No matter what type of commercial construction project you’re about to embark upon, the objective will always be the same: to fulfill your vision and accomplish the goals you’ve set out to achieve. However, before your ambitions can become a reality, your company needs to carefully examine real-world finances in order to determine the feasibility of a proposed construction project. The only successful way to pursue this is with an accurate construction estimate. In this article, we’ll explore the reasons why construction estimating is an essential step before undertaking any commercial project.
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What Is The Purpose Of Construction Estimates?
Whether it’s a brand-new commercial facility, add-on facility or a renovation of an existing office space, construction estimates are used to provide clientele with an in-depth description of the expenditures needed to complete a project. They are also used to give clients a projected estimate of total costs involved with the proposed construction project at hand.
When building a new office space or manufacturing facility, there are tangential costs that run well beyond the scope of craftsmen and materials needed to complete the job. According to the United States Census Bureau, commercial construction estimators are capable of completing accurate estimates by gathering information on a number of factors. Because these components directly impact the total cost of a construction project, it is important to compile detailed data points. Such factors may include materials, labor, locations, project duration, building codes, special machinery, and even soil conditions at the site of a job. For instance, clients might overlook the cost of land acquisition for a construction project, or may not be aware of the role inclement weather can play throughout the duration of a project. In locations that experience severe climates, construction projects often experience cost-overruns when the weather forces project delays.
Additionally, there are other factors that estimators must take into consideration, including the availability of gas, electricity, water and sewer, surface topography, drainage, and the specific materials required to complete the project. For example, a company building an eco-friendly facility may utilize green materials that are more costly than a standard project but will realize reduced operating costs over time. Material lead-times also come into play, as not all materials are immediately available and must be ordered in advance.
Construction Cost Estimation: An Overview
Cost estimators depend on a variety of estimation techniques, which vary in speed and potential accuracy. The primary approaches to cost estimating include:
- Allocation of Joint Costs: In order to allocate costs that are difficult to assign to individual project elements, different mathematical formulas must be implemented. For example, you can prorate field supervision proportionally to tasks based on their share of the total basic costs.
- Empirical Cost Inference: This statistical method uses regression analyses to relate the cost of construction to a model of predictors. The accuracy of this method depends on the quality of the predictive model, so it requires a substantial degree of familiarity with individual predictors of total construction costs, as well as statistical methods expertise.
- Production Function: A production function relates the amount built (the output) to factors such as materials and labor (the input). Therefore, if you want to achieve a certain level of output (number of square feet built), you must define the optimal input (labor hours per square foot). Production functions can be fairly accurate for forecasting input-output relationships for projects of a particular type, and there is extensive data available to draw upon for specific project types (e.g., existing research based on large structures such as hospitals and schools).
- Stick Estimating: Extremely accurate but incredibly time-consuming, stick estimating is the practice of determining total expenditures by listing, in order, the costs for every single component of a job. It is not uncommon for human error to occur, as the sheer amount of time it takes to produce a stick estimate can lead to a loss of concentration or carelessness during the process.
- Unit Cost Estimating: Simply put, unit cost estimating associates unit costs with each assembly involved in a construction process. It is a relatively quick and accurate form of estimation, particularly if an individual has used the assemblies previously, and there is evidence to justify the unit costs for each assembly.
Why Estimates Matter: Understanding The Value Of Accuracy
When a company is considering development – whether it’s expanding into a new facility or adding square footage to their existing floorplan – the budget isn’t always their primary concern. Although companies will eventually arrive at a feasible budget, identifying whether or not their spending cap is enough to turn their visions into reality cannot be achieved without an accurate and well-researched construction estimate.
Typically, a client will get several bids from competing construction companies, and in turn, each company will present their projected estimate for costs entailed and project duration. From there, the client will hire the company that they believe is best suited for their job and budget. In some instances, contractors have estimators on staff, while others may use a third party. Whichever method is used, the estimator must be highly qualified for the job. In order to be an effective estimator, they’ll require a robust knowledge of the blueprints, as well as the costs of necessary building supplies and labor.
As touched upon earlier, there are unforeseeable reasons for going over the original estimate, such as inclement weather. However, because your construction estimation is one of the most important pieces of criteria used to hire a contractor, it must be as accurate and possible. In the event that a project goes beyond the scope of an estimate, the client will either have to find a way to pay for the additional expenditures or decide to sacrifice a feature to save money. Again, this is yet another reason why obtaining an accurate estimate is so crucial to your company’s bottom line.
Pro Tip: One way to investigate the accuracy of an estimate is to ask the company about their track record and review their portfolio. They’ll likely have a few big projects they’ve completed in the recent past, so ask them about these projects and see if they were able to abide by the estimate they quoted.
