Construction Cost Estimating: Everything You Need to Know

Construction estimating is determining the approximate cost involved in a construction project, such as material, labor, and equipment, to perform work based on the available design information.

It involves estimating all the direct and indirect expenses incurred during a project's construction phase.

The ability to predict the cost of a construction project is an essential management skill for a general contractor. Estimating too low can lead to losses while estimating too high can mean missed opportunities.

Importance of construction estimating:

Accurate construction cost estimating creates an essential budgeting foundation to control costs and maximize profits for contractors.

Construction estimating helps determine how much a project is likely to cost and how much profit a construction company can expect to make. These estimates help ensure that you remain within the budget to purchase all items required during the construction process.

Here is why construction cost estimating is important:

1. Profit forecasting:

Construction cost estimates allow contractors to forecast profitability on projects. Incorporating all direct and indirect expenses in the estimate helps contractors determine the minimum price needed to cover the cost and generate profits. An ideal construction estimate includes all costs, plus any lost supplies and materials, to ensure you make a profit on your project.

By forecasting expenses and comparing them to projected revenues, organizations can evaluate the profitability of construction projects before they even begin. With this insight, stakeholders can make strategic decisions about project feasibility, pricing strategies, and resource allocation to maximize profitability and minimize financial risk.

2. To produce accurate bids: 

Providing accurate bids is essential in the construction industry as it instills confidence in clients and also helps contractors secure projects while maintaining a competitive edge. Customers like an accurate quote so they know exactly how much money to pay for the job.

You could lower your bid price and attract more customers by using a detailed construction estimate.

3. Budget Planning and Control: 

Construction estimating helps stakeholders plan and control project budgets effectively. A clear projection of the expected costs helps contractors allocate resources wisely and prevent budget overruns. Accurate estimates help contractors make informed choices of their spending decisions and prioritize spending to ensure they stay within the budget.

4. Create transparency and communication: 

Transparent communication with customers helps build trust and fosters strong client relationships in the construction industry. Construction estimating provides clients with a clear understanding of the project costs, timelines, and deliverables. The detailed information of the project improves client satisfaction and loyalty.

5. Determine the project's scope.

Construction estimating can sometimes help you determine the scope of the project. For example, it will help you find out:

• If certain materials are too expensive
• If the project has become too large
• If the timeframe is too tight to make changes before work begins

It is important to determine how many people you can afford to hire.

6. Effective resource allocation

Effective resource allocation is critical to getting the job done for any construction project. And it is where construction estimating plays a key role in this process. Estimates help project managers plan and procure resources efficiently by identifying the materials, equipment, and labor required for the project. This proactive procurement approach ensures that all necessary items are available when needed and minimizes delays during the construction process.

Steps involved in construction estimating:

The process of construction estimating follows a series of steps that ensure all costs accounted for in the project remain within the budget. This post will explore the essential steps in construction estimating.

1. Look at potential risks:

Keeping a keen eye on risks and contingency plans holds significant importance in project planning.

Risk management means thinking ahead to find ways to make the most of opportunities and reduce the chances of problems happening. It is a continuous process and helps you prepare for any unexpected challenges that might come up during the project. This helps you stay on track with your budget and make smart decisions about where to spend money.

2. Do a site visit:

Though the site visit may not be mandatory for submitting the bid, it is highly recommended for most construction projects. An in-person evaluation allows site estimators to gain insights that plans and drawings cannot provide. Seeing the site helps estimators to gauge better conditions that will impact the project costs.

While some project sites require minimal site work, complex site visits help estimators experience the conditions and visualize the work. A deeper understanding leads to accurate bids and prevents unexpected issues.

3. Perform a material takeoff:

A material takeoff is a vital part of creating an accurate estimate in construction. The takeoff involves reviewing the building plans and counting all the materials necessary to complete the project. The estimator measures and quantifies every item down to the smallest fastener based on the specifications.

Takeoffs are usually done digitally using estimating software for efficiency. The software allows estimators to speed up the process.

