No matter what type of commercial construction project you are about to embark on, the goal will always remain the same: fulfill your vision and achieve the goals you set out to achieve. However, before your ambitions become reality, your business must carefully examine real-world finances to determine the feasibility of a proposed construction project. The only successful way to accomplish this is with an accurate construction estimate. In this article, we will explore the reasons why construction estimating is an essential step before undertaking any commercial project.
What is the purpose of construction estimates?
Whether it is a brand-new commercial facility, an add-on facility, or a renovation of an existing office space, construction estimates are used to provide customers with a detailed description of the expenses required to complete a project. They are also used to give clients a projected estimate of the total costs related to the proposed construction project in question.
When building a new office space or manufacturing facility, there are tangential costs that go far beyond the reach of the craftsmen and the materials needed to complete the job. According to the United States Census Bureau, estimators of commercial construction They are able to complete accurate estimates by gathering information on a number of factors. Because these components directly affect the total cost of a construction project, it is important to collect detailed data points. Such factors can include materials, labor, locations, project duration, building codes, special machinery, and even ground conditions at the job site. For example, clients may overlook the cost of acquiring land for a construction project, or they may not be aware of the role that bad weather can play during the life of a project. In locations that experience severe climates, construction projects often experience excessive costs when weather forces project delays.
In addition, there are other factors that estimators must take into account, including availability of gas, electricity, water and sewer, surface topography, drainage, and the specific materials needed to complete the project. For example, a company building a green facility may use green materials that are more expensive than a standard project, but operating costs will drop over time. Delivery times for materials also come into play, as not all materials are immediately available and must be ordered in advance.
Construction Cost Estimation:
Cost estimators rely on a variety of estimation techniques, varying in speed and potential accuracy. The main approaches to cost estimation include:
Assigning Joint Costs: To assign costs that are difficult to assign to individual elements of the project, different mathematical formulas must be implemented. For example, you can prorate field supervision pro rata to tasks based on your share of total base costs.
Empirical Cost Inference: This statistical method uses regression analysis to relate construction cost to a predictor model. The precision of this method depends on the quality of the predictive model, and therefore requires a substantial degree of familiarity with the individual predictors of total construction costs, as well as experience in statistical methods.
Production Function: A production function relates the quantity built (production) to factors such as materials and labor (input). Therefore, if you want to achieve a certain level of production (number of square feet built), you must define the optimal input (hours of work per square foot). Production functions can be quite accurate in forecasting input-output relationships for projects of a particular type, and there is a lot of data available to tap into for specific types of projects (for example, existing research based on large structures such as hospitals and schools).
Stick Estimation: Extremely accurate but incredibly time consuming, fixed estimation is the practice of determining total expenses by listing, in order, the costs of each component of a job. It is not uncommon for human error to occur, as the large amount of time it takes to produce a rough estimate can lead to loss of focus or carelessness during the process.
Unit cost estimation: Simply put, unit cost estimation associate’s unit costs with each assembly involved in a construction process. It is a relatively quick and accurate form of estimation, particularly if an individual has used the assemblies previously, and there is evidence to justify the unit costs of each assembly.
Why Estimates Matter: Understanding the Value of Precision
When a business is considering development, whether it’s expanding to a new facility or adding square footage to its existing floor plan, budget isn’t always their primary concern. Although companies will eventually come up with a workable budget, it cannot be identified if their spending limit is sufficient to turn their visions into reality without an accurate and well-researched construction estimate.
Typically, a client will receive multiple offers from competing construction companies, with each company submitting its projected estimate of the costs involved and the duration of the project in turn. From there, the client will hire the company that he considers most suitable for his work and budget. In some cases, contractors have estimators on staff, while others may use a third party. Whichever method is used, the estimator must be highly qualified for the job. To be an effective estimator, they will require a solid knowledge of the blueprints, as well as the costs of the necessary construction supplies and labor.
As mentioned above, there are unpredictable reasons for revising the original estimate, such as bad weather. However, because the construction estimate is one of the most important criteria used to hire a contractor, it should be as accurate and as possible. In the event that a project goes beyond the scope of an estimate, the client will have to find a way to pay for the additional expenses or decide to sacrifice a feature to save money. Again, this is another reason why getting an accurate estimate is so crucial to the bottom line of your business.
Pro tip: One way to investigate the accuracy of an estimate is to ask the company about its track record and review its portfolio. They likely have some great projects that they have completed in the recent past, so ask them about these projects and see if they were able to meet the estimate they quoted.
