Chapter One
Get Started Right

It's been said that construction estimating is more an art than a science. Truly, it's both. Like scientists, estimators collect what they hope is accurate information: precise take-off quantities, exact price quotes and carefully documented costs of completed jobs. But like artists, estimators rely on experience, intuition, judgment, and sometimes, guesses.

Why can't construction estimating be more science and less guesswork? If you've done much estimating, the answer is probably clear. Estimating will never be a science. Every construction project is unique. No single cost can be accurate for all jobs and all bidders. Estimates have to be custom-made for the job, the time, the place and the crew that's going to do the work.

And that's what this book is about: The fine art of accurate construction cost estimating.

The fine art of cost estimating

This guide is written for the owners, estimators and project managers in small and medium-sized construction companies. I'll take a scientific approach to estimating when that's possible. I'll show you how to eliminate a lot of the uncertainty in bidding and tip the scales in your favor when that's an option. When it's not, I'll suggest easy ways to limit your risk and reduce your exposure to a major loss.

My goal throughout this book is to help you make a good living as a construction estimator. It's possible. In the U.S., hundreds of thousands of construction cost estimators do just that. If you aren't making a good living now, I expect this book will help you.

Construction Is the Largest Industry

The Small Business Administration has estimated that there are over 500,000 "visible" construction businesses with one or more employees. In addition, there are about 250,000 independent operators in construction. Contract construction is the largest industry in the United States by number of people employed and counts for between 10 and 11 percent of the gross national product. Most of this work and most of the profits go to the larger firm with 25 or more employees. Yet there are a large number of smaller firms eager to expand and take on additional business. Since the competition in construction is largely price competition, the level of profit for everyone tends to be low. Since many construction companies are thinly capitalized, a low profit margin can result in a disastrous loss if the job doesn’t go as estimated. In spite of the low overall profit margins, the growth potential is great because along with high risk goes the potential of high gain.

First, I'll explain the basics, how to use the construction documents (the contract and specifications) and create a good material take-off from the plans. That's the subject of the first seven chapters. Beginning in Chapter 8, I'll tell you about more advanced construction cost estimating and bidding techniques.

I'm going to assume that you already know how to read plans. If you haven't developed good plan-reading skills, several books listed at the end of this manual can provide all the practical information and details you need.

The information I present here isn't restricted to any particular construction trade. This book will be as useful to remodeling estimators as it is to general construction estimators. No matter what size your jobs (from $5,000 to $5,000,000), no matter what type of work (from foundations to roofing and everything in between), this manual will help you prepare more accurate construction cost estimates.

Sink or Swim in Construction Contracting

I believe there are five key areas that make or break most construction companies. None involve construction skills like driving nails or reading plans. Every construction company has (or can hire) skilled workers and supervisors to do the actual building.

My five key skill areas are almost always the responsibility of the owner (or senior estimator) in a construction company. All five are either a part of the estimating process or influence cost estimates. All affect both profitability and survival of the company.

Five basic skills everyone should master

Here's my list:

• Finding and bidding the type of work that's appropriate for your company
• Making accurate cost estimates
• Using pricing strategies that reduce your risk of loss
• Anticipating the bids of your competition
• Tracking overhead so you know the actual cost of doing business

As you've probably guessed already, the focus of this book is to explain what you should be doing in each of these areas. Your company can probably survive (for a while) without doing anything I recommend here. But follow my advice and you're almost guaranteed to do better than you're doing now. That's my promise. And I hope it's your reason for reading this book.

The Detailed Cost Estimate

Let me begin by making one very important point. Throughout this book I'll be talking about estimates. By that I mean a detailed labor and material cost estimate. That's a list of every work item in the job, with prices for all labor, material and equipment needed to complete that unit of work. There are many other ways to estimate costs. We'll discuss some.

But the most accurate estimate is always the detailed labor and material unit cost estimate.

Examples of detailed cost estimates

What's a unit? Here are some examples:

• Cubic yards of concrete, purchased and placed
• Tons of reinforcing steel, purchased and placed
• Square feet of drywall, hung, taped and textured
• Square yards of floor covering, including installation

Every general condition (project overhead) item can be estimated by the unit cost. For example, the porta-john you'll need on site costs $50 a mouth (including delivery, weekly service and pickup) and you need it for three months. The cost of that work unit is $150 (3 months times $50 per month).

If you're bidding a 100,000 square foot building, there may be 1,000 unit cost items in the estimate. The only way to compile an accurate estimate is to find each of those 1,000 cost items. How do you do it?

There's only one answer to that question: by studying the plans, specs and construction documents. Every time you find a cost item, write it down on your take-off sheet. If there are 1,000 items, you'll fill about 1,000 lines on your estimating pad. When your take-off is complete, write in an estimated labor, material and equipment cost on each line. That's detailed cost estimating. It takes time. It's not easy. And it's expensive. But it's the only way I know of to prepare accurate construction cost estimates.