The takeoff provides a detailed schedule of all materials required with the exact quantities needed. This materials list feeds into cost calculations and bid preparation. It also helps determine equipment needs and job site logistics.

Material takeoff also prevents mistakes that lead to wasteful purchasing and costly shortfalls during construction. The meticulousness and attention to detail required for accurate takeoffs are one of the core skills of great estimators.

4. Solicit pricing from suppliers and vendors:

Reach out to various suppliers and vendors to gather pricing information for the materials and equipment needed for the project. Provide them with detailed specifications and quantities to ensure accurate quotes. Negotiate with suppliers to secure the best possible prices and terms that align with your project's budget and timeline. Here are the things that you should consider while requesting quotes:

• Product Quality
• Availability
• Delivery timelines
• Discounts
• Payment terms

Leveraging multiple suppliers makes purchasing easier and reduces the risk of shortages and cost increases.

5. Estimate Labor Costs:

Estimating labor costs is like putting together a puzzle. You need to break down the total project scope into individual tasks, estimate the hours needed for each task, determine appropriate hourly labor rates, and calculate the costs.

The takeoff will help the estimators to find out more about the labor requirements for the project.

Here are the following things that estimators need to consider:

• What roles are needed for the project?
• How many man-hours will be required to complete the project?
• Given data from past projects and information about the current project, how productive will the team be?

Add up the cost of all tasks to determine the total labor estimate. Carefully balance accurate labor compensation with the overall project budget.

The key is to understand the full scope of work, break it down into manageable pieces, estimate hours per task, and apply appropriate hourly rates to determine total labor costs.

6. Calculate overhead and indirect costs:

Estimators need to think about both the project costs and the extra expenses of running a construction business.

Indirect costs such as:

• Equipment costs (depreciation, insurance, maintenance, taxes, and fuel)
• Software
• Permits
• Trailers or temporary offices
• Site cleaning
• Professional services

Indirect costs are expenses not specified in the bid package but still needed to complete the project. Estimators calculate indirect costs using the rate and estimated usage duration for each item. Examples are temporary utilities, site offices, and cleanup.

Overhead costs are general business expenses paid whether or not the company has active projects. These include costs like rent, insurance, office staff salaries, and utilities.

Since indirect and overhead costs are essential for operations, estimators allocate a share of these expenses to each project quote even though they are not directly tied to specific project tasks. It ensures the bid covers the full cost of doing business and delivering the project profitably.

7. Submit the Bid:

Once you have assembled all the construction estimate pieces, it's time to package and present it to the client. Your bid proposal needs to stand out from the competition.

To ensure timely submission, prioritize meeting the client's specified deadline. Set reminders and double-check your calendar to avoid missing it.

Your bid must be precise, with correct numbers and no errors or typos. Take the time to review your estimate carefully to ensure everything is in order.

The presentation is also crucial, and your bid should be well-organized and easy to navigate. Consider using visual help such as charts or graphs to help illustrate your points and make your bid more engaging.

Types of estimates:

Estimate Type	Description
Order-of-magnitude	The preliminary phase of an estimate for construction. Used to estimate the scope or scale of the project by looking at similar initiatives. Considers overall scope and costs of similar projects.
Construction Document	Estimated costs for each component of construction, including direct and indirect expenses. Utilizes current pricing for goods, labor, and equipment. Provides a fairly accurate figure. Considers quantity and duration of resources needed.
Design Development	Calculates anticipated project cost based on design plan specifications. Used for funding and establishing profit margins. Estimates are unlikely to change significantly unless unforeseen costs arise.
Bid or Definitive	Used to present bids to clients and finalize project budgets. Provides the most accurate estimate as all expenses and resources are known. May change if expenses or project plans alter during the finalization process.

Conclusion:

Construction estimating serves to create the roadmap for projects and ensures they remain on budget and also profitable.

It requires attention to detail and critical thinking and requires attention to details. Next time you start a construction project, see it as more than something you must do. It is a way to show how much you care about doing things right and succeeding.