4 Margin-killing Construction Estimating Errors—and How to Avoid Them
The accuracy of your estimate is a critical component of a project’s profitability. Your ability to produce accurate estimates can also mean the difference between winning or losing the project in the first place.
When you underestimate, you eat into your margins, which are already tight. When you overestimate, your too-high bid may be the reason you lose the job to a competitor. It’s a lose-lose.
Simply because they include so much detail, construction estimates are riddled with potential for error. Let’s look at takeoffs, as just one example. They’re critical to quantifying your material costs and determining your labor requirements. But it can be challenging to capture every item and account for all the variables, particularly if you’re relying on manual processes.
With construction estimates as complex as they are, how can you make sure your estimates are as accurate as possible?
For starters, don’t let avoidable mistakes erode your margins. There are four common estimating errors that can lead to surprise costs, unexpected delays and unhappy owners. Read on to learn about these margin-killers and how to avoid them.
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Mistake #1: Forgetting to include costs
It’s easy enough to mistakenly miss something on a complex project. If you aren’t using a standardized and repeatable process for building your estimates, you’re at even greater risk of forgetting something in your final bid.
Relying on manual methods to calculate takeoffs is notoriously time-consuming and error-prone. It can get hairy quickly, given the volume of details and variables. Plus, there are those sneaky productivity killers that are easy to forget, like winter weather conditions, not to mention indirect or unpredictable factors that can drive up costs, like a jobsite that’s only accessible from one lane of traffic or a city law banning construction at night.
If your estimate doesn’t follow a consistent standardized process, or you have several people contributing to an estimate, some of these costs are bound to fall through the cracks. A lack of standardization also makes it harder to review your final bid, reducing the probability that you’ll spot any forgotten items.
The solution: Develop a standard and repeatable estimating process that allows you to leverage unit cost assemblies. Take advantage of modern takeoff capabilities, like those offered by construction estimating software, to ensure greater speed and accuracy.
Mistake #2: Entering costs incorrectly
They say that to err is human, which is really just a fancy way of saying we all make mistakes. Sometimes they happen through no fault of your own. Other times, the blame is on you.
Missteps, like misreading the project plans, can lead to inaccurate cost estimates. But even if you’re doing everything right, your estimating process could be hurting you.
If you don’t have a standard and repeatable methodology, it’s just too easy to make mistakes. If you’re using basic spreadsheets, you’re at even greater risk. Experts report that 94% of spreadsheets contain errors. To make matters worse, only 60% of those errors will be found.
Using spreadsheets for your estimates presents a number of problems, not the least of which is their inability to provide an audit trail that’s easy to follow. When you make changes to a spreadsheet and save your updates, you lose the original information, making it difficult if not impossible to later uncover what happened and where things got miscalculated.
>>Curious how estimating in a run-of-the-mill spreadsheet can put you at a competitive disadvantage? Check out our FREE ebook.
The solution: In lieu of a more efficient audit process, use commenting functionality or notes to keep track of changes that have been made. And not to beat a dead horse, if you’re still using spreadsheets, consider a less risky alternative, like construction estimating software.
Mistake #3: Lack of audit and review processes
All estimates must be reviewed, but those reviews are unnecessarily difficult without the right tools. Without an audit trail of changes made to the estimate, reviews are tedious and time-consuming.
A seemingly simple change can be made with the best of intentions. But it could become a costly mistake without a broad understanding of—or better yet actual data from—past projects. If you can’t easily compare your estimate to previous ones and leverage lessons learned, you’re at risk of repeating past mistakes and hamstrung to improve your accuracy moving forward.
Spreadsheets won’t do you any favors here. It’s difficult, if not impossible, to easily review your in-progress spreadsheet estimate against others. Without a side-by-side comparison, you’re at a distinct disadvantage in competitive bid situations. You’re unable to recognize avoidable inconsistencies, leaving you exposed to potentially devastating errors.
The solution: Catalog previous estimates so they’re easily searchable and accessible. Compare your current estimates against them to facilitate reviews and catch errors of omission. Robust review processes don’t just improve the efficiency of your current project, they make you smarter for the next one.
Mistake #4: Missed value engineering opportunities
Speaking of competitive bids, your ability to compete is also directly related to your ability to value engineer. Value engineering can help you win more projects and ensure healthy margins when you do.
But when your timeframe to construct an estimate is too tight—and when you don’t have a consistent and repeatable process—it’s all too easy to run out of time to value engineer. This can mean the difference between winning a project and losing one.
Your estimates should allow you to readily test ways to deliver the project at the highest value and lowest cost. You need to be able to easily change out materials and other variables to realize value engineering opportunities, like using a cheaper process that’s also more environmentally friendly or substituting lower cost materials that are actually more durable.
If you’re manually creating estimates in a spreadsheet, you can’t easily test these alternatives to find the best value solutions. And if you can’t do that, you’re limited in your ability to value engineer, even if you do have the time.
The solution: Make value engineering a part of every estimate. Since construction costs are the highest costs associated with a building project, your ability to value engineer can lead to significant cost savings and a competitive advantage.
Win with more accurate project estimates
Each of these mistakes on their own will cost you time and hurt your margins. When combined, they’ll probably start to cost you jobs, too. But there’s good news: Each of these errors is easily avoided with construction estimating software.
A database-driven estimating solution will allow you to capture best practices and leverage your tribal knowledge. A common coding structure and catalog of unit cost assemblies can ensure you include critical components and important details, while integrated takeoff capabilities will improve accuracy. Should you make an error, an audit trail facilitates reviews and can safeguard against costly mistakes. And the efficiency you gain from a standardized process will free up time to value engineer your estimates and be more competitive.
To ensure you’re not making other costly estimating mistakes, download our FREE eBook now.