Construction estimating is the process of determining anticipated costs and quantities of materials, labor, equipment and other resources required to complete a construction project.

Estimates serve as a valuable guide for project stakeholders, enabling them to make informed decisions regarding budgeting, financing and scheduling.

Today, several companies use construction estimating software to generate reliable quotes and streamline estimating processes.

If you want to know how construction estimating helps you plan, budget, control costs, make informed decisions and deliver successful construction projects while maintaining client satisfaction and profitability, you’re in the right place.

Develop and manage project plans and budgets

Estimating plays a crucial role in guiding you through the early stages of project planning by providing accurate cost projections.
You can assess your project’s feasibility, determine resources and establish realistic construction timelines.

It equips you with detailed cost estimates for each phase of the project, empowering you to allocate funds effectively and avoid cost overruns.

Additionally, it helps you proactively manage risks and uncertainties that may arise during the project. It enables you to identify potential cost fluctuations to assist you in developing contingency plans and allocating appropriate reserves in your budget.

Create competitive bids

You can use estimating techniques to assess project costs to develop a detailed bid that reflects the actual expenses you anticipate.

Some common estimating techniques include:

• Unit cost
• Stick estimation
• Empirical cost inferencing
• Production function

Unit Cost

In unit cost estimation, you multiply the unit cost by the estimated quantity to determine your project cost.

This approach involves breaking down the project into smaller units, such as square footage or material quantities, and assigning a cost to each unit.

Stick Estimation

During stick estimation, you carefully inspect plans and drawings to identify the various components and their dimensions.

You need to use tools such as rulers, scales or electronic devices to measure the dimensions and calculate the necessary material quantities, such as bricks, concrete, or piping, as well as the required labor hours.

You consider factors like the length, width, height or area of specific items and apply appropriate conversion factors or formulas to convert measurements into quantities.

You need to multiply these quantities by respective unit costs to derive the total cost for each element.

Empirical Cost Inferencing

In empirical cost inferencing, you rely on historical data and past project records to estimate the cost of your new project.

You analyze and compare similar completed projects to identify patterns and trends in cost performance.

Consider factors such as project size, complexity and specific conditions to infer the probable cost of your new project based on the historical data.

Production Function

In the production function approach to cost estimation, you analyze how inputs (such as labor, materials and equipment) relate to outputs in a production process.
You need to quantify these inputs and their respective costs to determine the overall project cost.

This method provides a detailed understanding of cost drivers and helps you optimize resource allocation and improve productivity.

With precise cost projections, you can strategically analyze the market and your competitors to position your bid effectively.

Researching prevailing industry rates and pricing trends allows you to align your bid with market expectations while maintaining a competitive edge.
To turn estimates into bids effectively, follow these steps:

• Review and Validate Estimates: Verify that you’ve correctly accounted for all cost components, such as labor, materials and equipment. Validate quantities and pricing to ensure they align with your project requirements.
• Understand Project Scope and Requirements: Analyze the project documentation, including drawings, plans and technical specifications.
• Determine Profit Margin and Markup: Evaluate your desired profit margin and consider market conditions, project complexity and competition to determine the appropriate markup for your bid. Strike a balance between profitability and competitiveness to ensure a compelling proposal.
• Develop a Detailed Bid Proposal: Use your estimates as the foundation for creating a comprehensive bid proposal. Craft a cover letter introducing your company, outline the project’s key aspects and provide a clear timeline.
• Itemize and Present Costs: Break down the estimated costs into line items to offer transparency and clarity. Clearly state quantities, unit prices and total costs for each item.
• Highlight Value-Added Services: Emphasize your expertise, innovative solutions or specialized capabilities that set you apart from competitors. Clearly communicate the advantages and benefits that clients will gain by selecting your bid.
• Include Supporting Documentation: These can include references from satisfied clients, certifications, licenses, insurance details and case studies showcasing similar projects you’ve successfully completed.
• Address Risk Management: Present contingency plans and strategies for mitigating risks that may arise during project execution.
• Review, Edit and Proofread: Check for spelling and grammatical errors, and ensure the document flows smoothly.
• Submit the Bid: Submit your bid on time, adhering to your client’s submission process and deadline.

Follow any additional instructions provided by the client and keep a record of your submission for future reference.

