Managing a construction estimation team is a challenging task, particularly when the team is overwhelmed with projects. The pressure to complete each project on time and with a high quality can be overwhelming, and it may seem like there are few options available to alleviate the burden. However, there are several potential solutions to consider, each with its own set of pros and cons. In this blog post, we will explore three possible solutions: hiring more estimators, dropping some projects, and implementing estimation software to help improve efficiency.
Option 1: Hire More Estimators
One possible solution to an overwhelmed estimation team is to hire more estimators. Hiring additional staff can help distribute the workload and may allow the team to complete projects more quickly. However, there are several potential downsides to this solution.
- Additional estimators can help ease the workload and allow the team to complete more projects.
- New estimators may bring fresh perspectives and new ideas to the team.
- Hiring additional staff can be expensive and may not be feasible for all companies.
- Training new estimators can be a lengthy process and may take away from the team's productivity in the short term.
Option 2: Drop Some Projects
Another possible solution is to drop some projects from the team's workload. While this may seem counterintuitive, it can help alleviate some of the pressure on the team and allow them to focus on the most important projects.
- Dropping some projects can help the team focus on the most important and profitable projects.
- Removing some projects from the workload can help reduce the team's stress levels and improve their productivity on remaining projects.
- Dropping projects can lead to lost revenue and potential damage to the company's reputation.
- Clients may be disappointed if their project is dropped, which could lead to negative reviews or word-of-mouth recommendations.
Option 3: Implement Software to Improve Efficiency
A third and potentially more compelling option is to implement estimation software that can help improve the efficiency of the estimation team. There are several software solutions available that can help streamline the estimation process, reduce errors, and improve accuracy.
- Implementing software solutions can help the team complete projects more quickly and accurately.
- Automation can reduce the workload on individual team members and allow them to focus on other important tasks.
- Estimation managers can more easily review estimates, gain insights, and make strategic decisions that can help improve win rates and profitability.
- Software solutions can help identify potential issues and errors before they become larger problems.
- Implementing software solutions can be costly, both in terms of the initial purchase and ongoing maintenance and upgrades. It is important to choose solutions that provide benefits that greatly outweighs the costs.
- Training team members on new software can take time and may temporarily reduce productivity. Therefore, it’s crucial to choose solutions that are easy to learn and quick to implement.
While each of these solutions has its own set of pros and cons, implementing estimating software that provides a rapid return on investment and a quick time to value is the most compelling option for an overwhelmed construction estimation team. While hiring additional estimators may be effective, it is always best to optimize the efficiency of the existing team and implement standard processes before expanding the team. Dropping projects can lead to lost revenue and damage to the company's reputation. On the other hand, implementing software solutions can help improve efficiency and accuracy, reduce errors, and streamline the estimation process, all while allowing the team to focus on the most important projects. While there may be upfront costs and temporary productivity dips, in the long run, the benefits of implementing software tools will greatly outweigh the drawbacks.
Effective budget control is a critical component of project management for construction companies. Despite their best efforts, many companies still face challenges in implementing effective budget control measures, resulting in cost overruns and delays. One of the first roadblocks is the lack of alignment between estimation and operations teams.
In its simplest forms, budget control is the process of comparing the earned value with actual cost for a list of agreed upon cost centers and analyzing the root cause of cost variances. The purpose of the analysis is for project managers to take the right action that will help mitigate cost overruns and maximize profitability.
This blog aims to provide practical steps for overcoming common challenges and for implementing successful budget control in construction projects.
Enable alignment across key departments
One of the primary challenges in implementing effective budget control is the lack of alignment and inconsistencies in reporting among the three teams involved: estimation, finance, and cost control. Different departments are responsible for different parts of the process. Clear communication channels are essential to aligning on how budget control objectives will be accomplished, the responsibilities of each of the teams involved, and implementing an effective workflow across the teams.
Establish a consistent cost center baseline for budget control
Another related challenge is the lack of consistent cost codes or cost centers across the departments, making it difficult to have a common baseline for comparing the earned value and actual cost. To address this challenge, a clear cost coding system must be established and consistently used for budget control. It is important that the level of granularity of cost centers is realistic and aligned with the company’s available resources and capacity to capture actual costs. Utilizing specialized estimation and budget control software can further facilitate the implementation of the selected coding system, and enable a smooth handover and reporting across the teams.
