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.