Why is Estimation Important in Construction?

Construction Estimation

According to a survey, 85% of construction projects fail due to contractors not getting cost estimates. No matter what type of construction project you are going to start, construction estimating services are the cornerstone of every construction project.

Imagine, you have to bake a cake at the cost of $50. You would buy all ingredients including eggs, baking powder, vanilla essence, and milk from the grocery store. You come home and start making. But wait. You forget to buy flour.

Baking a cake without flour is not possible. You could go to the store again and buy it. But the problem is you have spent all your money on buying other ingredients in excessive amounts. If you make a list of all ingredients with quantities and prices then certainly you wouldn’t face this situation.

Cost estimation is like this ingredient list in the construction industry. If you’re an owner of a construction business, then it is crucial to get to know the importance of cost estimates. So, let’s start.

What is Construction Estimation?

Construction estimation is a process of evaluating the cost that is associated with any construction project. This cost includes labor, material, equipment, and other resource costs that are essential for the completion of the construction project.

The United States Census Bureau states that “Construction estimators provide 100% accurate and comprehensive cost estimates for projects by gathering all the essential data that affects the construction project.”

In short, estimation is an integral part of the success of any construction project, as it provides in-depth information about the expenditures that are required for successful project execution. Read this blog to know further about what is estimating in construction.

Importance of Estimation in Construction

Say, you want to travel to your friend’s place, living in another city. You will calculate the total fare cost with all other travel expenses and avoid approximation from your journey.

Likewise, estimation helps contractors to get a clear picture of construction costs without any approximation as a little overestimating and underestimating can become a reason for their project failure.

Whether it is a simple home renovation or a complex nature commercial building construction, cost estimates provide a detailed description of the cost for all construction tasks. Every 7 out of 10 contractors ignore the importance of construction cost estimates and face budget overruns in their construction projects.

So, don’t become one of them and get an accurate cost estimate for your construction project and make your construction project successful. Stay on this blog, and get to know more about the importance of the estimation process in the construction world.

  • Estimates Influence Business

The construction market is the most competitive business market in the USA as this industry has 1.8 trillion worth in the USA. Starting any construction project is stressful. And the factual thing is that without accurate Construction Estimating Services, there is no chance of thriving in the construction business. We can say that cost estimates influence the construction business significantly.

  • Get the Budget Control

Cost estimate facilitates contractors to get complete control of the budget. It provides a baseline for construction projects for measuring variances from the initial to the final stage. With accurate construction estimates, contractors can avoid budget overruns and execute their projects on time. Estimates enable proper budget allocation for each construction task and ensure that sufficient resources are available throughout the project’s completion.

  • Increase Profit Margins

If you’re the contractor with 5% or less profit margin, then construction estimates aid you to leverage this profit margin up to 8-15%. Yes, construction estimates guarantee the profit margin up to this percentage. According to reports, 35% of construction businesses face regular overruns because the estimated cost is less than the expectation.

A construction estimate containing all the project expenses including material, labor, and equipment costs, ensures that the contractor makes the maximum profit from the project.

  • Win More Bids

Construction estimates help the contractors and subcontractors determine whether or not they should bid for the project. Furthermore, if they decide that they are going to bid for a particular project, then construction estimates boost the chances of winning the bid

Benefits of Construction Estimation

Numerous benefits of construction estimation for the construction project. Below we have mentioned some reasons why cost estimates are crucial

  • Better Planning

Earlier planning is critical not just for the construction sector but for every type of business. Estimates help the contractors, builders, developers, designers, and architects to plan earlier and better for their projects. When every task and sub-tasks are pre-planned then eventually the construction project will be completed before the deadline.

  • Identifying Management Issues

Construction management tasks involve site analysis, monitoring project progress, reviewing budget allocation, analyzing project effectiveness, and conducting risk assessments. Cost estimates identify all the issues in the project management and help contractors counter these problems before they even occur.

  • Professionalism

Estimation is not just about project cost. It provides a roadmap on how the project will proceed by evaluating how much materials will be needed, what is project timeline, and what is budget allocation for each construction task. In this way, construction estimates bring professionalism to your construction project by streamlining the project execution.

  • Faster Estimates

Estimation is an intricate and time-consuming task. Being a contractor, preparing an estimate is not a good idea as neither you can manage several construction tasks simultaneously nor do you have estimating experience. If you outsource with some estimating company, then you can focus on your core construction tasks and get accurate cost estimates for your construction project.

  • Cost Reduction

With an accurate construction cost estimate, you can save up cost on your project. Getting to know the cost and quantities of the materials at the early stages of the project eliminates or reduces the need for value engineering that helps in reading the overall construction cost.

  • Business Growth

Do you know you can leverage your business growth up to 20% with accurate construction estimates? Yes, you read it right 20%. If you’re a construction contractor, struggling to boost your business growth then getting estimating services is the best way to obtain your business goals.

  • Risk Mitigation

Sometimes, during the construction project, there are some circumstances or unforeseen events that happen that you can never imagine in your dreams. Without proper planning, a construction project is a hard nut to crack. Construction estimates help you to avoid such events and reduce the potential risks. Furthermore, estimates avoid budget overruns, delays, and resource shortages.

