Nothing is worse than submitting an inaccurate estimate. It could cause you to lose a job, or, almost worse, win one that loses money from the start. Improving the accuracy of construction estimates will help your company grow and be more profitable. Here are some ways to improve the accuracy of your next proposal.
1. Create a template for every job
One of the best ways to make sure you don’t miss anything when building your estimate is to start with a template. The template should include all the potential line items that might be found on a project with your scope of work. For example, if you are a general contractor, you’ll want to include all of your general conditions items in a template so you don’t miss one. You may also want to include each CSI division and a breakdown of the different scopes found in each one.
Subcontractors can also set up templates for their projects, though there will probably be less items. Your templates will be more focused on the particular scope of work you provide. For some subcontractors it may be a simple breakdown of material and labor. Others, like electricians or plumbers, could have several lines for fixtures, equipment, transmission, controls, etc. Don’t forget to include items like increased insurance limits, bond costs, and administrative costs too.
Once you have the template for your scope of work built, then you can add or remove items as needed for each individual job. This allows you the flexibility of customizing your estimate for the project, but provides reminders of some of those small items you might miss otherwise.
2. Look at past projects
Reviewing your past projects, both the estimates and the actual costs, can be very educational when it comes to putting together proposals. Learning from your mistakes, and your home runs, can help make your estimates more accurate.
Look for projects of a similar size and scope and compare your numbers. You can compare the overall estimate total, as well as individual scopes. For example, if the HVAC system for a project is proposed at $150,000, and you did a similar project for only $100,000, then you know you may have an issue. No two projects are exactly the same, but seeing these differences and looking into them can help make your estimate more accurate.
Of course, this assumes that you are tracking your construction job costs and breaking them down by scope of work. If you’re not currently doing this, improving your estimates is a good reason to start. When you can see what you thought a project would cost and what it really cost side by side, it helps you evaluate your estimating process and calculations. Continual improvement isn’t possible if you don’t know where you’ve been.
3. Perform accurate take-offs
Whether you are using an old fashioned scale ruler or a digital version, the more accurate your take-offs, the more accurate your estimate will be. There are lots of software packages that can help you improve your accuracy without having to print anything out. Take-off software can use known measurements to determine areas and lengths with greater accuracy and less time.
If your scope doesn’t require material take-offs, like many GCs, you are still performing a take-off of the scopes of work that will be used on the project and main tasks of each of those scopes. Breaking the project down into a work breakdown structure (WBS) can help ensure that your pricing, and that of the subcontractors, isn’t missing any major components. The more detailed you are in your breakdown, the more accurate the pricing will be. However, it’s easy to get lost in the weeds here. There’s no need to take-off every screw needed for the project. Stick to the high level stuff to save time.
4. Know your labor costs and the productivity of your crews
Providing your own labor is the most profitable part of a project. However, in order to make money, you have to know what your labor truly costs you and how productive your crews are, so you can accurately estimate the time it will take to complete a project.
Labor costs involve more than just the hourly wage an employee earns. There are taxes that the company has to pay, benefits, retirement, union contributions, trucks, cell phones, tools, and a lot more. To get a fully loaded labor rate, you’ll need to add all of these expenses for a period of time, say a month. Then divide that total cost by the number of hours they worked. That is the fully loaded cost of that employee. You’ll then need to add your mark-up and overhead percentage to the cost to come up with a fair billing rate.
When assessing the productivity of your crews, you need to take into consideration the fact that no two people work at the same rate, even in the best of conditions. Add factors like weather, lost tools, inadequate skills and training, and personal issues, and it can be more difficult to tell how long your work will take. The best way to assess crew productivity is to look at past jobs and see how many manhours they took. Divide the number of hours by the total quantity of work on the job, and you’ll know how much the crew can do with one manhour. Perform this calculation for multiple jobs and crews to get a well-rounded average. Then use this factor when determining how long a project will take.
5. Compare subcontractor proposals
When subcontractors provide proposals for a given scope of work, they often aren’t bidding on the same work. You have to dig into the proposals to see what each one’s included and excluded before taking the low number of the bunch. Subs sometimes miss parts of the work or will purposely exclude parts that they can’t or won’t do. If possible, ask them to resubmit their proposal with the missing work or include a price for what they’ve excluded. The goal is to compare apples to apples and find the best price.
Some subcontractors won’t provide any breakdown at all. Their proposal just says “painting” or whatever scope they’re bidding. The best practice here is to call them up and verify that they have covered all the painting on the project, going through a list of the areas that need paint. If they’ve missed something, then you can give them the chance to resubmit their proposal, if there’s time.
For those who are concerned about sub bid accuracy, and if you have the time and patience, you can do your own take-off of the quantities and scope of work and see how the sub bids compare. This is often a good way to spot check subcontractors, making sure that they aren’t quoting more than is necessary. If you decide to do this, take steps to make sure your take-off is as accurate as possible, as described above.
6. Check your math and formulas
Nothing is worse than turning in a bid and realizing that the formula on the spreadsheet didn’t calculate correctly and a whole section of your bid is missing from the total. Always check the formulas in your spreadsheet just before turning in your bid. It’s easy for cells to get deleted or added and not change the formula at the bottom.
You’ll also want to check your math in each of the line items as well. If you’re estimating labor, you’ll want to make sure that the hours times the labor rate is calculating correctly. Make sure your mark-ups are pulling from the right subtotals or totals. Confirm that you have the correct sales tax rate and that you’ve used the correct profit percentage. These little errors can add up quickly if they aren’t discovered before you finalize everything.
Adding it up
Estimate accuracy is key when it comes to getting jobs and being profitable. If your bids aren’t accurate, you could lose out on work or win work and lose money doing it. Taking proactive steps, like using bidding software for take-offs and verifying formulas, will help make your company more competitive and help grow your business.Topics: ACCOUNTING | CONSTRUCTION FINANCE | CONSTRUCTION PAYMENTS | CONSTRUCTION SOFTWARE