Leverage the estimate when creating the project budget
While it is important to recognize the purpose and assumptions behind an estimate, it can be a valuable baseline when creating the project budget. As more information about the project becomes available, appropriate changes must be applied to the estimate to more closely reflect the project. Additionally, the project budget may need to be adjusted to account for changes in scope and management decisions. However, a final and agreed-upon budget must be used as the baseline for budget control.
Track with regular and consistent closing dates
Delays in obtaining actual cost reports and differences in closing dates can pose challenges in budget control. Establishing clear protocols and timelines for all teams to follow can help ensure proper tracking and reporting of earned value, actual cost, and cost variance. More frequent tracking and monitoring of earned value and actual costs enables a more timely implementation of corrective action to mitigate cost overruns.
Account for re-allocations and adjustments
Changes in construction methods may require the reallocation of costs to different cost centers, making it challenging to accurately compare budget versus actual costs. For example, when a project activity was assumed to be self-performed work during budgeting, but was later subcontracted. It is necessary to reallocate costs to the right cost center to ensure a proper comparison. Additionally, accounting for corrections such as liabilities and material on site requires applying adjustments to the actual cost values to reflect these variables.
Analyze results to take corrective actions or explore possibilities
The key purpose of budget control is to detect the root cause of variances in order to mitigate cost overruns and to maximize opportunities for profitability. The calculation of key budget control metrics and the investigation of variances helps project managers determine the appropriate actions. Additionally, insights can be provided back to the estimation teams to enable improved accuracy, competitiveness, and profitability for future projects.
Finally, many companies attempt to do too much at once to address cost overruns. Budget control can be a complex, multi-dimensional topic. However, simply by starting with the few steps outlined in this article, you will be well on your journey towards successful budget control that you can evolve and advance over time.
Spreadsheets are a commonly used tool across the construction industry, from finance, project management and reporting. They are a powerful tool for organizing data, performing calculations, and creating charts and graphs. However, when it comes to estimation, are spreadsheets the right tool to use?
Estimation is a collaborative process
Estimation often involves a team of people, and spreadsheets are simply not designed for collaboration. Sharing spreadsheets poses several challenges for estimators working in teams. One of the biggest challenges is that the format and formulas used may not be well-understood by everyone, leading to confusion and errors. Moreover, the manual entry of formulas and data can be a recipe for disaster, as accidental changes can lead to incorrect estimates. Despite the common use of shared folders, there is a strong tendency for estimators to create their own versions of spreadsheets - leading to discrepancies and uncertainty in version control.
Spreadsheets are not databases
Spreadsheets are excellent for data manipulation, but are not designed for data storage and organization. This is particularly true when it comes to estimating using a modular or building block approach where previous estimations are re-used for things like resources, activities and standard items. Re-entering these each time can be time-consuming and error-prone when managed in spreadsheets as opposed to a database application.
Spreadsheets fall short for detailed cost breakdown analysis
While spreadsheets can suffice for high-level cost estimates based on the estimator's experience, they often fall short when it comes to detailed cost breakdowns. To achieve the level of accuracy necessary for competitive bidding and generate reports for different departments, a detailed breakdown of all labor, equipment and material costs is necessary. This level of detail is required for budget reports for finance, activity reports for planning as well as detailed resource breakdown reports for procurement and can be very difficult to produce using just spreadsheets.
Estimation with multiple sets of quantities
Estimating cost and price using two sets of quantities can quickly become complex when using spreadsheets. If you need to calculate costs based on both client quantities and take-off quantities, the complexity of a spreadsheet can double. This is where a database application, specifically designed to handle multiple sets of quantities, comes in handy. It can easily manage and calculate costs based on multiple sets of quantities, making the estimation process more accurate and efficient. By using a specialized database application, you can streamline your estimation process and reduce the risk of errors due to complex calculations.
Last minute changes to estimates?
Making last-minute changes to a bid proposal can be a daunting task for estimators. Shortly before bid submission, management often requests changes based on various what-if scenarios, such as reducing the cost of equipment or negotiating with subcontractors for a discount. These changes can be time-consuming to apply in a spreadsheet estimate, leading to delays and inaccuracies. However, a database application, specifically designed to handle these types of scenarios, can quickly implement changes in a matter of seconds. With a specialized tool, estimators can ensure that the best proposal is submitted on time and with accuracy, giving their organization a competitive edge.
