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  • Writer's pictureKeith Groninger

Budgets Aren't Exciting

Updated: Apr 4

At times, estimating can be as much an art as it is a science, but usually not very exciting. In its most-basic form, an estimate is a list of costs associated with the construction of a project. There are a few different types of construction cost estimates with each providing different levels of detail and serving different purposes.

The most common error in estimating is omission. A good estimate should anticipate all of the potential costs and may even highlight items that aren't included. A thorough estimate should also be accompanied with a set of specifications that detail the scope and quality that's included.

Note: Do not select a builder based on a conceptual or preliminary estimate. It's very likely that the total cost will change substantially before construction is ready to begin.

Conceptual - Like a feasibility study, a conceptual estimate is often needed for the purpose of planning a project. Accurate cost information is necessary to determine whether a project is viable. Cost-per-square-foot is the most common technique but can be misleading and inaccurate. Unit cost comparisons from completed project records are the best format. A conceptual estimate should include adequate detail to show everything that is included and that which is not. This step is often necessary prior to committing to design or professional services fees. A good conceptual estimate should provide enough information for the owner to have a clear understanding of how much home they can purchase for their money.

Preliminary - As the design of a home commences and a scaled floor plan is available, preliminary cost estimates can be started. The accuracy of the estimate is dependent on the level of detail available. It’s not uncommon to produce several preliminary estimates as the design progresses and decisions are made regarding finishes and features of the home. Unit cost pricing, consultation with trade partners and historical records are beneficial for providing information, and can be used to help the owner establish a reasonably accurate budget during the design phase. The estimator assembles bids along with his own calculations to produce an accurate cost to build.

Detailed - A detailed cost estimate can begin when the design is complete and the construction drawings have started. Note that some costs may not be available until after engineering and building permit documents are ready. In order to avoid surprises and potentially expensive changes, detailed specifications should be completed, and provided to trade contractors and suppliers. This will facilitate accurate pricing from competing trades prior to awarding any of the work. The estimator assembles bids along with his own calculations to produce an accurate cost to build. This estimate is often used to establish a contract price between the builder and owner.

Quantity Takeoff - Quantity takeoffs are the highest level of detail estimate performed. In this case the estimate is used for the purpose of ordering materials for use in the project. Accurate estimates reduce delivery trips to the project and prevent waste on the job site, with both saving money. Skilled project managers use these estimates to enhance productivity and strengthen relationships with trade contractors. This plays a big role in achieving preferred builder status.

Change Order - Changes always have potential for disrupting the relationship between the owner and builder. It's critical that the pricing for changes is prompt and fair. Often work may be delayed when decisions about changes or extra work surface during the very stage of construction where they need to be implemented. Well-understood procedures and quick response are very important.

Dynamic Cost Control - While not really an estimating function, the estimate does play a big role in managing the actual costs on a project. Once construction begins, the estimate should be converted into a working budget and constantly monitored. The budget should always be reviewed before any work is ordered or scheduled. Procedures should be in place to ensure accurate payments are made and surprises are avoided. A good cost-coding system will support organized management of project funds and eliminate misappropriation. Budget status reports should be provided on a routine basis and the Owner should be kept informed of any changes as they occur.

Debrief - Analyzing a project upon completion is a powerful tool that many builders overlook. Lessons learned from each project provide valuable information for planning and managing future projects. The completed home should be broken down into individual cost components and analyzed against other projects of similar scope. Historic data arranged into a unit cost format allows the estimator to consistently provide accurate information to new customers and develop procedures to streamline the process. This task allows skilled estimators to produce accurate numbers and separates them from others that provide ballpark "guestimates". Cost debriefing provides information to builders that wish to improve their processes and provide valuable services to their customers.

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