Construction Management

The Ultimate Guide to Construction Cost Estimating

Published by in Construction Management

How many books are there on estimating construction project costs? How many manuals, price indexes, spreadsheets, tools, rules of thumb, and opinions? Construction cost estimating should lead to profitable business and satisfied clients. However, it can all too rapidly veer towards loss of money (estimates too low) or loss of customer (estimates too high). It’s no wonder that so many people want to add their two cents’ worth about the best way to do it.

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Yet the truth is there is no universal ultimate guide to construction cost estimating. The reason is simple. The best estimating you can do for your construction company depends on the following:

  • Efficient, accurate processes and tools
  • The construction project for which the cost estimate is to be made
  • Your cost estimating experience and judgment

Even if processes can benefit from cost estimating standards and best practices, and a project sometimes allows the re-use of other successful cost estimates, experience differs in every case. No two estimators have worked on exactly the same projects. No two contractors have the same track record or the same internal organization, constraints, and capabilities.

Most useful construction cost estimating advice will need to be specific to you and your business.

Nevertheless, there are certain components that are likely to be part of every excellent estimator’s approach.

Achieving the Cost Estimating Trifecta

Construction cost estimating is essentially about three things:

  • Money: You calculate your cost, apply your markup, and present the total to your customer.
  • Accuracy: Your business will only prosper if your estimating is accurate, so you make a profit without giving your customers any unpleasant surprises between a pre-construction estimate and the final amount to be paid.
  • Speed: Customers want their estimates rapidly. For commercial and industrial projects, customers are unlikely to wait weeks for your cost estimate. For private building projects such as house renovations and extensions, customers may even simply accept the first estimate they get, as long as it looks reasonable to them.

To meet all three criteria simultaneously, you might need a small army of estimators – or a suitable tool, such as construction estimating software.

Software for Cost Estimating – Can You Really Live Without It?

If you think that bringing software into the discussion this early is putting the cart before the horse, consider the following: Businesses make increasing use of computers and the software that runs on them, but too many construction cost estimators (over 55%, by one estimate) remain inefficient by failing to use proper tools.

Suitable software solutions do not have to be complicated or expensive. Basic features may be enough, such as:

  • Takeoff tool, to assist in the process of taking measurements from paper or digital plans.
  • Integrated cost databases, which can use commercially available data, such as RS Means, and your own data for cost estimating.
  • Calculations for estimates, in worksheets generated by the application to lay out requirements and estimates to various levels of detail, corresponding to traditional “squaring out” and “abstracting” activities of cost estimators.

This functionality accelerates a large part of an estimator’s work. With software often driving other parts of a construction business too, a cost estimating program may also offer:

Proper integration of construction management software can therefore speed up business as a whole, as well as the cost estimating activity itself.

The Not-So-Smart Side of Applications for Cost Estimating

Cost estimating software may be necessary in order to be responsive to customer requirements, but it is not sufficient on its own. In other words, it would be a mistake to just rely on software without any additional checks and balances.

The quality of the results you obtain from estimating software depends on the quality of the information you put into it. Consider the cost data that it uses. Few if any commercially available cost databases use continually checked data, refreshed every year, item by item, locality by locality, because the effort required is enormous. The real costs you see for building materials or activities in your own projects may differ, and it is important to use this real data in your estimating process instead of dated information.

Similarly, do not confuse purpose-built cost-estimating applications with spreadsheet applications. The latter do not offer “hard coded” formulas for meaningful calculation. The flexibility of spreadsheets is also their weakness: people can change the way a spreadsheet performs its calculations, destroying the relevance of the results and leading to errors. By comparison, construction estimating software, when given the right data to work with, can reliably calculate costs and related information by category (materials, labor, plant, time), and rapidly produce both summary and detailed cost estimates.

The Added Value of the Human Cost Estimator

Capable cost estimators can make intelligent use of software. They can leverage the power and speed of the cost-estimating application, at the same time applying their knowhow to confirm or improve the results.