There's no such thing as a quick, simple, easy way to estimate construction costs. It takes time, effort and attention to detail. But there are easier, quicker, more consistent ways to estimate costs. I'll cover them, including estimating with a computer. As you may have already discovered, there's a disk in an envelope bound inside the back cover of this book. After we've covered manual (pencil and paper) estimating procedures, I'll give you some practice in writing estimates with a computer.

"'Only the best estimators can scope out the last 10 percent. . . "'

There's a big difference between an acceptable estimate and a truly first class estimate. Most estimators can get within 90 percent of the actual construction cost most of the time. All that takes is attention to detail and hard work. Only the best estimators can scope out the last 10 percent -and maybe spot a problem or major omission that could turn a potential, money-maker into a big loss.

Later, in Chapter 4, I'll ask you to examine your own estimating system and compare it to the detailed system I recommend. I'll also suggest some shortcuts that can increase productivity and streamline your estimating procedure, no matter what method you use.

Estimating as a Career

I'm not going to get into the meat of construction estimating without providing a little pep talk about estimating as a career. Like any good teacher, I want to be sure you have the motivation to absorb what I'm going to explain.

In my opinion, cost estimating is one of the most neglected career opportunities in the U.S. today. I've never seen any published figures, but my guess is that there are about one million estimating jobs in the United States. Why so many? Because costs for every home, apartment, office, store and factory building are estimated and re-estimated many times before that building is finally demolished.

Even then, the cost of demolition has to be estimated. Nothing gets designed or built or remodeled or insured or taxed or tom down without some estimate of the cost.

You've Got Job Security

Of course, most construction cost estimating happens before a building goes up. You can be sure there's at least one estimate prepared by every bidder. And even a modest remodeling project may have dozens of bidding contractors and subcontractors - carpentry bids, plumbing bids, electrical bids, concrete bids, and so on. Every construction project begins with a blizzard of estimating paperwork. If you're in construction and not into estimating, maybe you should keep reading. There's an opportunity here.

I feel that estimating is good work. It pays well, and it's a job that carries responsibility and earns respect. Maybe that's why estimators have more job security than most people in construction. The chief estimator is going to be the last person fired in any construction office. After all, a construction company that's stopped estimating is out of business. It's the estimator who brings in new work. It's the estimator who understands the company finances, sets' profit margins and controls volume. It's the estimator who makes the difference between financial success and failure in most construction companies.

So, what does it take to be a construction estimator?

General and Special Qualifications

First of all, understand this. Estimating is an accidental profession. Our public schools don't teach it. I've never had a little kid tell me that he (or she) wanted to grow up to be a construction estimator. Yet many will. And even more should. Why? Because there are no barriers to entry into this profession. States don't license construction cost estimators. You don't need a graduate degree. You don't have to pay a fee to some government agency to call yourself a construction estimator. Anyone can be an estimator.

Working your way up to career ladder

Many estimators started out as construction tradesmen and worked their way up the a desk job. Others wanted to be architects and never finished school. So rather than drawing plans, they settled into reading plans and doing take-offs. No matter how you get there, you have to qualify yourself to estimate construction costs and make a good living at it.

So, what does it take to be a good construction cost estimator? It's obvious that estimators have to read and understand construction drawings. Blueprints are the language construction professionals use to communicate.

Plan reading is essential. Basic math skills are important, too. If you can't read plans and add a column of figures, you're already a step behind as an apprentice estimator.

“. . . Good estimators have two seemingly contradictory skills. They’re both generalists and specialists.”

Of course, nearly anyone can learn to read plans and use a calculator. But it takes more to become a skilled professional estimator. I've found that most good estimators have two seemingly contradictory skills. They're both generalists and specialists. They see every one of the trees without losing sight of the forest.

As generalists, they have a good grasp of the big picture. The best estimators seem to understand intuitively how all the parts, all the trades, will come together to create the whole.

Second, they're specialists, focusing intently on the details. It's common to work for hours on a single complex drawing, identifying every work item and the labor required to complete what the plans show. The best estimators are very good at that kind of detail work.

But details alone don't make a project. Without a broad view of how the parts come together to create the whole, something will be left out. Some cost is going to be omitted. When that happens, the estimated cost isn't going to match the actual cost. That's expensive, at best, and may be a financial disaster. Either way, it's bad estimating.

Typical Estimator Profile

I've taught and talked with hundreds of construction estimators from construction companies in all parts of the country. My guess is that about two-thirds of these estimators are owners of small to medium-size construction companies. They manage the company, run the crews, bring in the work and prepare the estimates. Most of these estimators began as apprentice tradespeople. They progressed quickly to journeyman status, then supervisor, usually because they learned faster, worked harder and had more ambition than others in their position.

Sooner or later, these bright, ambitious, energetic tradespeople got tired of working on someone else's payroll. They were anxious to venture out on their own, bidding for their own jobs. Unfortunately, most do this with little or no formal training in construction cost estimating. Instead, they rely on trial and error, getting experience the hard (and expensive) way. Eventually they either learn the skills they need to survive, or go back to working for wages.