So you know the importance of an accurate cost estimate for the construction project. Now, it is the time to learn how to create the best estimate for any construction project.

Best Way to Create an Estimate

An accurate estimate is the ticket to grabbing your desired construction project. An estimate is the first impression that you will leave on the clients, so it should be perfect. To create the best cost estimate, follow the below-mentioned steps.

  • Understand the Scope of the Project

First understand the job that is to be done. Understand the client’s expectations by asking questions that pop up in your mind while reviewing the client’s project details.

Like. What materials and equipment does he want to use in construction? How much time does he think the project will take? What rates his competitors are charging? How much workforce does he want at his construction sites? Once you will get the idea of the exact job then you can better communicate with the client.

  • Negotiate Again and Again

Being a cost estimator, you can keep the numbers under the budget on paper easily but the practical world may change the entire game. The few initial questions are not enough to create the exact construction cost estimates. Likewise, keeping the numbers under the client’s budget is not possible at the initial stage. Always keep the risk factors in mind and create estimates accordingly.

  • Consider the Possible Risk Factors

Estimation is not legally binding, so your estimated cost can vary from the actual project cost. Make sure that your client understands this and doesn’t get surprised at the price fluctuations. Moreover, all construction projects are inherent with some revealing and hidden risks.

Evaluating the risk at the initial stage of the project is not a good idea. You just have to be well-aware of the knowledge of risk management to prepare an accurate cost estimate.

  • Breakdown the Project into Tasks

Make sure that you conduct a detailed breakdown of all the phases and tasks of the projects. The purpose of this breakdown is to organize, visualize, and manage projects more effortlessly. This detailed breakdown helps you in the preparation of an accurate and precise cost estimate more effectively.

  • Calculate the Cost for Each Task

Now you know what tasks are associated with the project at what phases. So, it is the right time to determine the cost that is needed to complete each task. This detailed cost breakdown helps you to track project costs whenever your client is planning a budget or wants more details from you.

Moreover, material and labor costs usually fluctuate. Always update your price list with the current market rates. So, at the time of the total cost estimation step, you get the right cost.

  • Add the Total Cost of the Project

At the end, add the costs of all the tasks and find out the total cost of the project. Once you’ve calculated the cost estimate, then you can present it to the clients for revision. If the client wants to make changes in your prepared estimates then you can modify the estimate according to the client’s desire.

Different Types of Construction Estimation

There are several construction estimation processes from which we are going to mention some of them. Each of these methods is used at different stages of the construction project for a different purpose.

  • Preliminary Estimation

Preliminary estimation is conducted to set the stage for the project’s financial journey. It is usually used to evaluate the project’s feasibility. From preliminary estimates, a contractor decides whether this project is worth the bidding process or not. So, if the project is not feasible, he would not waste hours to prepare cost estimates that will be wasteful.

The accuracy level at this stage is usually broad and contains variances up to 50%. The project specifications are not fleshed out, so an estimator has to proceed with some assumptions. Understand this process by a simple example.

Consider a restaurant owner who wants to introduce a new dish to the menu, so he will conduct a preliminary estimate to get to know how many chefs and costs are required for the making of the new dish. In short, these estimates help contractors to get an idea about the project’s scope and potential costs.

  • Detailed Estimation

This type of estimate requires an in-depth understanding of the construction project. At this stage, an estimator will completely break down the costs of the project and determine the labor cost, material cost, equipment cost, and other resources cost. A high level of accuracy is required for detailed estimation.

As a case study, consider a large-scale solar panel installation project, its detailed solar estimates not only include the cost of the solar plates and batteries but also require permits and maintenance expenses.

  • Elemental Estimation

This is the more accurate method for cost analysis as it is based on detailed drawings and specifications of the project. In this estimation process, the construction project is broken down into components like structural frames, finishes, or facades which are further split into subcategories with quantities multiple with unit cost, and get accurate cost estimates.

  • Plinth Area Cost Estimation

Plinth area cost estimation is prepared by multiplying the plinth area with the plinth area rate. The plinth area is the area covered by external dimensions of the building by floor level and the plinth area rate is the cost of the other building with the same specifications and locality.

Plinth Area Estimate = Plinth Area of Building * Plinth Area rate

For instance, if you want a plinth area estimate for a plinth area of 200 square feet with the plinth area rate in that locality is 3000 per square meter, then the plinth area is 200*3000 = 600000.

  • Cube Rate Cost Estimation

This type of cost estimate is best suited for multi-story buildings. To calculate the cube rate cost estimate multiply the plinth area with the height of the building. The height of the building is considered from the ground floor level to the higher floor level.

This estimate is more reliable than the plinth area estimate. If an organization wants to add a new addition to its building, it could use the cubic rate estimate to find out how much it would cost per square meter.

Cube Rate Cost Estimate = Plinth area* Height* Cost 

To Sum Up

If your construction projects are not making a profit then it eventually affects your reputation in the industry. In this scenario, getting a cost estimate is imperative for your business’s success. The cost estimate is the cornerstone of every construction project. That’s why being a contractor, you need to understand and get the cost estimate for your project.

Above, we have mentioned a detailed overview of the importance and benefits of the cost estimate that can help to get a clear picture of what the cost estimates are and why they are important for construction projects.