Characteristics of good cost estimators include:

  • Understanding of architectural and engineering drawings.
  • Knowledge of construction materials and methods.
  • Acquaintance with customs or preferences about how their own company executes its construction projects.
  • A systematic and organized approach.
  • Knowhow in preparing estimates that are accurate and clear for management and customers.
  • Competence in evaluating bids from subcontractors, not only on price, but also on scope and responsiveness with an eye on past performance as well.
  • Engineering skills to structure the estimate in a way that assists cost optimization, possibly with different construction methods and materials.
  • Sound judgment and ethics to ensure that cost estimating serves the business and customers properly and treats subcontractors fairly (no “bid shopping” as a prime contractor or “bid peddling” as a subcontractor.)
  • The continuing acquisition of experience and information to improve results further. This can include finding out why estimates for a project were accepted or rejected, how many contractors provided estimates for the project in question, and if the lowest bidder made any omissions in the estimate it provided.

When a computer does the manual and repetitive work, a greater part of a cost estimator’s time can be spent on improving the process by improving the presentation of estimates. Applications may offer different reporting options from which to select cost breakdowns and proposals, including charts and graphics to enhance clarity.

The experience and judgment of the cost estimator are still necessary to decide matters such as units of measurement for estimating. A cost estimator can shape the presentation of the costs by using units favored or recognized by the customer, or that yield quantities that are neither too big, nor too small.

Potential Pitfalls for People Doing Cost Estimating

Conversely, cost estimators should avoid the following estimating errors:

  • Failing to read relevant project documents.
  • Skipping the site visit. Another necessary reality check for the relevance of construction elements, measurements, and unit costs to be used.
  • Mistakes and omissions. A cost estimating software application is like a car. If a part is missing, expect a malfunction, and if you drive it without care, expect an accident.
  • Arbitrary cost adjustments. The final cost estimate from the application might not be the one you expected or that your customer wanted, but it might still be the right one. While applications often offer the possibility to adjust pricing manually, sound business justification is always a prerequisite.
  • Failure to check the final result. Figures from an application must always be checked for meaningfulness, possibly by comparing them with previous similar projects. Applications and computers are still “garbage in, garbage out” systems. If you feed them bad data or omit chunks of a project, you will get bad or incomplete results. Check, check, and check again.

Are Programs or People Better for Construction Cost Estimating?

From the lists above, it becomes clear that human beings and software applications are highly complementary when it comes to construction cost estimating. Most of the characteristics of a good cost estimator (as in a person) are not available in software, although artificial intelligence may lead to new software capabilities in the future. On the other hand, computers achieve levels of speed and reliability in resource calculations that are far beyond those of human beings.

Finally, the Ultimate Guide to Construction Cost Estimating is…

…you, as a competent, knowledgeable, conscientious cost estimator, supported by a suitable construction estimating software application. This person-technology combination is a key part of preserving and improving the profitability of a construction company, in ways that neither a person nor a computer can do alone. Moreover, the added value generated by this combination (detail, relevance, clarity of presentation) can make a favorable impression on the customer when it is most needed, meaning at the outset, and justify payment for the estimating work alone.

Do you agree with our conclusion? Or do you think people are always the starting point and that software is secondary? Share your point of view with us in the comments section below.


Looking for Construction Management software? Check out Capterra's list of the best Construction Management software solutions.

About the Author

Rachel Burger

Rachel Burger

Rachel is a former Capterra analyst who covered project management.

Comments

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Comment by William Becker on

Its really a beautiful post that you shared with us.It gonna very effective informative for all.I really like your work keep it up.

Comment by Chris O'Halloran on

Onscreen takeoff software hasn’t changed or improved for over 10 years. We are a new startup in this space, looking to drastically improve how takeoffs and estimates are done using Artificial Intelligence and Machine Learning. with https://takeoffs.io (Takeoffs.io) you simply upload your plans and our app sends back a completed takeoff.

Comment by Steven gutwein on

Decent article. I really want to see though is an article that can express how does one adjust ones thinking to ask the right questions. As estimator we are to review plans, and be able to ask ourselves how is this going to get done, who or what trade do I need to get this done. What how what who questions should we keep on our mind as we go through plans? Does anyone have a system they want to share on plan review note taking? What are some good SOP’s of a estimator?

Comment by Kim Riley on

Great article, Rachel! Much appreciated. Complex info laid out in a simple to understand manner, this has made things a lot clearer for me. Thanks!

Comment by wayne f shannon on

what I need is material and labor costs for north eastern pa!

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