Expenditures on construction projects in the United States reached 1,231 billion dollars last year making the country one of the largest construction markets in the world.
As a member of that industry, it is up to you to set a standard for project costs and provide your client with high-quality, accurate estimates.
In this article, we explore how to estimate for the most successful budget, and ways to approach a client with your estimate.
Goals of Estimation
Cost estimating a project is important for a variety of reasons. Primarily, it provides a price for your clients so they know if they want to work with you.
But it can also help you define the approach you take in your construction project by forcing you to break down your approach and consider the roles, responsibilities, and plan you put in place.
When you create an estimate, you are also setting milestones and breaking your project up into phases so that you can ensure you have a stable timetable.
Should You Consider a Time and Materials Estimate?
A time and materials estimate puts the burden of the construction project on the client. They will have to continue paying for their project through its completion and you can keep tacking on the costs of labor as it goes. Keep in mind that these kinds of contracts typically have a cap on the final cost of the project.
This is a good option for clients who may need to make a lot of changes throughout the construction process and don’t want their contract to have to be rewritten.
If you consider giving this type of estimate, make sure that you keep very good track of all the hours for your workers and contractors, you don’t want the client to nickel and dime you later.
Should You Consider a Fixed Price Estimate?
If your project has little uncertainty, then you may want to consider providing your client with a fixed price estimate. This is a more straight-forward way to negotiate since the price is agreed upon and paid.
Be wary of fixed price estimates, clients sometimes create best and final budgets to encourage construction companies to bid against each other. In addition, they may be extra finicky about the process of construction since they want to make sure they are getting the most bang for their buck.
Clients also like fixed price estimates because they know that they will be delivered everything that is in their contract no matter what. As a construction company, you benefit from these types of estimates as well.
You can try to work costs down and save a larger portion of the budget by increasing efficiency. But if you go over costs, there is no more money coming.
Before Creating a Price Estimate
A construction estimate isn’t a guarantee of the final cost of a project. Instead, it is a ballpark range for your customer to use to decide if the project is worth their investment.
Start by showing the client what tasks you are going to compete with their budget and who will be doing those tasks at what speed and for how long. You should also estimate the costs of third-party outsourcing for various tasks as necessary.
Once your estimate has been signed off on, it becomes the official budget for your project, so make sure that you are as accurate as possible.
1. Understand Your Project
If you don’t understand your project, then it can cause costly construction delays. Start by reading the construction brief you got from your client. Understand what they want to achieve and devise a way to give it to them.
2. Set Your Budget
Before you start pulling together your estimate, you need to have a ballpark range for how much your client wants to spend. Start by suggesting things in the higher range and then work your way down from there until you find your clients comfort level.
The better sense you can get of the budget at this point, the less time you will waste creating cost estimates that they can’t afford and the sooner you can start the project.
3. Create a Plan
Once you begin construction, your plan is sure to change. But you do have to have some sort of plan in place that will give your estimate meaning.
4. Choose a Type of Estimate
Some clients will be happy with a ballpark estimate, while others will want a cost by cost break down of everything you plan to do. Know your customer and choose the estimate that makes sense for their needs.
Techniques for How to Estimate
Cost estimation has many variations. Check out the techniques below used by professionals.
The Pie Chart
A pie chart breakdown is an easy way to get a general idea for how much you can spend on each phase of your project. Start with the total your client gave you and divide down from there.
Conservative Estimate of Comparable Data
If the project you’re completing is fairly standard, you can look to other construction project estimates to get an idea of how much things cost. This can save you a lot of time and it also helps prevent you from overpaying for services.
Variable estimates are similar to that of comparable data in that they are a little less specific. You start by looking up data about what different variables in your construction project will cost so that you can calculate a total.
Averaging estimates is a good technique if you plan to make a lot of changes in the budget or make calls on finishes at the end.
An averaged estimate is typically three different budgets where each part of the project is averaged.
Estimating Sections and Creating a Total
If your client doesn’t give you a ballpark range, then you can consider a bottom-up approach. Start by estimating the cost of the parts of your project and then create a total.
More Information on Construction Labor Costs
Now that you know how to estimate the cost of your construction labor, you’re ready to get started with your next project.
For more helpful advice, contact us today.