Spreadsheets and indirect cost calculation
Calculating and distributing indirect costs can be a complex task when using spreadsheets. While a simple percentage markup is sometimes applied equally to all items, more often than not, indirect cost calculation requires its own full-fledged estimation, similar to direct items. Additionally, the distribution of indirect cost may need to be unevenly distributed in some circumstances, leading to even more manual manipulation within spreadsheets. A specialized estimation application can simplify indirect cost estimation and enable the distribution of indirect costs in strategic ways to achieve the target price.
The old way is not always the best way!
If you are hesitant about moving away from spreadsheets, keep the above points in mind. You might feel that spreadsheets are the way to go because they are commonly used for tendering and cost data. However, it’s important to note that some specialized estimation applications are highly compatible with most spreadsheet applications, so you can get the best of both worlds and use the right tool for the task at hand.
If you have been estimating construction projects, then you are already familiar with using a quantity figure to calculate the cost of any bid item. Multiplying the quantity by the unit cost generates the total cost of any item.
But did you know that dual-quantity estimating using two quantity figures can help you win more bids, and improve your profit margins?
Let’s explore why.
When you are estimating and pricing a bid, you normally have a list of pay items, each with a quantity figure provided by the client in the bid document (or Bill of Quantity). You are likely using these quantity figures to estimate the cost of the project. The quantity figures are what the client determined was needed based on their assessment.
Estimating with the client’s quantity figures remains important for several reasons:
While estimating with the quantity figures is still very important, it is not enough to make an informed pricing decision. You can increase your likelihood of winning bids and improve your profit margins by also using estimated quantity figures.
The estimated quantity figures are the quantities you measure based on your own assessment as an estimator, or with the help of the quantity surveyor at your company. Your estimated quantity figures might match the client’s quantity figures, or they may be different depending on the item. Instead of solely relying on the client’s quantity figures, you use your own measurement based on the drawings and your understanding of the project. For indirect items that tend to be duration-based, the estimated quantity is based on your estimated duration of the project rather than the client’s expectation.
Estimating with your estimated quantity figures has key benefits:
When you have estimated your project based on both the quantity figures and estimated quantity figures, you get two magic numbers: a competitiveness indicator and a profitability indicator.
Competitiveness indicator = Direct Cost based on quantities + Indirect Cost based on quantities
Profitability indicator = Direct Cost based on estimated quantities + Indirect Cost based on estimated quantities
The competitiveness and profitability indicators provide you with the insight you need to determine your target bid price. Without both indicators, you risk overpricing and losing the bid, or winning the bid but executing it at a loss. Having visibility of both indicators provides you a competitive advantage, and enables you to make smart pricing decisions for your business.
The good news is that with the right tools in place, dual-quantity estimating can be very simple.
We hear from our users that BidBow is the only construction estimating software that makes dual-quantity estimating easy, empowering you to determine the right target price for your bid. Try a dual-quantity approach to estimating with BidBow to experience the difference.
There are different types of cost estimating methods used in construction. The choice of method depends on the stage and type of the project being estimated. When a bid needs to be submitted to a client, a detailed estimate is often required. A detailed estimate allows for a high degree of accuracy, enabling bid pricing that is competitive and profitable for the business.
Generating a detailed estimate can be challenging, because the number of resources required in any given project can be extensive. Construction estimating software can help make this process easier and faster. However, regardless of whether you are using specialized software, you can generate a detailed estimate using the 5 steps outlined in this article.
Resources are the basic building blocks used to estimate the cost of a construction project. Cost estimation is the process of calculating the cost of all the resources required to carry out a project.
Start by building a list of resources and their unit costs. This will be the library of resources that you will use in all your estimates. You can start populating it with the resources you think you will need for your first project, and it will continue to grow as you estimate more projects. You can speed up building this library by purchasing an initial data set from a construction cost data provider, or by using historical project estimates or procurement records.
Categorize the resources based on a system that makes sense for your business. The most common resource categories are the 4Ms: manpower, material, machinery, and money. You may want to add a subcontractor category if you work with subcontractors. At BidBow, we recommend breaking down money into two separate categories, finance, and margins. Creating subcategories within each resource category can also be helpful when it comes to filtering and reporting on your data.