Allocate resources efficiently

You can identify the types and amounts of materials needed, such as concrete, steel or lumber. This enables you to procure the right materials in the right quantities, reducing the risk of over- or under-ordering, helping you avoid wastage or delays respectively.

You can break down the project into various tasks and estimate the time required for each task to assess the necessary workforce size and skill set. This helps you plan and hire the appropriate number of workers with the specific skills needed, avoiding both understaffing and overstaffing.

Estimate the duration and intensity of various tasks to identify the specific equipment required to complete them efficiently.

Whether it’s heavy machinery like excavators or smaller tools like drills, estimating guides you in procuring or renting the right equipment at the right time, preventing unnecessary expenses or equipment downtime.

Build trust and credibility with clients

Accurate estimating enables you to present a transparent breakdown of costs in your bid, instilling confidence in clients and building trust. Clients can easily understand the costs, perceiving your bid as fair and reasonable, thereby increasing the likelihood of selecting it.

When project owners see that your estimates consistently align with the final results, they gain confidence in your ability to execute projects competently. This positive track record enhances your credibility and positions you as a reliable and trustworthy construction professional.

When clients have a positive experience with your estimating process, they recommend your services to others, generating positive word-of-mouth referrals.
Moreover, a well-prepared bid, supported by accurate cost estimates, demonstrates your attention to detail and understanding of job requirements. This positions you as a reliable and competent contractor, giving you a competitive advantage.

Maximize Profitability

Construction estimating helps you evaluate the impact of change orders on project costs. It enables you to assess changes requested by clients, assisting you in providing precise cost estimates for these modifications. This enables you to negotiate fair compensation for additional work, avoiding potential losses and maintaining profitability.

Estimating allows you to gather valuable data on project costs and performance. It allows you to analyze historical data and benchmarking against industry standards to help you identify areas for improvement and cost-saving opportunities. This data-driven approach helps you refine your estimating processes and make informed decisions,

FAQs

What are the key steps in the estimating process?

The estimating process consists of eight stages:

1. Review bid package
2. Conduct a site visit
3. Perform material takeoffs
4. Obtain pricing from vendors and suppliers
5. Determine labor requirements
6. Specify insurance and bonding costs
7. Calculate costs
8. Factor in profit and contingencies

Review Bid Package

The bid package contains essential information and instructions that contractors need to prepare their estimates and proposals accurately. These typically consist of project plans, specifications and general conditions.

When reviewing the bid package, you should:

• Thoroughly Study the Plans: Carefully examine the architectural and engineering drawings included in the bid package. Pay close attention to details such as dimensions, elevations, sections, and any special features or requirements. Understand the layout and design intent of the project.
• Review MEP Drawings: MEP installations must adhere to specific building codes, regulations and industry standards. Reviewing the MEP requirements helps you ensure that your estimate and subsequent work meet all relevant codes and standards.
• Identify the Project Scope: Identify specific tasks, activities and deliverables that you need to accomplish. Clarify any ambiguities or inconsistencies in the project scope through communication with the project owner or client.
• Note Any Special Instructions or Constraints: These may include specific project phasing requirements, working hour restrictions, safety protocols or environmental considerations.
• Highlight Clarifications or Questions: Document queries and seek clarification from the project owner or client. Timely clarification ensures a more accurate estimate and helps you mitigate potential misunderstandings or conflicts later.
• Take Note of Any Value Engineering Opportunities: As you review the bid package, be on the lookout for potential value engineering opportunities. Identify areas where you can save costs through alternative material choices, construction methods or design modifications that don’t compromise quality or functionality.
• Assess Risks or Challenges: Consider factors such as site conditions, logistical constraints, weather impacts or other external factors that may affect your construction workflow. Take note of these risks to incorporate them into your estimate and develop appropriate contingency plans.

You’ll also need to review technical specifications to gain a clear understanding of the project scope divided into various work packages based on CSI’s MasterFormat. Creating these work packages requires meticulous attention to detail.

Ensure that you include each aspect of the project in a work package to avoid unassigned work and unexpected costs later on. Additionally, make sure you don’t duplicate project details across multiple work packages to prevent unnecessary cost inflation.

In cases where you divide an aspect of the project into multiple work packages, clearly define the scope of each package to ensure proper completion by the responsible parties.

Once you’ve created the work packages, you can solicit bids from specialty contractors or subcontractors.