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Getting an Accurate Estimate from a Qualified Estimator – What to Expect
As we’ve reviewed, when it comes to any construction project, getting an accurate estimate from an experienced estimator is an invaluable service to your business. Whether you are a construction company estimator or an independent contractor, the estimator you choose to work with should be able to provide an accurate estimate that is detailed enough for you to secure adequate financing and get started on your project.
A professional estimator must have some (if not all) of the following qualifications:
- A proven method for preparing accurate estimates
- A deep understanding of architectural drawings.
- An in-depth knowledge of building materials, building methods, building codes, and industry trends.
- Extensive experience in construction work and knowledge of the cost of materials, lead times of materials, hourly production of workers, overhead and other costs.
- The ability to calculate costs accurately and precisely.
- The ability to collect, classify, and evaluate relevant data
A construction company that works with inexperienced estimators may experience cost overruns, resulting in additional expenses for the client and a damaged reputation for their business. As a customer, working with amateur estimators can jeopardize the future of your business. Therefore, it is essential to determine that the estimator you hire is a dedicated estimator whose only job is to estimate. Many construction companies use their project managers to prepare estimates when they are busy; however, this does not follow best practices. A successful business requires the expertise of an experienced, professional construction estimator who deals with commercial contractors and vendors on a daily basis, not just when workflow is stagnant.
Common mistakes for construction cost estimators
More experienced cost estimators will agree that you can often avoid common pitfalls by following standard procedures consistently. One of the most common problems is attributed to people who do not read project documents carefully. This often leads to poor understanding of the project scope, as well as certain associated costs. In other cases, inaccuracy in the math is to blame, either by entering costs incorrectly or forgetting to incorporate costs during estimation. These problems can be further aggravated by not thoroughly verifying the entire calculation.
Other oversights include failure to visit the site, as well as the inability to fully understand the conditions of the site. As discussed above, the natural conditions and location of a site can affect costs in a number of ways, and a cost estimator will develop an eye for spotting and asking questions about these issues; This makes visiting a job site a must.
Finally, some cost estimators that are based on repositories of cost data will not adjust costs based on local conditions or will make arbitrary adjustments without considering prior experience or quantitative comparisons. Any of these miscalculations can discard the estimates and make it more difficult for another cost estimator to verify an estimate.
Looking Ahead: How to Address an Inaccurate Estimate
The goal of an estimator is to provide the most accurate information possible; therefore, in the event that an estimator provides an inaccurate estimate, there are really no winners. While factors outside of everyone’s jurisdiction can change the course of a project, the ultimate goal of an accurate estimate is to ensure that all parties are aware of the costs that come in.
With a proper estimate in hand, the client can ensure that the project matches their budget and scope, while posing little threat to the financial (and physical) future of the business. Construction companies need accurate estimates to ensure the final budget number doesn’t turn into a nightmare. If a construction company presents a price with an imprecise estimate and consequently costs rise, the company must pass it on to the customer (and damage its image) or absorb the cost in its own finances (damage its credit).
If your project financing is dependent on providing an accurate estimate, you must be sure that the numbers provided are accurate and do not meet your needs. After you’ve entered the construction phase of a project, if your estimate is faulty, you may not have enough money to complete your building. To meet your budget, another option may involve making allowances to allow for additional expenses.
Once an accurate estimate is assured, both parties can avoid delays, financial difficulties, and potential litigation while enjoying a fairly seamless experience from start to finish.
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It is vital that design professionals and construction managers realize that while construction cost may be the most important component of capital cost, other cost components are not insignificant. For example, land acquisition costs are a significant expense for building construction in high-density urban areas, and construction financing costs can reach the same order of magnitude as the cost of construction in large commercial projects.
From the owner’s perspective, it is equally important to estimate the corresponding O&M cost of each alternative for a proposed facility in order to analyze life cycle costs. The large expenses required for facility maintenance, especially for expanding publicly owned infrastructure or structures, are reminders to consider the implications of operating and maintenance costs at the design stage.
Ultimately, the most important part of any commercial construction project is affordability, and using an independent cost estimating service is crucial when planning a new construction or renovation project. By using the right construction estimating services, your company will be able to verify the prices of the builders’ quotes and the costs of the materials. In turn, it will help you keep track of the affordability of your construction project and allow you to set a budget. This is not only following the best practices within the industry and improving the bottom line of your company, but also your reputation.