A resource record would typically include the following fields at a minimum:
Activities are groups of resources that produce an output. Consider creating an activity anytime you need to estimate a group of resources that work together to produce an output, especially if the activity reoccurs in multiple projects. Activities can significantly simplify estimation. By using activities, you can reduce the need to individually estimate resources, and you can factor in productivity in your estimates.
The following is an example to illustrate activities. "Casting concrete for a foundation" is an example of an activity that may be required in many construction projects. Estimating its cost requires calculating the cost of a group of resources, such as masons, laborers, concrete vibrator, concrete pump, and potable water for curing. To estimate its cost, we need to determine the quantity of each of the resources required to produce a specific output.
This activity may be defined as follows:
Activity description: Casting concrete for foundation
Output: 40 CUM
Resources required to produce 40 CUM:
|2||Mason||Day||1||From resource library||C2 x D2|
|3||Laborer||Day||6||From resource library||C3 x D3|
|4||Concrete vibrator||Day||2||From resource library||C4 x D4|
|5||Concrete pump charges||CUM||40||From resource library||C5 x D5|
|6||Potable water for curing||CUM||2||From resource library||C6 x D6|
Unit Cost = Total Cost / Output
Multiplying the quantity by the unit cost of each resource then adding up all the results generates the total cost of the activity. The total cost is divided by the output (40 CUM) to generate the unit cost of the activity. The unit cost can then be used to estimate this activity more quickly when a project requires it.
Resources and activities can be linked such that when resource costs change, the cost of any impacted activities is updated automatically. This is one of the many areas specialized construction estimating software can help automate.
Creating a building block library of resources and activities that is relevant for your business is a prerequisite to estimating your projects. Steps 1 and 2 describe how you can build this library, but these steps only need to be performed once. Afterwards, you can simply adjust your library as needed. For instance, when resource rates change, or when new resources or activities need to be added. Once you have a library of resources and activities created, any future cost estimation exercise can be done by following steps 3 to 5.
Direct items are the project pay items that need to be estimated. The list of direct items typically comes from the client as a “Bill of Quantity” or a bid document. However, direct items can also be generated internally from project specifications and drawings.
Each direct item is estimated using the library of activities and resources built in the first two steps. The following is an example to illustrate how direct items can be estimated.
Direct item description: Concrete for foundation
Quantity: 2000 CUM
Resources and activities required per unit of the direct item:
|1||Resource or Activity||Unit||Quantity||Factor||Unit Cost||Cost|
|2||Activity: Casting concrete for foundation||CUM||1||1||From activity library||C2 x D2 x E2|
|3||Resource: Concrete 40/20 SRC||CUM||1||1.02||From resource library||C3 x D3 x E3|
|4||Activity: Steel rebars cutting, bending and fixing in structures||KG||100||1||From activity library||C4 x D4 x E4|
|5||Resource: Steel reinforcement grade 460||KG||100||1.05||From resource library||C5 x D5 x E5|
|Total Cost Per Unit
Total Direct Item Cost = Total Cost Per Unit x Quantity
Multiplying the quantity by the unit cost by the factor (used to account for material waste) of each resource or activity, then adding up all the results generates the total cost per unit of the direct item. This cost is multiplied by the direct item quantity to generate the total cost for this direct item.
All direct items are calculated in the same way, then the total cost of all direct items is added up to determine the total project direct cost.
At BidBow, we recommend calculating the direct cost based on estimated quantities as well. This provides estimators two pricing scenarios to evaluate before determining the bid price. One that is based on quantities provided by the client, and another that is based on estimated quantities determined by the estimator.
Indirect items are sometimes called overheads. They are the additional costs that are not directly related to a pay item. Some common examples are bank charges, insurance, supervision staff, and project margins. Indirect items tend to be very similar from one project to the next, so we recommend creating a list of the most common types of indirect items that can be used as a template across all projects.
Indirect costs are usually sums of money (like bank or insurance charges), duration-based costs (such as supervision staff), or percentages (such as project margins).
Identify and estimate each indirect item using the library of resources. The following is an example to illustrate how indirect items can be estimated.
