Construction estimating is basically the estimation (in monetary values) of a construction project. Simple, right? Well, not quite so. There are more than 15 factors that influence the estimaton of a construction project, ranging from Social Aptitudes (a.k.a. negotiation), Interpersonal Relationships, and Rhetoric, to Excel proficiency (not required, but recommended), municipality laws, and a robust data base of past projects and subcontractors. However, there are crucial factors that determine the profitability and smoothness of a construction project in the long run.
Before defining what each of these factors and how they function, we need to define what a construction project is and involves. Superficially speaking, a construction project involves an Owner, i.e. who is funding, planning, and overseeing the project. Sometimes, the owner is also responsible of the design of Construction Plans, and other times the Contractor is responsible for the design. For the latter, the construction project is referred to as a Design-Build Project. There are two types of projects that General Contractors usually immerse themselves in: Public Works Projects, and Federal Projects. The former involves the construction of public structures intended for the embellishment, development, or use of a community. Projects of this nature involve Parks, Libraries, Teathers, Gymnasiums, Academic Institutions, etc. The latter involves the construction of Federal, Bureaucratic, and Military structures intended for Governmental use. Projects of this nature involve Military Barracks, Federal Offices, Military Gates, and any other type of structure within Federal-Reclusive property. I could dive more into the differences of projects, the type of Owners, and State Laws, but that will be described in the Project Manager post, this post is about Construction Estimating.
The cost of a construction depends on several factors:
- Subcontractors
- In House Power
- Customer Research & Communication
- Location
- Level of Avarice
- Data Manipulation & Collection
Subcontractors: A subcontractor is a bussiness or person that carries out work for a company as part of a larger project. These individual commercial enterprises serve mainly to undertake a part of the project that the General Contractor (the commercial enterprise in contact with the Owner) usually avoids, either due to lack of Construction Licenses, or lack of man power to undertake such Trade. Subcontractors are crucial since they charge a fee to undertake the trade in question, which directly influence the amount of the Bid. There are times where the Owner will limit the percentage of subcontracted work to 50%, 30%, or 0%.
In House Power: This correlates directly with the Subcontractors. In House Power refers to two things: 1) the availability of the labor force, i.e. what trades are the Labors employed by the General Contractor capable to do? and 2) how much self-performance does the project requires? i.e. out of the total amount of the contract, how much it has to be constructed by the General Contractor? The answer to the former directly influences the acquisition of subcontractors, for example: if the labor force employed by the General Contractor knows nothing about Demolition, a subcontractor that is capable to perform Demolition is crucial. The answer to the latter also influences the acquisition of subcontractors, for example: if 50% self-performance is required within the project, only up to half of the contract value has to be allocated into trades that the General Contractor usually does not perform. As you may imagine, the lower the self-performance percentage, the better since a lower self-performance percentage involves more subcontractor participation within the project, therefore less volatility and risk within self-performing.
Customer Research & Communication: Customer refers to both, Subcontractors, and Owners. There are several customer research techniques, one is WESONDER, however this is where communication really comes into place. A good way to find customer is literally search for them and speaking to them on the phone. Not my favorite technique, which why I developed WESONDER.
Location: Pretty self explanatory. However, the distance between the construction project, and the General Contractor Head Quarters sometimes influences not only the Bid Process, but also the Construction itself. Keep in mind that a General Contractor has their trustworthy subcontractors near their Head Quarters, as soon as they move farther and farther away from their HQ, prices from Subcontractors tend to increase, and trust tends to diminish. Lastly, it goes without saying that the terrain and location of the project also influences the cost of each Bid. A projected located on the outskirts, where there is little to none civilization will increase the cost of the project and its attributes due to the difficulty of arriving to the site and all the ramifications that entails: gas, time, hotels, etc.
Level of Avarice: When a General Contractor bids a project, a margin of Profit is always included, which makes total sense, one shouldn't do the work for free. However, the percentage of profit varies on the avarice of the GC, and it usually correlates to the overall amount of the project: the bigger the contract, the smaller the profit percentage. Nevertheless, avarice is a key variable here.
Data Manipulation & Collection: I left this point to the end on purpose. Why? Because is the most important one of all. One of the crucial procedures in estimating, at least at the beginning, is the following: using the Spec Divisions, start from the smallest to largest (1 - 46), and one by one, search for each division in the plans, if a division is found within the plans, stratify the items within such division, and map them on a spreadsheet. Quantify the frequency of each variables within each stratification. Furthermore, having a robust data base containing past proposals from subcontractors, equipment rates, labor rates, and overall data from past projects plays a main role in the estimation of a construction project.
This was a superficial description of what Construction Estimating involves and how such discipline functions. Of course, it goes without saying that deep descriptions are missing, and in-depth functinalities were not included, however, that will be discussed in a future post.