Basic Principles of Estimating

1
Basic Principles of Estimating
2
Estimating

• A prediction of probable cost.
• Is figuring out how to put the pieces together in
  the most economical manner.
• Estimating is both art and science.

3
Estimating (cont.)

• Identify and quantify the pieces-takeoff.
• Identify construction methods.
• Engineering - Will it be stable during
  construction?
• Productivity

4
Bidding is NOT the same as Estimating

• Identify RISK
• How do you get paid?

5
Successful Estimating

• Contractors are not in business to win bids.
• Contractors are in business to make money.
• Estimating is the base of a companys success.

6
Estimating for Profit

• Good estimating minimizes contractors risk and
  facilitates project management and defines the
  scope of work.
• The estimate is the plan that furnishes the field
  people with all the details in a controlled and
  prearranged format.

7
Estimating Requires

• Skills
• Effort
• Above all, an organized system that will prevent
  errors and omissions.

8

• Estimating is very expensive therefore, we must
  use our time wisely and effectively if we are to
  be successful.

9
Cost of Estimating
Chart 1
55
50
A
45
40
hours
B
35
30
25
C
20
15
10
100
200
300
400
500
Size of Project in Thousands of Dollars

• A Simple project
• B Medium complexity
• C Difficult project

10
Cost of Estimating (cont.)
Chart 2
170
160
A
150
140
130
B
120
hours
110
C
100
90
80
70
60
50
40
30
1.5
2.0
2.5
3.0
3.5
Size of Project in Millions of Dollars

• A Complex
• B Medium complexity
• C Simple

11
Profit Should Correlate to Risk

• Job Comparison
• Compare two jobs of identical direct cost, yet
  very diverse in overhead and risk factor

Job A Job B Material 200,000 100
,000 Labor 20,000 230,000 Subcontractors
100,000 10,000 General Expenses
30,000 10,000 Subtotal 350,000
350,000 Overhead _at_10 35,000
35,000 Profit _at_10 38,500
38,500 Selling Price 423,500 423,500
12
Profit Should Correlate to Risk (cont.)

• Job Comparison

labor
7
7
7
6
6
5
5
5
5
5
5
4
week
1
2
3
4
5
6
7
8
9
10
11
12
12 weeks ? 65 labors
15
15
labor
10
10
3
3
3
3
2
2
2
2
week
1
2
3
4
5
6
7
8
9
10
11
12
12 weeks ? 65 labors
13
Profit Should Correlate to Risk (cont.)

• Materials Low to medium risk
• Labor High risk
• Subcontractors Low risk
• General Expenses Low risk

14
Accuracy is Critical for Success

• A typical project can be broken down as follows
• Material 40-45
• Labor 35-40
• Equipment Expenses 8-10
• Overhead 10
• Profit 2

15
Common Estimating Mistakes

• Misread or misinterpreted specifications,
  drawing, or any other contract document
• Takeoff omissions or overlaps
• Missing quotes
• Estimating by unit prices
• Using the percentage method to establish the cost
  of certain systems
• Prorating indiscriminately
• Crumbling under pressure to procure work

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Common Estimating Mistakes (cont.)

• Cutting prices to meet or beat someone elses
  quote
• Underestimating the complexity of a project
• Expecting an excessive amount of favorable
  changes
• Overemphasizing volume purchasing
• Undertaking a project with incomplete bid
  documents
• Scaling drawings

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How to Improve your Estimating Procedure

• Company labor tables and current material prices
  should be stored in your database.
• Manual estimating is not cost effective and it is
  subject to more errors and omissions.
• Computerized estimating should automate and
  expedite the manual estimating process.
• Establish the company labor unit sand labor
  factoring tables.
• Maintain current material pricing.
• Establish an estimate review procedure.