5 TIPS FOR AVOIDING COMMON ESTIMATING MISTAKES
As the construction economy continues to trend upward, more opportunities to bid work will be crossing your desk. Each project is an opportunity to improve your margins. The estimating and bidding process is your profit plan and will have a significant impact on how healthy your bottom line is at the end of the project. That’s why it’s critical to avoid mistakes that can cost you.
1. START FROM THE TOP.
The tendency is to begin the process by plugging in line items and numbers for each part of the work process. However, this approach keeps you from looking at the project holistically and strategically. It’s usually more efficient to think about how costs are distributed from start to finish. Where will your crew really rock? Where are you at the greatest risk for cost overruns? This way you can make adjustments based on how they are going to affect overall profitability, not just one part of the project.
2. SPEND YOUR ESTIMATING TIME EFFECTIVELY.
Bidding and estimating can be time consuming. Whether you use estimating software or electronic spreadsheets, you want to create consistent estimating processes that give you the best results. You should revisit your bids at the end of every project and determine where you excelled and where you could have done better. The best rule for managing estimating time—spend the most time in the areas of the project that contribute the greatest amount of cost to the project.
3. ALIGN YOUR PROFIT CALCULATION WITH YOUR COSTS.
Some companies base their profitability on a consistent rate applied across every aspect of the project. While this is consistent, it is not the most effective way to maintain adequate margins. Instead, determine how much each of the critical factors such as labor, materials and equipment costs contributes to the overall project and then assign profit in that area based on that percentage. For example, if labor is 40% of the cost and materials are 10%, the profit margins should vary with those percentages based on your strategy for that project.
4. USE PROJECT HISTORY FOR RISK ESTIMATION.
To determine the most likely risks and minimize the impact of what you can’t always predict, analyze what has happened on other projects and what impact it had on costs and profit. Also be sure to set milestone parameters throughout the project, so you can be aware of how unforeseen events are impacting your bottom line.
5. BE TRANSPARENT.
Your estimate and project plan should provide a complete overview of the project as well as each line item’s details and costs. This way, your entire team can easily understand the process and the most critical phases of the project from start to finish. This kind of transparency invites collaboration and sharing of ideas throughout the team.
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