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E STIMATING : G OALS , O BJECTIVES , AND R ISK I SSUES

E STIMATING : G OALS , O BJECTIVES , AND R ISK I SSUES. BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison. What is Estimating?. Estimating is the process of defining the realistic cost of a project

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E STIMATING : G OALS , O BJECTIVES , AND R ISK I SSUES

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  1. ESTIMATING :GOALS, OBJECTIVES,AND RISK ISSUES BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison

  2. What is Estimating? • Estimating is the process of defining the realistic cost of a project • This process requires a detailed and accurate takeoff with realistic labor hours and current material prices, along with job expense, overhead and markup to arrive at a final price.

  3. Successful Estimating • Contractors are not in business to win bids. • Contractors are in business to make money. • Estimating is the base of a company’s success.

  4. Estimating for Profit • Good estimating minimizes contractor’s risk and facilitates project management and defines the scope of work. • The estimate is the plan that furnishes the field people with all the details in a controlled and prearranged format.

  5. Estimating Requires : • Skills • Effort • Above all, an organized system that will prevent errors and omissions.

  6. Estimating is very expensive; therefore, we must use out time wisely and effectively if we are to be successful.

  7. Profit Should Correlate to Risk • Materials low to medium risk • Labor high risk • Subcontractors low risk • General Expenses low risk

  8. Profit Should Correlate to Risk (cont.) • Job Comparison • Compare two jobs of identical direct cost, yet very diverse in over head and risk factor : Job “A”Job ”B” Material $200,000 $100,000 Labor 20,000 230,000 Subcontractors 100,000 10,000 General Expenses 30,000 10,000 Subtotal 350,000 350,000 Overhead @ 10% 35,000 35,000 Profit@ 10% 38,500 38,500 Selling Price $423,500 $423,500

  9. Checking the Estimate • Review the labor percentage of each division in relation to total labor. • Review the labor percentage of each labor code in relation to total.

  10. Accuracy is Critical for Success • A typical project can be broken down as follows : Materials 40-45% Labor 35-40% Equipment General Expenses 8-10% Overhead 10% Profit 2%

  11. Common Estimating Mistakes • Misread or misinterpreted specifications or drawings. • Takeoff omissions or misplaced. • Extension miscalculations • Missing quotes. • Estimating by unit prices. • Using the percentage method to establish the cost of certain systems. • Prorating indiscriminately. • Crumbling under pressure to procure work.

  12. Common Estimating Mistakes (cont.) • Being overly optimistic. • Cutting prices to meet or beat someone else’s quote. • Underestimating the complexity of a project. • Expecting and excessive amount of favorable changes. • Overemphasizing volume purchasing. • Undertaking a project with incomplete bid documents.

  13. How to Improve your Estimating Procedure • Company labor tables and current material prices should be stored in your database. • Manual estimating is not cost effective and it is subject to more errors and omissions. • Computerized estimating should automate and expedite the manual estimating process. • Establish the company labor units and labor factoring tables. • Maintain current material pricing. • Establish an estimate review procedure.

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