Conduct a Site Visit

Conducting a site visit is an essential step in the construction estimating process. It helps you take into account project-specific considerations to accurately estimate costs.

For example:

• If your project involves building on sloped terrain, you’ll need to consider the additional costs for earthwork and retaining walls.
• If your project is located in a flood-prone area, you’ll need to allocate additional costs for flood mitigation measures.
• If your project involves constructing a commercial building, you’ll need to account for permit fees, inspections and compliance with fire safety codes.

Arrive at the location prepared with the necessary personal protective equipment to stay compliant with site regulations.

During a site visit, you should:

• Observe the Site Layout: Analyze existing structures, if any, and identify any specific areas designated for different construction activities.
• Assess the Topography: Evaluate the natural characteristics of the land, such as its slopes, contours and soil conditions. Note any potential challenges or opportunities that the topography presents, as they can impact the construction process and costs.
• Identify Access Points: Determine the entry and exit points to the site for construction vehicles, materials delivery and worker access.
• Examine Existing Utilities: Observe the location and condition of existing utilities, such as water lines, electrical cables or sewage systems. Take note of their proximity to the construction area, as you might need to temporarily relocate them.
• Evaluate Environmental Factors: Assess the environmental aspects surrounding the site, such as noise levels, air quality or potential ecological impacts. Consider any regulations or permits required to adhere to environmental standards during construction.
• Document Site Conditions: Capture important features, obstacles and potential issues that may affect construction. These records will help you refer back to specific details during the estimating and planning stages.

All these insights gathered during a site visit enable you to produce more accurate and comprehensive cost estimates, facilitating informed decision-making for project owners and stakeholders involved in the construction project.

Perform Material Takeoffs

Takeoff refers to the process of quantifying and determining the quantities of various materials required for a construction project.

During a material takeoff, you need to carefully analyze construction documents, such as architectural and engineering drawings, to identify material types and quantities required for each element of the project.

Even when clients provide you with a bill of quantities, you still should perform a takeoff to verify quantities and identify discrepancies. Furthermore, it helps you determine material requirements.

You can use this information to specify the necessary equipment for each work package.

You can perform a material takeoff manually using paper copies of drawings, rulers and digital measuring tools. Alternatively, you can rely on takeoff tools to extract quantities quickly.

Obtain Pricing from Vendors and Suppliers

Once you’ve completed the takeoff, you should collaborate with material and equipment suppliers to obtain pricing information.

To begin, you should proactively reach out to various suppliers and vendors who offer the materials identified in your material takeoff.

You should provide them with comprehensive specifications, including the exact quantities needed and any specific delivery requirements. Clear communication ensures that they have all the necessary information to provide accurate quotes.

As you receive responses from different suppliers, you should carefully compare the pricing options they offer.

While price is a significant factor, you should also consider other aspects such as material quality, availability and delivery schedules. This helps you select suppliers who not only provide competitive rates but also meet your project’s specific requirements.

During the pricing comparison process, you should discuss discounts, bulk purchasing options, or explore alternative materials that meet your project specifications. Effective negotiation skills can result in cost savings and favorable terms for the project.

Additionally, maintaining good relationships with suppliers and vendors is vital to establishing a reliable network of partners who can consistently provide quality materials and support your construction projects in the long run.

Throughout the pricing solicitation process, you should document and organize quotes received from different suppliers. This record-keeping ensures transparency and allows you to refer back to the pricing details for estimating.

Determine Labor Requirements

To assess labor requirements, you should analyze the tasks and activities outlined in the project plans.

You should specify the roles or positions required. This involves identifying trade and specialty needs, such as carpenters, plumbers, electricians, laborers or assistants.

Next, you estimate the number of labor hours required to complete the project. Assess the scope of work to determine the appropriate labor hours needed for each activity.

Productivity is a crucial consideration. Drawing on data from past projects and information about the current project, you should evaluate the expected productivity of the crew. Consider several factors such as crew experience, task complexity, site conditions and any potential challenges that may affect productivity levels.

Multiply estimated labor hours by labor rates to calculate labor costs. Labor rates vary based on factors such as trade specialization, skill levels and regional wage standards.

Take into consideration any additional costs such as overtime or fringe benefits to ensure a comprehensive assessment of labor expenses.

