Estimating is one of the hardest parts of construction. It is also one of the most important. Success usually relies on how accurate you are with your estimates and if it matches your final project cost.
A recent survey by QuickBooks found that 30% of construction companies were not making as much profit as they initially thought. Of those surveyed, 40% had little confidence in their estimations.
One wrong estimate on a project that loses money won't put you out of business. String together a couple of unprofitable projects. You might find yourself closing the doors for good.
A quarter of all respondents from the survey of Quickbooks indicated that it would only take two or three wrong estimates to ruin their business.
Getting an accurate estimate is tough, but it's necessary if you want to do it right.
They have to consider all sorts of things before giving an estimate, such as how much time workers take to finish a project, how many materials go into it, and so on.
The numbers could be way off if you don't factor in certain things like risk contingencies and overhead costs.
Many things can go wrong when constructing an estimate for a job. One or two mistakes can throw your estimates entirely off, resulting in a wrong bid- one where you lose out because the price is too high or win out without making any profit.
Let's look at some of the most common estimation mistakes. Read along to learn more!
Labor costs can be one of the most challenging to nail accurately when estimating a project. Construction business owners say labor costs are the hardest to estimate and were ranked as the most expensive project cost. There are many factors at play when figuring out labor rates, including several available workers for the job, their experience level, rate of pay, and productivity.
A good, experienced worker may make a higher salary but are more productive and can get more done in less time than a worker with less experience who makes a lower salary. Man-hours must be calculated to estimate the cost of labor when preparing estimates.
It's important to know whether there are prevailing wage requirements for the project and pay each worker accordingly. It is also very important to keep track of how much it costs per hour so that when estimating future projects, you'll be able to predict how much they will cost accurately. Having software like 247PRO can help you adjust all the costs can save you a lot of time and you can easily create accurate estimates.
The estimate should provide an overview of the project and more detailed information regarding every line item and its associated costs. With this plan, it would be easier for everyone - regardless of their level of experience - to determine a price without getting lost in all the confusing information.
Collaboration between different departments also becomes possible when transparency exists within a company because people can share knowledge.
Risk is an essential aspect of every construction business. In order to estimate construction projects, managers must consider the likelihood of risks that come along with them.
It then becomes easier for them to decide about bidding or passing up a job - if they win jobs with high-risk factors, there are more chances for disaster and losses, but if they lose out on opportunities because of high-risk factors, their chances for success increase.
Understanding the extent of the risks helps me determine how much to put in contingency bids. Factors considered during risk assessments may include the project owner's age and reputation, whether pricing is fixed or variable, whether materials are custom or off-the-shelf, and if there are fluctuations in price for any of these items due to seasonality.
Estimating software is the most important thing to consider if you want to avoid any costlier construction errors in your estimates.
Construction estimation software helps you estimate the typical cost of certain materials and procedures before making any mistakes. They help you adjust all the labor costs, profit margins, material costs, and whatnot, so why not take advantage of it? It's beneficial if you're new to the industry or don't have any previous information about building costs - all you need is a good estimating software like 247PRO and you are creating accurate estimates in no time!
To create an accurate construction estimate, it is critical to provide a comprehensive list of all the raw materials, prefabrication tools, and the quantity needed for every completion stage. A project lacking this information will result in an estimation that does not reflect what it would take to complete it.
The material type needs specification; it’s not enough to list available materials and quantities. For example, the cost can fluctuate greatly depending on the grade of steel, specific brand of material, or electrical cable type. The cost estimate can be way off if this information is missing or inaccurate.
Typically, the takeoff list is created from the blueprint and other design materials. If these materials are incomplete or inaccurate, it will impact the takeoff list's accuracy.
The materials takeoff list helps determine how much material and supply are needed for the construction project and what kind of labor and equipment will be necessary. If no accurate takeoff list is made, then the estimations on labor and equipment would most likely be inaccurate.
Every project is unique, and not every project will yield the same profits or return on investment. If you're not a large corporation, then you only have so many resources at your disposal, which means you need to be more selective about which projects you choose to accept- understanding that any given accepted project may occupy those scarce resources from another potential opportunity.
More importantly, some projects will be more challenging to estimate since they are often far removed from your industry expertise. This makes it harder to keep accurate estimates and not be as profitable as other projects.
It is imperative to keep up with the current market trends to make accurate estimations. The cost of materials and government regulations change rapidly, so without being aware, making accurate estimates will be challenging, which could lose you money.
It is important to maintain an awareness of what is happening in the construction market so that you can provide accurate cost estimations.
Many mistakes could occur when you're estimating a project. This could lead to both monetary losses for the company and loss of bids.
Simply using estimation software isn't enough for the most accurate and competitive estimates. Cost estimators must also rely on project management software like 247PRO, where you can adjust overhead costs to create accurate estimates and manage all your team and customers. And both tools working together will give you peace of mind so that you can focus on what matters - your bottom line.
This article discusses common pitfalls that are easy to avoid if you know what they are. In future posts, we'll talk about ways to ensure your construction business stays afloat - so stay tuned!