Most estimators started as apprentice carpenters. That's because most entry-level jobs in the construction industry in this country are in erecting wood-frame buildings. I believe that carpentry is good basic training for estimators. It's where I started. And I don't regret the years I spent on a carpentry crew. It exposed me very quickly to the entire construction process, from setting foundation forms to framing the roof.

Twenty years ago, probably less than 25 percent of all estimators had more than a high school diploma. I sense that's changing. We're a better-educated nation today than we were in the 1980s. More and more estimators have college degrees or college-level training in construction technology, engineering or architecture. That's good. In my opinion, better-educated, better-trained estimators make better estimators.

Position in Company

Most construction estimators don't estimate full time. As I said, most estimators also own and operate a construction contracting or subcontracting business. They don't trust anyone but themselves to make important decisions about costs and bid prices. Even if they could trust someone else to estimate costs, they can't afford to hire a professional construction estimator. So they put on an estimator's hat when it's estimating that has to be done.

Classifications of estimators

Larger construction contracting companies (more than $2,000,000 in annual revenue) usually have a staff estimator. These employee-estimators usually fall into one of three classifications. The first is beginners, or junior estimators. They do the measurements and take-offs. They study the plans, determine quantities, and apply material prices.

As they become more experienced, junior estimators are promoted to journeyman estimator rank, where they may assume job management responsibilities. In many companies, when an estimator prepares a winning bid, the estimator becomes the project manager, overseeing the work until it's completed.

The third class of estimator usually answers to the title of chief estimator. He (or she) is the senior person in the estimating department and probably the number two person in the company, reporting directly to the company owner.

Shortcomings of an Estimating Career

Most professions have disadvantages. In estimating, it's the constant disappointments and intense competition. I'll explain.

The estimator's job is to make an accurate estimate with prices low enough to win the job, but high enough to earn a reasonable profit. Most of the time, that doesn't happen. In fact, an estimator who is successful one time in four is the happy exception, not the rule. This is one career where there are more defeats than victories. No lawyer, doctor, teacher or professional baseball player could get by with a construction estimator's batting average. If you make good money on as few as 10 percent of the jobs you bid, you belong in the Estimating Hall of Fame.

Learn to defend your actions

Even on the jobs you win, you may have to defend yourself. Someone is going to ask, 'Why was our bid so much lower than the next lowest bidder? You left too much money on the table. We could have made thousands more." When your bid is the lowest by far, your first thought is probably, "What did I miss?" That's going to be a major issue if you have to apply to a bonding company for a performance bond. Try to justify a price that's low by $ 100,000 on a $ 1,000,000 job!

Rewards

For me, the benefits of this profession far outweigh the burdens. First, I like building. Everything I bid and build will be around long after I'm gone. That gives me a sense of accomplishment, a feeling of pride. My children and grandchildren will remember me for the monuments I've left behind. Of course, I'm not the only one who can claim responsibility for these buildings. But my role was important, probably as important as anyone who worked on the job.

“. . . The benefits of this profession far outweigh the burdens.”

And I like being paid well for what I do. I'm a decision-maker. I evaluate risks and rewards. I try to make good choices. If I choose wisely, I'm entitled to a premium for making and saving money. If I don't get that premium, I can take my resum6 to the competitor down the street, along with everything I've teamed about making money for a former employer. That gives me leverage that a tradesman or even a supervisor doesn't have. In good times or bad, in boom or bust, I like that advantage. I'm not going to abuse the privilege. But I have it. And I'm going to use it to get what I feel is fair treatment.

Decision Making

As I said, estimators are decision makers. If you haven't thought about that before, think about it now. Every estimate, every project, presents a complex series of options. Make good decisions and you make good money. Make too many bad decisions and you look for a different job.

Think of every project as a decision chain. Every decision on that chain is linked to a decision made previously and to a decision yet to be made. Figure 1-1 shows the decision chain I'm talking about.

Our starting point is always the most basic decision of all. What jobs are we going to bid? Of all the work available, what jobs do we want? Pick the wrong jobs and you squander company assets (like your time, company working capital, and management talent). What you want is a good match between what you can handle well and what the project requires. Of course, there are other considerations. What's the competition? Do we need more work? Do we have the bonding capacity? What's the risk associated with this project? Decisions further down the chain in Figure 1-1 follow logically after we've made a tentative decision to bid a job.

Review the remainder of Figure 1-1 and you'll begin to get an appreciation of the size of our task. I'm going to cover all these decisions in the chapters that follow. Don't get discouraged by the size and complexity of the job. I'm going to explain it all one step at a time in simple language anyone can understand.

Chapter 2 begins with the most basic decision of all, “What work am I going to estimate?”' Chapter 2 will also help you set goals for profit margin and volume for your company. These standards will be very important when we get into bidding strategy in Chapter 11.