Estimating Errors & Cost Overruns
How Contractors Estimate
Itemized Bid Worksheets
Step-by-Step Estimating Guide
Estimating is the lifeblood of any construction company, small or large. It is part art, part science, and is often the biggest challenge of companies starting out. If never mastered, it will result in a short-lived business.
Whether you are a contractor, an owner-builder, or a homeowner reviewing the estimates for your project, good estimating skills are essential. Estimating mistakes almost always result in underestimates. This often leads to losses for the contractor, surprise charges to the customer, or disputed costs at the end of the job – outcomes best to avoid if possible. Read more on Estimating Errors.
“The lifeblood of a contractor is detailed estimating. Without very detailed estimates, a contractor cannot compete, cannot complete a project, and cannot stay in business. ” – Associated General Contractors
The two biggest mistakes I see in estimating, whether by pros or homeowners, are omitting essential items from the estimate and being overly optimistic about productivity — especially in remodeling where many tasks take a lot longer than anticipated. A third budget buster on many projects is due to the homeowners making changes to the plan during construction. This is not really a problem with the estimate, but more a consequence of poor planning.
The best way to avoid omissions is to start with a comprehensive checklist like the one found in the sample estimating worksheet. The best way to temper your optimism is to get your labor estimates from an objective estimating guide and take to heart the guide’s adjustments for productivity. Then add another fudge factor for your lack of experience if you are doing the work yourself.
If you are getting all your bids from contractors and subcontractors, then you won’t have to worry too much about how long it takes them to get the job done (barring major job delays). But you will still need to make sure that everything that needs to be done to complete your project falls within someone’s estimate. Otherwise, you’ll be hit with the unpleasant surprises in the form of change orders and “extras.”
For example, I know of a recent job where the owner had to come up with an extra $20,000 for fill and grading that no one had mentioned, as well as several thousand dollars to blast through ledge when trenching to the town main. The best way to avoid costly surprises is to use an estimating checklist, learn as much as you can about the work to be done, and ask a lot of questions about what is covered in a bid (and what is not covered) before proceeding. Also ask specifically what extra charges are possible and probable over the course of the job.
Start with an open mind. It’s great to start your project with an open mind, an expansive wish list, and a lot of creative thinking, but at some point it’s necessary to think about costs. If you ignore costs altogether, you can waste a lot of time looking at land and designing houses (additions, kitchens, or whatever) that you could never afford. On the other hand, if you get overly focused on line-item costs early on, you can stifle your creativity and miss out on exploring design options.
Then a “guesstimate.” There are a number of approaches to estimating that lead to different levels of precision. For the early stages of design, you can start with a ballpark estimate or “guesstimate.” As you get further along with your plans, you will probably want a more precise number, which you can get using unit-cost estimates by the square foot or linear foot.
Precise estimates. If you will be acting as your own contractor, you will have to do a precise estimate using many of the same techniques professional contractor uses. In most cases, you will let the subcontractors do the precise estimates which they will use in their bids. In either case, it’s important to understand how estimates are done. This will help when negotiating over change orders, allowances, and other cost changes once your project is underway.
Understanding the estimating process will help you
• Design a project you can afford, rather than waste money on an unrealistic plan
• Evaluate an estimate or bid from a contractor or sub
• Identify errors and omissions in an estimate
• Create your own accurate estimate as an owner-builder
• Provide your bank with a realistic budget for a construction loan