focused like flooring, painting, or drywall.
Estimating means determining the costs of materials, labor, equipment, and everything else needed to complete the job.
A solid estimate helps contractors win bids, keeps the project on track, and avoids budget surprises.
In this quick guide, we’ll explain how construction estimating has evolved, why it’s so important, the methods used to calculate costs, and who ensures the numbers add up.
What is Construction Estimating?
Construction estimating is calculating the costs associated with a construction project.
It is one of the most critical steps in the construction process.
An accurate estimate is essential; an incorrect estimate can mean losing or, worse, winning a job, resulting in financial losses due to unforeseen costs.
The Evolution of Construction Estimating
Construction estimating has significantly evolved over the years.
Initially, estimations and takeoffs were done manually, with contractors using printed plans, scale rulers, and pencils.
Subcontractors would communicate their costs over the phone or fax, which were then recorded on paper.
Today, much of this process has been automated with the help of construction estimating software, although full automation still needs to be standard practice.
The Importance of Accurate Construction Estimating
To win jobs, construction contractors must provide accurate estimates that are competitive yet profitable.
During the quoting phase, construction documents, material takeoffs, and direct costs determine a precise estimate.
The contractor is concerned with accuracy, and the client also needs a reliable estimate to ensure the project stays on budget and schedule.
Inaccurate estimates can lead to cash flow problems for the contractor, causing subcontractors to refuse work or, in the worst case, requiring the project to be completed.
Calculating Construction Cost Estimates
When preparing a construction estimate, a general contractor has two main options: estimating costs based on current construction expenses or using historical data.
Both methods have their unique advantages and can be used in tandem to create a more accurate and reliable estimate.
Estimating costs based on current construction expenses involves analyzing the immediate labor, materials, and equipment costs, which can fluctuate due to market conditions, seasonal changes, and project-specific demands.
On the other hand, historical data provides insights into past projects that are similar in scope and size, allowing estimators to identify patterns and trends that can be applied to the current project.
Combining both approaches helps mitigate risks, provides flexibility in cost management, and ensures more precise budget planning.
Estimating Costs Based on Construction
Estimators must account for the construction process’s direct and indirect costs. Let’s outline the factors that need attention:
Direct Costs
Direct costs are expenses directly tied to the physical construction of a project.
These costs are often the most substantial part of the budget and include everything from labor to materials.
Direct costs include:
- Labor Rate: Hourly rates charged by skilled trades.
- Labor Hour: The unit of measurement for the amount of work a person can complete in an hour.
- Equipment Costs: Expenses for renting or operating equipment, influenced by project deadlines.
- Material Prices: These are determined using historical data, as market trends can cause price fluctuations.
- Quantity Takeoff: A list detailing the amount and cost of materials and labor needed for a project.
- Contingencies: Allowances for unforeseen circumstances that can impact the budget.
- Variances: Set aside to cover fluctuating expenses, such as increased labor costs or seasonal events.
Indirect Costs
Indirect costs are not directly tied to the physical construction of a project but are essential for its completion.
These costs cover a range of administrative and logistical expenses that, while not immediately visible on the construction site, are crucial to keeping the project moving forward smoothly.
Indirect costs include:
- Administrative Costs: Office expenses, salaries, and utilities.
- Permits and Legal Fees: Costs for obtaining permits and complying with regulations.
- Temporary Structures: Costs for temporary installations like port-a-loos and scaffolding.
Additional Costs
Beyond direct and indirect costs, other essential expenses may arise depending on the project’s complexity and specific requirements.
These additional costs often cover land acquisition, operational expenses, and more.
Being mindful of these costs is critical to avoid budget overruns and to ensure financial stability throughout the project.
Additional costs include:
- Operational and Maintenance Costs: Ongoing expenses for keeping the construction site and equipment running smoothly, including utilities, repairs, and fuel.
- Capital Costs Related to Land Acquisition: Include the costs involved in purchasing or leasing land for the project, such as the purchase price, legal fees, and surveys.
- Bonds to Guarantee Project Delivery: Financial guarantees like performance and payment bonds that protect clients if the contractor fails to fulfill contract terms.
- Contractor Profit Margins: A percentage added to the project costs ensures the contractor earns a profit after covering all expenses.
- Supervision Costs: Expenses for site management personnel who oversee project progress, quality control, and safety compliance.
Calculating Costs Based on Historical Data
Calculating costs based on historical data involves using past project information to estimate the expenses for a new construction project.
This method relies on data from previous, similar projects, including material costs, labor rates, equipment usage, and project duration.
By analyzing these historical trends, estimators can predict costs more accurately, account for potential price fluctuations, and identify cost-saving opportunities.
This approach benefits projects that share scope, size, and complexity similarities with past work, providing a reliable benchmark for future estimates.
Common Types of Construction Estimates
There are four main types of methods for estimating construction costs:
Preliminary or Rough Order of Magnitude (ROM) Estimates
These estimates, used in the conceptual phase, rely on historical data and provide a rough cost projection, typically accurate within +/-25%.
RoM estimates are high-level and help in initial decision-making.
Square Footage Estimating
This method estimates costs using the cost per square foot of similar projects.
It offers more detail than RoM estimates but is still a general approach, usually accurate within +/-20%.
Assemblies Estimating
Assemblies estimating provides a detailed breakdown of the costs of specific systems and assemblies, such as plumbing or mechanical systems.
This method is more thorough than square footage estimates and is typically accurate within +/-15%.
Unit Cost Estimating
This highly detailed method involves estimating costs by breaking the project into minor units, such as specific materials, labor, and equipment.
It is the most time-consuming but also the most accurate, with estimates typically accurate within -5% to +10%.
Who is Responsible for Construction Cost Estimating?
Estimating construction costs generally falls to a Construction Estimator or Cost Engineer.
Collaborating with architects, engineers, and project managers, they establish the project scope and rely on technical drawings, plans, and current cost data to develop a detailed estimate.
The project manager or contractor may take on this role in smaller projects.
A deep understanding of construction methodologies, costs, and management principles is essential regardless of who does it.
Conclusion
A reliable construction estimating process is crucial for contractors to win more jobs and boost their profit margins. It improves profitability and ensures the cash flow needed to invest in the business for long-term growth.
At Quantify North America Inc., we’re all about innovating the estimating platform in the construction industry. We deliver accurate material lists and reliable quantities that help create cost-effective estimates.
Through solid partnerships throughout the construction process, we ensure transparency from start to finish.
Want to make your estimating process smoother and more accurate? Contact us today to see how Quantify North America Inc. can help you take your projects to the next level. Let’s work together to build something great!