Specify Insurance and Bonding Costs

Insurance plays a vital role in mitigating risks for both project owners and contractors. It’s important you get general liability insurance, and depending on factors such as company size, scope and role, you may also need additional policies such as:

• Builder’s risk insurance
• Errors and omissions insurance
• Inland marine insurance
• Commercial auto insurance

These policies provide coverage for various potential risks and liabilities that can arise during construction projects.

In addition to insurance, you might have to obtain construction bonds. These bonds serve as financial guarantees that ensure the contractor’s performance and fulfill obligations to subcontractors, suppliers and the project owner.</p

Typically, insurance and bonding coverage have annual costs, which contractors spread across multiple projects throughout the year. For specific jobs, you may need to secure additional coverage, which you should factor into your estimates.

Calculate Costs

You need to evaluate overhead and indirect costs associated with the project. These costs encompass various expenses essential to the operation of your construction business.

To evaluate overhead and indirect costs you should:

• Identify Categories: Identify overhead categories such as office rent, utilities, salaries, technology and equipment maintenance.
• Gather Data: Collect historical data to determine average expenses for each category based on your company records or financial statements.
• Allocate Indirect Costs: Assess project-specific indirect costs, like permits, legal fees and marketing expenses, and allocate appropriate costs to each item.
• Apply Cost Factors: Consider inflation rates or percentage markups to account for potential cost fluctuations and adjust your estimates accordingly.

Factor in Profit and Contingencies

Determine the desired profit margin for the project. This involves evaluating various factors such as market conditions, competition, project complexity and your company’s financial goals. Assessing these aspects helps you establish a suitable profit percentage that aligns with your business objectives.

Market conditions can influence the profit margin, as higher demand or limited competition may allow for a higher profit percentage. Conversely, a highly competitive market may require a lower profit margin to remain competitive.

Projects with greater complexities, such as unique designs, tight deadlines or technical difficulties, may warrant a higher profit margin to compensate for the increased risks and resources required.

Consider factors such as desired return on investment, growth targets and overall financial stability. These factors will influence the profit margin you aim to achieve for the project.

Once you’ve determined the profit margin, you need to add it to the total estimated costs.

In addition to profit, it’s crucial to allocate a contingency amount in your estimate. The contingency amount acts as a buffer to mitigate potential risks and absorb any additional costs that may arise due to changes in scope, unforeseen site conditions or other unexpected circumstances.

It typically ranges from 5% to 10% of the total project cost, but it can vary depending on the project’s complexity and the level of uncertainty involved.

What are the different levels of estimating?

The five levels of estimating include:

• Order of Magnitude: Here, you provide a rough assessment of the project’s cost or duration early on based on limited information. Your goal is to give a general sense of the scale or magnitude of the project.
• Schematic Design: You’ll analyze schematic designs and sketches to determine the projected cost or job duration.
• Design Development: You’ll break down the work into smaller components and estimate the effort, cost or duration for each component.
• Construction Documents: At this stage, you’ll carefully review the finalized plans, technical drawings and specifications. Your estimate will account for all the project elements, including structural components, mechanical systems, electrical work and finishes.
• Bid Estimate: In this phase, you’ll prepare a detailed estimate to submit your bids. It will include all the necessary project information, specifications and contract documents. It should provide a clear breakdown of costs for different components and trades.

What are some common estimate types?

Some common estimate types are as follows:

• Detailed
• Quantity
• Revised
• Supplementary
• Annual maintenance or repair

Detailed

In a detailed estimate, you conduct a thorough analysis of all project components. You consider factors such as quantities, specifications, labor requirements, materials and overhead costs. It serves as the basis for your budgeting, procurement and project planning.

Quantity

With a quantity estimate, you focus on calculating the required material quantities for your project. You identify the quantities of different construction items, such as bricks, cement, steel and other materials, based on the project drawings and specifications.</p

Revised

Whenever significant changes occur to the original project scope, design or specifications, you prepare a revised estimate. This involves adjusting the previous estimate to account for modifications and variations.

Supplementary

When additional work or unforeseen circumstances arise during project execution, you prepare a supplementary estimate. This estimate helps you determine the costs associated with the newly identified work or changes to the existing scope.

Annual Maintenance or Repair

In order to forecast the costs of maintaining or repairing an existing facility over a specific period, typically a year, you prepare an annual maintenance or repair estimate. You assess the maintenance needs, identify necessary repairs or replacements, and estimate the associated costs.

