I am going to show you how you can estimate a project from start to finish from a general contractor’s perspective. In order to do so we need to briefly review some basics.
Keep in mind at all times that what we are doing here is subjective. Your opinions may (will) differ and there are many approaches on how to come up with a solution to a problem. In estimating, there is no perfect answer. You will never be able to predict 100% accurately final construction costs, construction timeline and scope of work at the beginning of a project. Too many changes occur throughout the execution of a project in order to be able to do so. However, we always intent and make our best effort to reflect the project as accurately as possible from the beginning itself.
Let’s make this a mutual experience. I am really interested to know what problems you have encountered during your career and how you were able to solve them. Please share your experiences with me. I like to learn from you, too!
Don’t get confused! There is a substantial amount of literature on estimating available, and most have different definitions and descriptions for the same terms used. For the purpose of our case study, we will be using the definitions below.
Let’s start with the main question:
What is Estimating?
A good definition I found is “[Estimating is] an educated guess, based on the best available information, of what something is going to cost, usually in dollars or time. [The Estimator] is the one who calculates the probable cost of something” (Construction Project Management – A complete Introduction” by Alison Dykstra). Most of the work an Estimator does is during the preconstruction phase, which is “the period between award of the construction contract and the start of construction and marked by intense planning by the contractor“. For our purposes let’s broaden the definition of preconstruction phase to also include all activities that lead to the award of a construction contract from the estimator’s point of view, such as conceptual estimating, budgeting, and other. Let us define the Preconstruction Manager as the one who plans the execution of a project from start to finish within the preconstruction phase, including all tasks performed by the Estimator.
Our Purpose as Preconstruction Managers and Estimators
As Preconstruction Managers and Estimators, it is our task to acquire construction projects that show a reasonable potential for profit during its execution (of course…, if executed correctly). We intent to make a profit in a highly competitive market with low profit margins.
The greatest danger to our profits is RISK! Our intent is to eliminate risk, reduce risk, control risk, or distribute risk, by sharing and transferring. Risk Management starts at the Preconstruction Phase, i.e., with us as Preconstruction Managers and Estimators. Risk is poison to any of our potential profit making. The best way how to manage risk is through clear understanding and control of the project dimensions – Scope, Schedule, and Budget.
Example: We know that certain architectural drawings are prone to be incomplete. We ADD a contingency to minimize the risk of being HIT by an essential construction item that was not accounted for in the preconstruction phase. However, now we are at risk of losing the project altogether because we might not be the cheapest bidder anymore. How much risk are we willing to take to get the project? The more risk we take, the less profits we may end up making.
The Case Study we need
Estimating can be hard, especially if you have not done it before. I believe one learns best how to estimate working hands-on projects. Therefore, I have developed a fictitious project – a residential building to show you how it can be done. I will show you how you can estimate and bid from a general contractor’s perspective from start to finish. Shown approaches and solutions may be applicable to your estimating and bidding projects as well.
In our case study we will assume that we are working in a bid environment, probably with other competing contractors, and a fixed deadline subjecting us to substantial time pressure. As per Mary McMahon, a bid is “a proposal from a construction company, outlining its qualifications to perform the work, the cost to complete the work, and the time“. As an example: A general contractor offers to complete all work related to the construction of a building and sends a bid to the client. The general contractor itself has received bids from subcontractors for individual trades, who in turn have received bids from their suppliers. The client decides based on pre-defined criteria (not necessarily the overall cost), which general contractor will be awarded the work. The winning General Contractor then decides which Subcontractor to award portions of the work, and so on.
Let’s not get confused about what an estimate and a bid is. We will be doing both as part of this Case Study. An Estimate is an educated guess, call it also an approximation, while the Bid is a fully fletched proposal we are sending to the client.
In this environment we need to keep estimates smooth and simple, and our work process needs to be efficient. Too much detail will drag us down and make us slow. However, not enough detail will leave us open to risk. The project needs to be understood in full, and this can only be achieved by “diving into the project” to a certain level. We need to define at the beginning of every Estimate what the right level of detail is. Furthermore, we need to clearly define what construction items have priority over which other. As an example, in warehouse construction focus should be set on high-cost construction items such as Concrete, Steel, Roofing, and Electrical. We are not omitting any glazing, but if there is not enough time to do proper research, we will throw for glazing a cost by Square Foot value into the bid and move on to more pressing and more cost intensive matters. Experience helps us make overall better decisions.
Our Work Process
The work process depends a lot on predefined objectives, available resources, and available time. As previously described, we are simulating working in a bid environment, and we are subjected to enormous time pressure. We will be submitting a fictious bid, which is backed by actual subcontractor pricing to a client. Based on this our objectives are as follows:
(1) review all available project documents, and understand the project in full, (2) create your own takeoffs, (3) acquire actual subcontractor bids, (4) review and analyze subcontractor bids, (5) input all information and pricing into your spreadsheet and finalize the bid.
For example, I have seen bid packages for simple warehouse construction projects being elaborated within a time period of (1) one to (2) two weeks, including request for pricing to potential subcontractors. This can take longer the more complex a project becomes.
Personally, I like to divide the work process into five steps:
Step I: Quick project study, and selection of potential subcontractors. Ideally you already have a list of potential subcontractors you trust. Do not go into detail at this point. Identify key issues, and who, and what is needed to be able to complete the project.
Step II: Invitation of potential subcontractors to bid. In construction slang you might hear the term “Request for Pricing” very often, or just short “RFP”. There are thousands of reasons why an RFP does not reach the potential subcontractor. Make sure to always follow up. Personally, I like to send an electronic RFP to everybody, and then follow up right away with phone calls. During these phone calls I try to make the potential subcontractor aware that we have send an RFP to them, make them interested, verify that the RFP has reached (send out again if needed), and update any contact information. This is a very lengthy process!
Step III: Understanding the Project in Full/ Creating your own takeoffs. Now is the time to read through all available project documents to fully understand the project. Purpose of your own takeoffs is to be able to properly review potential subcontractor bids and fill in any missing information. You will start filling out your spreadsheet with all the information you can generate by yourself, while you wait for the bids to arrive. At this time your subcontractors should also doing the same thing, studying the project, and waiting for their suppliers’ quotes to come in.
Step IV: Reviewing and analyzing subcontractor bids. Subcontractor bids usually reach very close to the deadline. All bids must be reviewed for missing scope and items of concern, and all pricing/information must be put into your spreadsheet without delay. Your bid package, which may include a schedule, clarifications and exclusion, a cost summary, etc. must be prepared. Questions and comments by potential subcontractors must be addressed immediately if possible.
Step V: Finalizing your bid. The clock is ticking! Last items must be addressed immediately. Final follow up calls with potential subcontractors to clarify scope, schedule and costs. Follow up with selected (key-) bidders whose bids have not arrived yet. Missing gaps of any type must be filled with estimated values. Finalize the bid package, and final review.
Estimating-Mindset 