Your PROFITS are SUFFERING because your ESTIMATING STINKS!!

One of the primary reasons for poor profit margins is a lack of qualified estimators. As Jerry points out, the construction industry faces a shortage of skilled estimators, with many preferring fieldwork over office-based roles. However, hiring individuals with both estimating skills and field experience is crucial. Qualified estimators understand logistics, can interpret specs and plans accurately, and are instrumental in formulating precise estimates. An estimator with prior field experience can paint a different perspective of how the project will unravel compared to an estimator without field experience. Investing in competent estimators is paramount for your business’s success, even if it comes at a higher initial cost. At a minimum, you should be sending your estimators to the field for a few hours per month and take photos and track productions so they can keep their experience fresh. 

Estimators often rely on historical data to make informed estimates. Unfortunately, inaccurate or poorly gathered data can lead to significant errors. Project managers need training on how to properly compile useful budgets and historical data that estimators can utilize. Ensuring your field team understands the importance of accurate data and how it impacts the estimation process can help bridge the gap and improve the quality of information flowing back to your estimators.

Understanding your company’s overhead is critical. This includes all aspects such as management costs, insurance, and roles specific to different job timelines. Overlooking the full scope of overheads, like the ongoing presence of foremen or operators, can result in budget shortfalls over the life of a project. Estimators must consider all facets of overhead, including punch list allowances, safety equipment, and small tools, which can cumulatively amount to significant expenditures.

Rushing through estimates without a comprehensive read of specifications and plans is a frequent mistake. Every project is unique, and even minor overlooked details can lead to substantial missed costs. Each bid should be meticulously reviewed, accounting for every specification and plan stipulation to avoid unforeseen expenses during the project's execution. I hear to many stories about contractors "thinking" a particular project is the same as one done previously and later finding out some of the specifications were changed. This costs tons of money!

Outsourcing estimating work can be risky, particularly for smaller contractors. While it might seem cost-effective, the quality of outsourced estimators can vary greatly. Starting small with outsourced services and thoroughly vetting these external estimators can mitigate potential risks. It's vital to ensure collaboration and alignment with your company’s standards and expectations.

Contractors often make the mistake of bidding on projects outside their expertise, hoping to diversify or capture more market share. This approach can backfire without the necessary experience and resources, leading to costly mistakes. Companies should focus on projects that align with their strengths. If venturing into new areas, consider joint ventures or partnerships with firms experienced in those domains to share risks and leverage expertise.

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Post-Covid, the construction industry has seen fluctuating material costs and longer lead times. Estimators must account for these escalations accurately to avoid budget overruns. Understanding the project schedule, material lead times, and potential premiums for expedited materials are crucial steps in ensuring estimates remain realistic and reflective of actual costs.

Estimating involves making educated assumptions, but these should be as informed and accurate as possible. Getting clarifications through RFIs (Requests for Information) and ensuring assumptions are based on solid, real-world data is essential. More importantly, clear communication between estimators and the project management team about these assumptions can prevent costly misunderstandings and align project execution with initial estimates. You must have a solid project kick-off to get your projects moving in the right direction.