Construction estimating is the process of scoping out the expenses of a construction project. This step is essential, and one of the most critical in the construction process. The construction estimate needs to be as accurate as possible, because an inaccurate estimate can be the sole reason for not winning a job. Or worse, winning a job with an inaccurate estimate can mean the project costs blow out, cutting into profit margins and often causing a construction contractor to lose money. Reliable construction estimating software has become fundamental for successful projects to start with a precise and accurate cost estimate. This guide outlines the estimating process and the importance of its role in delivering successful construction projects.
Construction estimating has evolved over the years. The process began doing takeoffs and estimates by hand. Contractors would print plans and markup with scale ruler and pencil whilst subcontractors telephoned or faxed in costs to be recorded on paper. Today, automating the elements of the process with construction estimating software is common practice but a fully automated process is yet to be widely adopted.
In order to win jobs, construction contractors need to submit accurate estimates that are competitive but still turn a profit. During the quoting phase, construction documents, material takeoffs, and other direct costs are used to determine an accurate cost. It is not just the contractor submitting the bid that is concerned about getting the estimate right - it is in the client's interest that the estimate is as accurate as possible to ensure the project gets completed on budget, on time. Inaccurate estimates can cause cash flow issues for the contractor which brings a multitude of issues including subcontractors refusing to work, or in the worst case scenario, failure to complete the project.
Whether you’re building a brand new building or renovating an existing building, understanding how budgeting works during the planning phases of your project is extremely important. Given the unforeseen hiccups that can occur, there is no way to be 100% prepared for a construction project, but understanding the estimation phases can give you valuable insight into how your final budget will come together.
Outlined are 4 main estimating phases of a construction project:
While a feasibility estimate will consider the “end use” of a project, they will not account for any specific items such as type and quantity of materials since they are typically performed without any plans. Feasibility estimates are used to give clients a rough order of magnitude of the cost of the project. These estimates are intended to be a tool to help a customer decide to proceed on the articulated quote or scale the project up or down keeping in mind several feasibilities may be required before moving to the conceptual phase.
Once rough plans are available which show the owner’s general intent for a project, the conceptual estimate phase begins. Now, with the additional detail, items can be broken out, alternates can be explored, and construction methods can be discussed. Concept estimates are used as a tool to help customers address the specific needs of their project and several concepts may be required to accomplish this.
When a more detailed set of plans become available showing the clients needs for a project, at this stage, a preliminary estimate can be undertaken. As part of the preliminary estimate, a complete construction takeoff is done and specific material alternates can now be presented for consideration. At this stage, construction methods have been determined and subcontractors start to be solicited to review the scope of works and provide their own preliminary estimate to the main contractor.
Final estimates are used to determine the final contract price and scope of a project. They are typically performed when full permit plans are available. The general contractor puts jobs out to tender and quotes are obtained from several subcontractors to ensure they are getting the market price in each specific construction area. It is common to get 3 subcontractors to quote per trade. General contractors either tap into existing networks, or connect with new subcontractors on public tender marketplace boards such as the ConX Tender Marketplace. New internal takeoffs should not be necessary at the final phase, because the permit drawings should generally match the preliminary drawings, but now they have more detail.
The person who handles the construction estimating varies. Architects, engineers and large construction contractors are likely to have in-house estimators that they work with for every project. Building contractors and trade subcontractors may hire independent estimators, have in-house estimators handle the estimate, or do the estimation work themselves via cost estimation software.
It is critical that the right person or team is in charge of the construction estimating process. The major factors that need to be considered when choosing who to run the process is cost and time.
The construction business owner
It is common for the construction business owner who works onsite during the day, and in the office by night to manage the process with cost estimation software. The benefits of them managing the process is they get a great understanding of a job before setting foot onsite. Whilst there are lots of benefits to managing the process yourself, it is extremely time consuming and after a busy day managing the team, suppliers, subcontractors and clients, it can be an added strain to have to come home and work on estimating to keep your work pipeline filled.
The in-house construction estimator
When a business reaches a certain size, it's worth considering this key hire, and then building out an estimating team. The upside is you can quote on more jobs and dramatically increase the bid win rate. But cost is a consideration when hiring and building a team. Construction businesses need to weigh up the benefits of all the extra jobs quoted against the annual salary and overheads of having a full time employee sitting in the office. Another consideration is whether the business has capacity to do all of the extra jobs won by the in-house estimator.
The professional construction estimating service
Outsourcing to a professional construction estimating service, such as ConX Takeoffs, has many benefits. A construction contractor can leverage a team of experienced estimators with cost databases and the most up-to-date estimating tools. Because estimates and takeoffs are their bread and butter, they effortlessly manage the headache of learning updates to pricing and software so you don’t have to. As you only pay for the jobs you want to quote on, this option can significantly lower your estimating expenses.
The type of construction estimate you prepare will vary depending on whether you are a Builder or Subcontractor. A small residential building estimate will differ to large commercial building estimate, but these high level steps outlining how to construction estimate in 8 steps remain consistent:
As the general contractor navigates through the various phases of preparing a construction estimate, there are two options to draw upon when costing. Firstly, it can be based on the cost of construction, and secondly, it can be based on historical trends.
Calculating costs based on construction
Estimators need to calculate direct costs related to the physical construction of the building itself. These expenses include labor, equipment costs and subcontractor costs. Indirect costs also need to be factored in. A breakdown:
In addition to these elements, the operational and maintenance estimates may be calculated along with capital costs in acquiring the land, bonds to guarantee the delivery of the project, contractor profit margins, and supervision costs.
Calculating costs based on historical trends
Skilled estimators will also leverage historical data to validate estimates. Although no building project is exactly the same, historical data can show actual construction costs for buildings that have many basic similarities. The historical data may be gained from previous successful contractor bids, databases, vendor data sheets, and commercial references.
When basing estimates on historical trends, it’s also a good idea to evaluate the location and city where the project took place because local real estate markets can have drastic price differences based on local economies as well as different inflation rates. Labor costs in different geographical regions can also have a huge impact on estimated accuracy, so it’s always wise to evaluate local labor costs when looking at historical trends. Core Logic provides historical data insights available for purchase to assist with calculating costs based on historical trends.
To dive deeper in this topic, you can check out Construction Cost Estimating: Everything you need to know
Construction estimating software is cloud or desktop technology designed to streamline and improve the process of creating cost, material, and labor estimates for construction projects. Construction estimating software is available in many varieties, ranging from simple spreadsheet templates to online collaborative software with many features that optimise much more than the estimating process. You can find a review of the top 10 Construction Estimating Software in the market to evaluate what works for you.
Cost estimating, takeoffs, and bidding are necessary in most of the specialty trades such as electrical work, plumbing, concrete, flooring, painting and HVAC. Many software providers make construction trade estimate software that is specific to the different specialties of subcontractors. These software solutions may include trade-specific cost databases and other useful features unique to each area.
Choosing estimating software
When choosing a new estimating solution, its important to make sure that your needs are met by the estimating software you choose. Missing a key feature can be frustrating, but having so many features that the software becomes overwhelming and too difficult to use can be even worse. Most softwares offer a free trial period so you can confirm that the tool meets your estimating needs before locking in a contract.
Benefits of estimating software:
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Setting up a reliable construction estimating process is essential across the construction industry to help contractors win more jobs and improve their margins on the projects they complete. Defining a reliable process not only improves a businesses profitability, but also provides the critical cashflow necessary to invest in their business for long term growth.