Indirect item description: Supervision engineers
Quantity: 24 Months (the duration of the project)
Resources required per unit of the indirect item:
|2||Civil Engineer||Month||4||From resource library||C2 x D2|
|3||Electrical Engineer||Month||1||From resource library||C3 x D3|
|4||Materials Engineer||Month||0.5||From resource library||C4 x D4|
|5||Mechanical Engineer||Month||0.5||From resource library||C5 x D5|
|Total Cost Per Unit
Total Indirect Item Cost = Total Cost Per Unit x Quantity
Multiplying the quantity by the unit cost of each resource then adding up all the results generates the total cost per unit of the indirect item. This cost is multiplied by the indirect item quantity to generate the total cost for this indirect item.
All indirect items are calculated in the same way, then the total cost of all indirect items is added up to determine the total project indirect cost.
Similar to direct items, we recommend calculating the indirect cost based on estimated quantities as well. Additionally, project margins are considered an indirect item, which includes profit margin, head office margin, risk margin and other margins as resources. Project margins can be calculated as percentages of the project price or the project direct cost depending on the business strategy.
The project price is calculated by adding the project direct cost and project indirect cost generated in steps 3 and 4.
At BidBow, we recommend generating at least 2 pricing scenarios and comparing them. The first price is the sum of the direct cost and indirect cost based on quantities. The second price is the sum of the direct cost and indirect cost based on estimated quantities. Getting visibility of both scenarios allows you to evaluate your pricing options for competitiveness and profitability. You can then either select one of the two calculated pricing scenarios, or you can come up with your own target price based on the analysis.
From the selected price, the markup percentage is calculated by dividing the indirect cost by the direct cost. The markup percentage can then be applied to all the direct items. Strategic markup allocation with uneven distribution of markup is often critical for contractors. Specialized construction estimating software can simplify strategic markup allocation and help you hit your target price.
By using the process outlined in this article, you can generate detailed estimates with the level of accuracy needed to bid in a competitive and profitable way. While building your initial library of resources and activities can take some upfront work, the effort pays off exponentially with every project bid you estimate.
Cost estimation is one of the most important functions in a construction company. Done right, it can be the key reason companies win projects and build a thriving business. Done wrong, it can lead to significant loss of time, effort, and money. Given challenging global economic conditions and a highly competitive market, it is understandable that construction leaders are shining the light on cost estimation to gain a competitive advantage and improve their bid outcomes.
Cost estimation is inherently a simple process
Despite its challenges, cost estimation is inherently a simple process. Cost estimation is the process of calculating the cost of all the resources required to carry out a project. At a high level, all one would need to do is identify all the resources needed to execute the project, determine the cost and quantity of each resource, multiply the cost by the quantity of each , then add up all the numbers.
Sounds simple enough, right?
The challenges of cost estimation
If estimation is simple in concept, where do the challenges lie? Well, as it turns out, when it comes to cost estimation, the devil is in the detail. If you speak with any construction estimator, they will be quick to articulate the many aspects of the job that make it challenging.
In speaking with many estimators, below are the challenges we hear most often at BidBow:
Cost estimation opportunities: people, process, and technology
To succeed with cost estimation and bid outcomes, construction leaders need to prioritize having the right combination of people, process, and technology.
To begin with, construction leaders need great estimators. Estimators are the lifeblood of a construction company, and they have a remarkably challenging, detail-oriented, and specialized job. Only few can claim mastery of this craft after spending years honing it. Many companies struggle to hire, develop, and retain estimators. Those most likely to succeed are the leaders who recognize the importance of the estimation function, invest in developing and retaining estimators, and provide them with the support, training, and tools that they need to be effective. A company culture that recognizes the importance of estimation will also provide the right organizational structure and support to enable effective collaboration and decision making.
Having defined estimation processes and methods helps people speak the same language, communicate more effectively, and arrive at decisions more quickly. Standardized estimation methods enable new hires to quickly get up to speed on how estimation is carried out at the company, allowing them to deliver more quickly and effectively.
The right technology is a key ingredient for estimation success. Cost estimating software can automate many of the repetitive, time consuming aspects of estimation. All specialized construction estimating software will typically include the ability to manage and maintain a database of resources, and groups of resources (assemblies), to speed up estimation. In addition to calculating cost, the best tools also provide rich reporting, what-if analysis, evaluation of pricing scenarios, vendor quote comparisons, tracking of executed works, and other functions that make cost estimation easier, faster, and more accurate.
If your company is struggling with low bid win rates and low profit margins, then it’s time to give cost estimation more attention. Inspecting whether you have the right combination of people, process, and technology is your first step towards a thriving construction business, higher bid win rates, and increased profitability.