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The estimation process is vital to the survival of any business or contractor. From an owner's perspective, the cost estimate may be used to determine the project scope or whether the project should proceed. The business service contractor should have an overview of the job by already having visited the job site and performing a walkthrough. Getting to know the space of your job is necessary to getting your bid right.
Performing a quick walkthrough helps contractors understand the prospects exact specifications. They should use this time to ask questions, get to know the client, and determine whether or not they will be a difficult customer to work with. Seek out areas where you will need to use subcontractors and be sure to ask for any mock-ups or drawings the client might already have.
Learn How To Calculate Estimates For Any Building Service
Performing the First Walkthrough
As stated earlier, you should focus on building rapport with the prospective client and collecting data from the job site. This could be in the form of pictures, descriptions, tasks to be done or reminders. Pay attention to client's concerns or specific areas of interest they reiterate are important. Throughout the walkthrough you should begin to start getting a good idea of how long the job should take, resources needed(such as materials, labor and team size) and preferably around how much you will end up charging. Pictures help a lot, especially when writing a proposal so it is advised to take some. Thank the client for their time and go your separate ways in order to start estimating the cost so you can price quote the client.
After the initial walkthrough, you should start compiling all the information you gained and using it to price your job. The following steps outline some things to consider and actions to follow:
Calculating the Tangible Costs
Begin by compiling a list of all the data you collected in the first step. This is basically all your expenses including the cost of labor, difficulty, scope and time. If you don’t price your jobs carefully, these can eat into your profits quickly.
Other expenses to possibly consider include:
- Cost of transportation
- Subcontractor fees
- Preventative care
Make sure to keep all expenses organized in a spreadsheet and adjust according to new unforeseen expenses. Spreadsheets work well however it is far more common for a contractor or business to invest in an estimation software. Most have easy input for data and it helps organize all project costs and business expenses. They take the cost data by adding it up and pricing your business’ total cost. Using this and industry pricing, the software will make an estimate for you.
When it comes to writing the proposal, Route’s proposal generator helps you create polished and customized proposals without the tedium and time consumption it used to take. Bundled with plenty of useful features such as:
- Adding company and client logos
- Customer service charge field
- Templated scope of work
- One click legal verbiage
- Share with your team
- Professionally formatted into a pdf with one click
Route’s proposal generator also integrates seamlessly with the Walkthrough Builder™ by basing a pre-templated list of tasks depending on the types of rooms from your walkthrough. This frees your time to do what’s important for your business, you can try it now for a risk-free 30 day trial.
Rely on Your Experience and the Experience of Others
Try and think of any jobs similar in scope or size to the one you’re currently estimating. Comparing the work that is required on the job with jobs you have done in the past can help paint a clearer picture of what to charge. When you’re starting out, the chances of bidding low on an estimation is likely. The only thing you can do is learn from the lessons and move on. Try and avoid this by taking into account the opinions and thoughts of others in your field. These professionals are likely to have a much clearer idea of the industry and what some common pricing for jobs would look like. The Route proposal generator also bases its estimates on industry data.
Price for Overhead Costs
Overhead costs are all ongoing business expenses not including or related to direct labor or direct materials used in creating a product or service. This includes things like insurance, employee wages, taxes, or fees. Some people charge a percentage on top of the price they get after adding all itemized expenses. Depending on whether or not you’re a single contractor with no employees or a large business, it is always wise to add pricing to cover for extra expenses. The percentage will depend on your work industry.
What Makes a Good Estimate?
The usefulness of a cost estimate depends on how well it does in scopes like reliability and precision. There are plenty of characteristics for deciding cost estimate quality. This includes:
- Assurance level: Since even the greatest estimates have some degree of uncertainty, it is vital to communicate the amount of potential variability in any estimate. Confidence levels can communicate estimates as ranges.
- Precision: To reduce the variation in cost estimates due to the techniques used, estimators should compare and corroborate estimates. Cost estimating software makes this fairly easy.
- Reliability: Reliability is a concept based on the extent to which historical cost estimates for a certain type of project have been accurate. For new projects that are similar to completed past projects, similar estimating techniques will allow reliable estimates.
- Accuracy: A cost estimate is only as useful as it is accurate. Aside from selecting the most accurate estimating techniques available, accuracy can be improved by revising estimates as the project is detailed and by building allowances into the estimate for resource downtime, project assessment and course correction, and contingencies. You can also use an estimation software like Route’s proposal generator.
- Documentation: It is important that the assumptions underlying estimates are identified and recorded in writing, and that regular budget statements are provided. Thorough documentation the contractor or business can have everything organized and neat to present to the prospective client.
- Risk detailing: All projects can be affected by negative risks, so it is important to build allowances into cost estimates. Thorough risk identification is the most common method. Estimates should be overestimated rather than underestimated, and estimators should establish tolerance levels for cost deviation.
- Validity: Confirming the validity of a cost estimate involves checking the underlying data for accuracy. Improve validity by relying on established cost estimates.
- Verification: Cost verification is the act of checking that mathematical operations used in an estimate were performed correctly. Cost verification is much easier if estimates are properly documented.
The Causes of Bad Estimates
Factors that can muck up cost estimations can be poor data collection or assuming that resources are 100% used. Some of the most common pitfalls for cost estimation are:
- Lack of experience with similar projects: Accuracy in estimating tends to increase as experience estimating is gained. Not being familiar with the scope of a project may lead to inaccuracies with the estimation. At an organizational level, the use of similar estimating techniques is typically not reliable if the organization has not done similar jobs before.
- Length of the project: As we have discussed, accurate estimating depends on the degree to which a project is defined. It is important that cost estimating practices reflect this and that cost estimates are revised as more up-to-date information becomes available. For large projects that take several years or months to complete, it’s important to take currency value fluctuation into account.
- Human resources: Creating accurate estimates becomes more difficult as the number of human resources involved in a project increases. While it is standard practice to assume that any resource will only be productive 80% of the time and to create estimates accordingly, it becomes harder to account for costs in managing and organizing people. This is especially noticeable in project activities that involve building consensus or coordinating tasks across many people.
- Expecting that resources will work at maximum productivity: A more appropriate rule of thumb is to assume 80% productivity.
- Dividing tasks between multiple resources: Having more than one resource working on a task typically means additional planning and management time, but this extra time is usually not be taken into account.
- Not updating cost estimates after project scope changes: Updated cost estimates are an integral part of scope change management procedures, as project scope changes render prior estimates useless.
Preparing Your Estimation for Submitting a Proposal
By now you should have a crystal clear idea of how much you’re going to charge the prospective client. Your next step should then be to present the estimate in a clear and professional way to the client. Your proposal should effectively communicate what tasks you will be doing, resources needed, time allocated, the breakdown of individual pricing, and extra margin in case of setbacks. You can schedule a time to meet or speak with your prospective client in order to go through your proposal and answer any questions they may have. Taking all this advice into account should help you navigate the process of estimating a job.