The following reasons show why cost control and accurate estimates are essential in the construction industry: Accurate quantity surveying enables contractors and clients to set achievable costs and timelines for projects. It is quite evident that even a slight variation in the estimation of the costs of a project can affect the budgets and profits in major ways.
Thus, there are several advantages to creating detailed and systematic project estimates: they help to reduce cost volatility, enhance bidding precision, manage risks and costs, etc. The following text will reveal how the most accurate calculations made during the planning stage can decrease the total construction project costs.
The High Cost of Inaccurate Estimates
The cost of construction projects depends on various components such as material costs, labor costs, site characteristics, equipment hire costs, time constraints, efficiency, and many others. Cost estimates involve forecasting future price levels and productivity that can be volatile or uncertain.
If there is no adequate estimating technique in practice, then contractors are potentially going to grossly underestimate the time and material required for the subsequent work. Underestimation is undesirable in a project since it results in cost escalation, lower profits, and projects that are completed at a loss. On the other hand, over-estimating may lead to failure in competitive bids and other opportunities as well.
When preparing construction cost estimates, most construction cost estimators will price their project bids in such a way that they have included a certain amount of profit, or called contingency allowance, to be used where there is a likelihood of incurring additional costs. However, these contingency funds are reduced more quickly by imprecise estimates than by accurate ones. Situations where costs are overestimated or underestimated quickly deplete the allowance budgets that should cater to the unpredicted price variations and maintain profits or losses.
Establishing Accurate Cost Baselines
The most accurate method of estimating construction expenses includes the formulation of a logical and comprehensive cost-estimating system. This starts with setting the right project scope, and the right pricing from the design specification.
Industry estimating standards dictate basic cost estimating approaches, including:
- “Bottom-up estimating:” It entails calculating the costs of all the materials, equipment, and other charges for each line item in the project. Estimators get their rates from historical records; quotes from suppliers, cost reference manuals, and reviewing productivity on similar type projects that have been completed before.
- “Parametric modeling:” Parametric modeling involves the use of statistical data to determine cost relationships to overall design variables. After such cost relationships are proven, the estimators can generate very fast formulaic estimates for new projects based only on general information.
- “Assembly estimating:” In the assembly estimating approach, estimators subdivide projects into systems or assemblies, for instance, structural frames, mechanical equipment, divisional finishes, and so on. They cost normal assemblies to come up with a total project estimate based on records.
The use of such standards in assessing all the possible construction tasks ensures that one gets a comprehensive and consistent estimate. These methods also help cost estimators support the lump sum or square foot estimates with bottom-up pricing, thus helping to give certainty to the total amount and how it is arrived at.
Key Areas to Precisely Estimate
While an estimator must assess all facets, certain high-cost and high-risk areas warrant extra attention when computing project budgets, including:
Electrical Estimators & Electrical Estimation Services
Electricity costs are often unpredictable because material prices are constantly changing, systems are complex, and installation is highly technical. However, the electrical division alone can account for 10% or even more of the construction costs. To help avoid underestimating the electrical budgets, it is crucial to get detailed takeoffs and design ideas from an expert Electrical Estimator. Get in touch with specialized electrical estimating consultants during the initial stages to secure vital electrical cost data.
Design Completion and Coordination Amongst Trades
Another estimation mistake is pricing unfinished designs or giving price estimates on details that do not have coordination between trades. For instance, mechanical drawings with duct running through structural members without showing how it is resolved result in change orders and overruns. If these crucial scopes are not estimated right after the coordination process has taken place, then costs can be grossly underestimated. Operate with the worst-case in mind until designs develop.
Site Considerations
Since main site parameters are not defined during the early planning stages, estimators tend not to include preliminary earthwork, demolition, site utilities, and infrastructure improvements in their initial cost estimates. Large-scale items such as removing bad soil, moving utilities, or environmental cleanup are often significant items and can add up quickly. Ensure that the verified contractors have considered the entire aspect of the project site.
In this way, by focusing on the accuracy of the necessary estimates of the scope and cost of the most complex and expensive project subdivisions, estimators introduce breadth into a budget, thus, minimizing the contingencies necessary for contingent situations.
The Impact of Estimating Precision
While no estimate can wholly predict exact construction expenses, improved estimating accuracy has significant upstream and downstream benefits, including:
Realistic Budgets
Accurate estimations yield full project costs that are more likely to capture the true account of the project. In addition, since detailed projections are developed, estimators can also suggest the right design changes depending on costs that are above allowable limits before bidding or construction.
Informed Bids & Proposals
Budgets that are properly estimated give Electrical Estimating Services contractors the capacity to tender informed bids. They can offer their prices confidently, knowing that the amounts bid will sufficiently fund working expenses and profit margins. Contractors are then also able to assess bid outcomes to try to directly estimate accuracy for subsequent RFPs.
Effective Project Planning
A schedule that is fortified by an accurate budget facilitates the drawing of a plausible construction schedule and marks. Another aspect is that it allows teams to schedule the procurement of labor, materials, and equipment based on anticipated cash flows. Proper time allocation and planning make projects run in a sequential and orderly manner.
Proactive Cost Control
Bottom-up pricing gives the management teams the cost information necessary to monitor and control expenses appropriately. In each project phase, managers can compare the actual spending against detailed estimates, or they can ask the field teams for an explanation of any deviation. They also can predict future overruns and correct them early on.
Mitigated Financial Risk
Finally, the whole scope cost estimates reduce the level of risks and uncertainties and exhaust financial risks, including excess costs. When there are accurate estimations of the budget, contractors keep more protection of their profit in contingency funds. Underestimating costs also means not having to deal with unexpected cost cutting through allowance accounts swiftly.
Partnering with Estimating Experts
Despite the benefits of in-house estimating, contractors can consider all construction scopes and cover them internally. Certain specialty scopes may require additional estimating services. The available Budget Estimating Services that provide estimating specialty in important trades, including electrical, mechanical, and equipment-inclusive, should be utilized.
In more complex projects, owners who engage independent cost estimators on their own can also procure estimates that support the contractor estimates. The contractors reaffirm estimate comprehensiveness and transparency by consulting with third-party impartial specialists in the industry.
Engaging experienced estimators in scoped estimating or full third-party estimates enhances the pricing correctness; hence, downside costs shock and project results.
Conclusion
Cost overruns due to misestimation in project budgets can significantly affect construction costs, duration, profitability, and reputation for contractors. By applying best practices in precise estimating practices, dedicating effort to scopes that are generally underestimated, and using specialty estimators, better cost estimates of projects can be made by the contractors.
Making a logical and systematic estimate provides accurate budgeting that reduces contingency, helps in strategic planning and scheduling, aids in cost control, and avoids high-risk costs. Although no estimate can ever be 100% accurate, collective efforts to increase estimate accuracy yield positive returns across construction projects where firms can tender better bids, maintain their margins, and build long-term relationships with clients.
