Basic Principles of Estimating

1. Basic Principles of Estimating Prof. Awad S. Hanna

2. Estimating • A prediction of probable cost. • Is figuring out how to put the pieces together in the most economical manner. • Estimating is both art and science. Prof. Awad S. Hanna

3. Estimating (cont.) • Identify and quantify the pieces-takeoff. • Identify construction methods. • Engineering - Will it be stable during construction? • Productivity Prof. Awad S. Hanna

4. Bidding is NOT the same as Estimating • Identify RISK • How do you get paid? Prof. Awad S. Hanna

5. 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. Prof. Awad S. Hanna

6. 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. Prof. Awad S. Hanna

7. Estimating Requires: • Skills • Effort • Above all, an organized system that will prevent errors and omissions. Prof. Awad S. Hanna

8. Estimating is very expensive; therefore, we must use out time wisely and effectively if we are to be successful. Prof. Awad S. Hanna

9. Cost of Estimating Chart 1 55 A Simple project B Medium complexity C Difficult project 50 A 45 40 hours B 35 30 25 C 20 15 10 100 200 300 400 500 Size of Project in Thousands of Dollars Prof. Awad S. Hanna

10. Cost of Estimating (cont.) Chart 2 170 160 A Complex B Medium complexity C Simple A 150 140 130 B 120 hours 110 100 C 90 80 70 60 50 40 30 1.5 2.0 2.5 3.0 3.5 Size of Project in Millions of Dollars Prof. Awad S. Hanna

11. Profit Should Correlate to Risk • Job Comparison • Compare two jobs of identical direct cost, yet very diverse in overhead 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 • Subtotal350,000 350,000 • Overhead @10% 35,000 35,000 • Profit @10% 38,500 38,500 • Selling Price$423,500 $423,500 Prof. Awad S. Hanna

12. Profit Should Correlate to Risk (cont.) • Job Comparison # labor 7 7 7 6 6 5 5 5 5 5 5 4 1 2 3 4 5 6 7 8 9 10 11 12 week 12 weeks  65 labors 15 15 # labor 10 10 3 3 3 3 2 2 2 2 1 2 3 4 5 6 7 8 9 10 11 12 week 12 weeks  65 labors Prof. Awad S. Hanna

13. Profit Should Correlate to Risk (cont.) • Materials Low to medium risk • Labor High risk • Subcontractors Low risk • General Expenses Low risk Prof. Awad S. Hanna

14. Accuracy is Critical for Success • A typical project can be broken down as follows: Material 40-45% Labor 35-40% Equipment Expenses 8-10% Overhead 10% Profit 2% Prof. Awad S. Hanna

15. Common Estimating Mistakes • Misread or misinterpreted specifications, drawing, or any other contract document • Takeoff omissions or overlaps • 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 Prof. Awad S. Hanna

16. Common Estimating Mistakes (cont.) • 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 • Scaling drawings Prof. Awad S. Hanna

17. 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 unit sand labor factoring tables. • Maintain current material pricing. • Establish an estimate review procedure. Prof. Awad S. Hanna