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Basic Principles of Estimating. 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. Estimating (cont.). Identify and quantify the pieces-takeoff. Identify construction methods.
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Basic Principles of Estimating Prof. Awad S. Hanna
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
Estimating (cont.) • Identify and quantify the pieces-takeoff. • Identify construction methods. • Engineering - Will it be stable during construction? • Productivity Prof. Awad S. Hanna
Bidding is NOT the same as Estimating • Identify RISK • How do you get paid? Prof. Awad S. Hanna
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
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
Estimating Requires: • Skills • Effort • Above all, an organized system that will prevent errors and omissions. Prof. Awad S. Hanna
Estimating is very expensive; therefore, we must use out time wisely and effectively if we are to be successful. Prof. Awad S. Hanna
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
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
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
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
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
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
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
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
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