Construction Estimating Basics

by Mar 13, 2019

For a general contractor, the most essential and valuable role is the cost estimator and having a good cost estimator. Good – meaning accurate – estimation methods is where company profitability begins. Without an accurate estimate that fits in a project budget, a firm cannot do business.

So, what is a construction cost estimate?

Fundamentally, a cost estimate is the approximation of the cost of a construction project, which is typically a building, and/or a building site. This can be a new building, or a renovation of an existing building. The cost estimate to construct a building has a single total value and may be broken down into smaller, itemized values to show the material and labor types that go into a project.

Where does an estimate begin?

The construction process usually begins with a developer, who will often work with a cost estimator and an architect or engineer to determine a project’s financial feasibility. Construction projects can be a risky endeavor, therefore it is essential to work with several experts in order to determine feasibility. Once the project is determined to be financially feasible, a project developer will collaborate with a design team to produce a conceptual design, at a minimum. The project is then put out to bid for several contractors to produce a proposed construction cost, or will work directly with a contractor they have an existing relationship with.

What does it mean to put a project out to bid?

Putting a project out to bid means that a project is advertised either publicly or privately by preferred selection. The companies involved will produce a cost estimate that fits in the project’s forecasted budget. The forecasted budget is the result of the initial collaboration between developer, cost estimator and architect/engineer to determine project financial feasibility. Whether or not a construction firm decides to bid on a project is a result of many factors. These factors include company capacity, expertise in the project type, whether or not the company thinks the project is financially feasible during a first pass on a cost estimate, and more.

What does it take to be a construction cost estimator?

To be a good construction cost estimator, it takes expertise on how to build a building and knowledge to a certain level of detail. Without knowing how a building is constructed – down to how the rebar is placed, or nails are nailed in – a cost estimator will not be able to produce an accurate estimate. Today, it also takes the willingness and ability to adopt new technology and reliable construction estimating software. Together, construction knowledge and technological capability make for a powerful estimator, who can accurately and efficiently produce winning cost estimates for a construction company. Most construction companies would say that it is essential that a candidate for an estimator job have first-hand construction experience in order to do the job well.

What are the types of construction cost estimates?

During the preconstruction phase of a project, which includes cost estimating, contractors typically create a project plan to create multiple estimates during the course of the design of a project.

The American Society of Professional Estimators has developed a five-tiered system to classify estimates. Throughout each level, the estimate becomes more detailed and more accurate. A breakdown of this system is listed below.

Level 1: Order of Magnitude Estimate (also called a Conceptual Estimate)

An Order of Magnitude estimate is created before the project design has started. As mentioned previously, it is typically created with the help of a design team to determine overall feasibility of a construction project.

Level 2: Schematic Design Estimate

A Schematic Design estimate correlates to the Schematic Design phase of an architectural drawing set. This is typically when a formal drawing set is created by an architect and/or an engineer. The drawing set will include rough drawings of a site plan, floor plans, exterior elevations. In addition to these, project sketches or renderings that may have previously been produced during the Conceptual phase are included.

Level 3: Design Development Estimate

A Design Development Estimate correlates to the Design Development phase of an architectural drawing set. During this phase, designers put more detail into drawings, in addition to creating more drawings to show the contractor how to construct the project. This is when designers will start determining building materials and specifications for the project.

Level 4: Construction Document Estimate

A Construction Document Estimate correlates to the Construction Document drawing set produced by the designers. At this point, the construction documents are nearly to 100% complete, with many building detail drawings and a materials specifications book included in the document set.

Level 5: Bid Estimate

The bid estimate is based on a 100% complete construction document set from the designers, and is the basis of the bid price offered to the client or prospective client.

Why is it important to have an accurate cost estimate?

The financial risk associated with construction projects makes it essential to having accurate cost estimates. Even a small miscalculation in a cost estimate can create cost overruns in a project. When that happens, the money has to be made up somewhere, and that often means giving up something else in the project. Money is often found by taking it out of the contractor’s profits, or going to the owner for more money. None of these options are pleasant and rarely produce a good outcome. Accurate cost estimates are especially important in publicly-funded, or partially publicly-funded construction projects, where costs will be scrutinized by many more parties – particularly taxpayers and donors who help to fund the projects. Many times, it is the construction firm’s responsibility to make up for any budget miscalculations. Therefore, having a knowledgeable construction cost estimator with accurate cost estimating software is important for the success of a construction project and construction businesses.

How can construction technologies or estimating software help?

The construction industry has a wide variety of pre-built software available to help produce accurate and detailed cost estimates. It has increasingly become industry standard to the estimating process to have dedicated digital tools to calculate material and labor costs. If a construction firm is not using these construction technologies to produce accurate cost estimates, they are behind the eight ball. General contractors can choose from dedicated estimating spreadsheet software, such as Sage Estimating or ProEst. Often, general contractors need to complete digital takeoff from digital drawing files, and a digital takeoff software can further decrease estimating time and increase cost estimating accuracy. Digital takeoff software can come as a part of your dedicated estimating solution, or can be added on to an existing estimating software solution.

What are your thoughts?

Are you an experienced estimator or someone who’s looking to get into the field? Let me know your thoughts down in the comments or connect with me on LinkedIn, where I’m most active!

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