What are some estimating best practices?

To create accurate estimates, you should:

• Understand your customer’s expectations.
• Implement the unit cost method.
• Use digital solutions.
• Seek expert advice.
• Assess labor costs.
• Collaborate with suppliers.

Understand Your Customers’ Expectations

When embarking on a project, it’s essential to have open and effective communication with your customers to gain insight into their specific needs and objectives.

Seek clarification on their project vision and any unique requirements they may have to ensure that your estimates accurately reflect the desired outcome.

Implement the Unit Cost Method

The unit cost method enables you to assign specific costs to each element of the project, facilitating a more thorough understanding of overall project expenses.

By quantifying costs on a per-unit basis, you can directly compare the unit costs of similar items or activities across various projects. This facilitates better cost analysis, benchmarking and cost control efforts.

Use Digital Solutions

Digital solutions help you enhance accuracy and efficiency. Here’s how they can assist you in the estimation process:

• Streamline Data Management: Construction management solutions enable you to store and access project drawings, specifications and historical cost data in a centralized digital repository.
• Maintain Consistency: Online solutions allow you to integrate with third-party construction bidding tools, construction scheduling apps and project management systems to help you avoid data-entry errors.
• Make Informed Decisions: Automated reporting platforms help you generate and analyze operational and financial reports to develop strategic plans.
• Boost Collaboration: Collaboration tools assist you in exchanging information with architects, engineers, subcontractors and suppliers, keeping everyone on the same page.

You should determine your company’s requirements to select a solution that suits your business needs.

Seek Expert Advice

Collaborate with experienced professionals, such as architects, engineers or estimators, to gain valuable insights and guidance. Their expertise can help you identify potential challenges and optimize your estimation techniques.

Assess Labor Costs

Avoid underestimating labor costs by considering factors such as the required skill level, labor productivity rates, local wage rates, and any labor-related regulations or restrictions.

Accurately estimating labor costs ensures that you allocate sufficient resources and prevent potential budget overruns.

Collaborate with Suppliers

Consult with reliable suppliers to obtain accurate pricing details, understand market fluctuations and identify cost-saving opportunities.

Supplier input can help you create more precise estimates and make informed decisions when selecting materials and sourcing suppliers.

What estimating mistakes should I avoid?

You should avoid the following common estimating mistakes:

• Neglecting Thorough Project Analysis: Avoid rushing into estimates without conducting a detailed analysis of the project requirements, scope and specifications. Failing to understand the project thoroughly can result in incomplete or inaccurate estimates.
• Neglecting Material Cost Fluctuations: Construction material costs can fluctuate over time. Failing to consider market trends, price changes or availability issues can result in inaccurate estimates.
• Not Documenting Assumptions and Exclusions: Failing to document and communicate assumptions, exclusions or limitations in your estimates can lead to misunderstandings and disputes during project execution. Clearly outline any assumptions made and any items or activities not included in the estimate.
• Failing to Factor In Contingencies: Risks such as changes in market conditions, unforeseen events or project complexities can significantly impact your project’s budget and timeline. Ensure that you identify and assess potential risks and include appropriate contingencies in your estimates to mitigate uncertainties.
• Lack of Thorough Auditing: An audit helps identify errors, inconsistencies and gaps in your estimation approach. Regularly review your estimating methods, documentation and calculations to ensure accuracy and reliability.
• Overlooking Indirect Costs: Neglecting to include indirect costs, such as permits, insurance, equipment rentals or temporary facilities, can lead to underestimating the overall project budget.

How do I select a construction estimating system?

With several estimating solutions on the market, it’s easy to get lost in the labyrinth of options, feeling overwhelmed and stuck in a whirlwind of confusion. But fear not! We’re here to help!

Start by determining your company’s needs. Conduct surveys or brainstorming sessions to gather multiple opinions. Create a construction estimating requirements checklist to make sound decisions.

You can use our free construction estimating requirements template to uncover your functional and technical needs.

Once you understand your requirements, start comparing vendors based on them. You can use our free comparison report to compare multiple providers and generate scorecards to choose a product that best fits your needs.

Don’t forget to check our construction estimating buyer’s guide to kickstart your product selection hunt.

If you’re still wondering which vendor could bring value to your business, we’d love to solve your troubles. You can reach out to our team for individualized recommendations through email at [email protected] or by phone at 855-850-3850.