Getting An Accurate Estimate From A Qualified Estimator: What To Expect
As we’ve reviewed, when it comes to any construction project, getting an accurate estimate from an experienced estimator is an invaluable service to your company. Whether they’re a construction company’s estimator or an independent contractor, the estimator you choose to work with should be able to furnish an accurate estimate that’s detailed enough for you to secure adequate financing and begin your project.
A professional estimator should possess some (if not all) of the following qualifications:
- A proven method for preparing accurate estimates
- A thorough understanding of architectural drawings
- An in-depth knowledge of building materials, construction methods, building codes, and industry trends
- Extensive experience in construction work and knowledge of the cost of materials, material lead times, hourly output of workers, overhead expenses, and other costs
- The ability to calculate costs with accuracy and precision
- The ability to collect, classify, and evaluate relevant data
A construction company that works with inexperienced estimators can suffer from cost overruns, resulting in added client expenditures and a damaged reputation to your business. As a client, working with amateur estimators may endanger the future of your company. Therefore, it’s essential to ascertain that the estimator you hire is a dedicated estimator whose only job is estimating. Many construction firms utilize their project managers to prepare estimates when they’re busy; however, this does not follow best practices. A successful business requires the expertise of a seasoned, professional construction estimator who deals with trade contractors and suppliers on a daily basis, not just when the workflow is stagnant.
Common Pitfalls For Construction Cost Estimators
Most experienced cost estimators will agree that you can frequently avoid common pitfalls by following standard procedures on a consistent basis. One of the most common problems is attributed to individuals who fail to read the project documents carefully. This often leads to a poor comprehension of the project scope, as well as certain associated costs. In other instances, inaccuracy in mathematics is to blame, either by entering costs incorrectly or forgetting to incorporate costs during the estimation. These issues can be further compounded by neglecting to check the completed estimate thoroughly.
Other oversights include the failure to visit the site, as well as the inability to fully understand the site conditions. As previously discussed, a site’s natural conditions and location can impact costs in a number of ways, and a cost estimator will develop an eye for spotting and asking about these issues; this makes visiting a job site imperative.
Finally, some cost estimators who draw from cost data repositories will fail to adjust costs based on local conditions or will make arbitrary adjustments without considering prior experience or quantitative comparisons. Either one of these miscalculations can potentially throw estimates off and make it more difficult for another cost estimator to verify an estimate.
Looking Ahead: How To Address An Inaccurate Estimate
The goal of an estimator is to furnish the most accurate information possible; therefore, in the event that an estimator furnishes an inaccurate estimate, there truly are no winners. While factors outside everyone’s jurisdiction can change the course of a project, the ultimate goal of an accurate estimate is to ensure that all sides are aware of the costs going in.
With a proper estimate in hand, the client is able to ascertain that the project matches their budget and scope while posing little threat to the financial (and physical) future of the company. Construction companies need accurate estimates to ensure that the final budget number does not turn into a nightmare. If a construction company submits a price with an inaccurate estimate and costs are consequently driven up, the company is left to either pass that along to the client (and damage their image) or absorb the cost into its own finances (damaging their credit).
If your project financing is contingent upon supplying an accurate estimate, you need to be confident that the numbers you have been supplied with are accurate and not understating your needs. After you’ve entered the construction phase of a project, if your estimate is faulty, you may not have enough money to complete your building. In order to meet your budget, another option may entail making concessions to allow for additional expenditures.
Once an accurate estimate is secured, both sides can conceivably avoid delays, financial difficulties, and potential litigation while enjoying a fairly seamless experience from beginning to end.
It is vital for design professionals and construction managers to realize that while the construction cost may be the single largest component of the capital cost, other cost components are not insignificant. For example, land acquisition costs are a major expenditure for building construction in high-density urban areas, and construction financing costs can reach the same order of magnitude as the construction cost in large commercial projects.
From the owner’s perspective, it is equally important to estimate the corresponding operation and maintenance cost of each alternative for a proposed facility in order to analyze the life cycle costs. The large expenditures needed for facility maintenance – especially for publicly-owned infrastructure or structures undergoing expansion – are reminders to consider the implications of operation and maintenance cost in the design stage.
Ultimately, the most important part of any commercial building project is affordability and using an independent cost-estimating service is crucial when planning a new construction or renovation project. By using the appropriate construction estimating services, your company will be able to price-check builders’ quotes and material costs. In turn, it will help you to track the affordability of your building project while enabling you to set a budget. This is not only following best practices within the industry and improving your company’s bottom line, but also your reputation, as implementing a professional construction estimator can protect your good name while preventing needless expenditures that affect both you and your clients.