Cost estimation precision goes a long way to increasing profits
Greg Norris - B2W Software
November 15, 2019
Revenue for contractors operating across heavy construction sectors originates with the estimate, and the cost estimation process that takes place before a job goes a long way towards determining how much of that revenue will eventually reach the bottom line as a profit at the end of the job. The estimate also serves as a vital guide for the operations team that will plan, schedule and complete the work according to how it was bid.
With infrastructure and specialty construction projects getting larger and more complex, and with a funding constraints and competition driving margin pressure up, accurate and effective construction cost estimating is more difficult and more critical than ever. Here is how the industry leaders achieve it.
- Avoid costly spreadsheet errors
Spreadsheets were innovative when they replaced pencils and calculators as the go-to tools for construction estimating, but that was a long time ago. Today, contractors relying a spreadsheet based systems are at a disadvantage. The biggest problem is errors.
That’s because the values and formulas in spreadsheet cells can be changed. Sometimes these changes are made on purpose by an estimator. Other times, they occur unintentionally, as cells and data are moved around. Those changes can then carry over to future estimates that are built using the same template, compounding the chance of critical calculation errors.
“If you have errors and you underestimate, you’re behind the eight-ball from the beginning,” says Benson Thoudsanikone, general manager at Kitsaki Projects, a contractor focused primarily on utility-based construction projects in Saskatchewan. “There’s no way to recover, no matter how efficient or productive you are in the field.”
A specialized construction estimating software program eliminates much of this risk, because the calculations are built in.
“We’re no longer wasting time chasing spreadsheet calculations – calculations which can be frighteningly difficult, complex and potentially fraught with errors,” says Glen Smith, general manager at EPC Services Company, a project management subsidiary of Electrical Consultants, Inc. responsible for utility and power delivery projects throughout North America. “With the software, you can map the requirements to your schedule of values and do things in 20 minutes that have literally taken me 14 hours to do on a spreadsheet.”
Specialized estimating software also offers another secret weapon: automated error checking. Much like a spell checker catches errors in a text document, the error-check feature in a good estimating program will scan for red flags that could indicate an error. Estimators get an alert when a zero or negative cost, undistributed values, RFQ group with no assigned subcontractor, a missing production rate for a crew or dozens of other abnormalities are detected.
- Establish Cost Structures and Templates
The advantages of an advanced software application for estimating and bidding begin with a centralized resource database. This gives everyone preparing bids access to accurate, up-to-date costing information. The concept is straightforward. Labor, equipment, material and other costs specific to the company are entered and maintained in the central database.
Templates combining these cost resources commonly used by a company in its estimates can also be created and stored in the database. A crew template, for example, could include several labor and equipment cost resources, or a task template could include any number of labor, equipment or material costs necessary for a specific task.
These cost loaded items and templates become the building blocks of an estimate. Estimators use the specialized estimating application to pull the cost items and templates into the estimate and modify them quickly and easily. They can also import items electronically from outside sources such as an Excel spreadsheet. When quantities are entered, the system will calculate costs automatically. Estimators can then modify the costs as needed to the specific bid.
“With everything being preloaded with labor and equipment rates and a relatively standard material database, it does help us to be accurate in that way and not have to obviously go in and manually enter any of those rates,” concludes Alan Day, chief estimator at Brubacher Excavating in Pennsylvania.
A centralized database frees estimators from spending time reinventing the wheel with each project and it allows contractors to standardize the estimating process across the company and over time. These advantages translate into the speed, accuracy and consistency that are critical to winning more work at better margins.
- Bid faster
Estimating can be a numbers game in more ways than one. Speed counts. The more bids a contractor can complete while sustaining accuracy and confidence, the more chances it will have to win work. The challenge is that, most bids have strict deadlines. Any estimator knows the pressure of working towards those deadlines, when every hour or every minute is critical.
Specialized software allows those estimators to work faster. Instead of starting from scratch, or searching multiple sources and previous bids to find cost components, they can bring accurate, up-to-date cost items or templates from a pre-populated, central database into the estimate. Estimators are more efficient and can complete even complex bids more quickly. Importantly, they gain this speed without sacrificing the confidence that they are bidding accurately.
Switching from Excel to specialized software doubled the number of bids Priestly Demolition, based in Toronto, Canada, could complete each month, according to business improvement specialist Shannon Kuyt.
“We’ve already reduced bid times by 25 percent, and we know we will do even better as we get more experience with the specialized software,” concurs John Rodegher, vice president of engineering at Massachusetts site work specialist Northeast Contractors.
“What used to take us four days to bid, now takes us less than a few hours with the software,” adds Kitsaki’s Benson Thoudsanikone.
Something seemingly as simple as the time it takes to run calculations can also impact bidding speed. “We were relying on intense Excel macro programs, and every time we refreshed an estimate to rebalance it, we’d see a slowdown,” explains Sean Firth, senior estimator and business development manager at Soletanche-Bachy Canada (formerly Bermingham Foundation Solutions) based in Toronto. “This could be on the order of several minutes, because there was so much going on in the background. That doesn’t happen with specialized enterprise-class estimating software.”
Firth also points out a speed advantage for companies such as his that frequently serve as subcontractors. General contractors typically want to see multiple options for how the work could be performed, and the software allows the subs to generate alternate scenarios in a fraction of the time it would take with spreadsheets or manual systems.
- Collaborate Effectively
The requirement for several people to provide input over the course of preparing a bid is not uncommon, especially for bigger companies bidding on larger and complex, multifaceted projects. The challenge gets even trickier for a company that has estimators working out of several divisions or locations or working remotely.
The most successful contractors establish systems that allow multiple users to work on an estimate at the same time. Real-time visibility into the current status of the estimate and a structure that makes it clear who has made which changes and when are essential.
Glen Smith at EPC Services Company says the inability for multiple people to work on the same estimate at the same time was a major liability when estimating with spreadsheets. “You can’t work collaboratively when you’re trying to share spreadsheets across the Internet,” he explains. “It’s simply impossible to know what the latest version of the estimate is and who changed what and when.”
- Connect with the field
The best heavy construction estimators don’t work in isolation. Integration with the scheduling and field tracking systems is especially important. Being able to export information from an estimate reduces redundant data entry. More importantly, it eliminates errors and ambiguities between how a job was bid and how it should be planned, scheduled and executed.
Data can flow in the opposite direction as well. A connection between the estimating and field tracking systems allows estimators to monitor a job while it is under construction. They can look at job progress and unit costs, gauge the accuracy of their bid and use the feedback to make future estimates more precise. They can also look at trends over time. Seeing items that are consistently under budget, for example, allows them to adjust future bids to be more competitive, while consistent cost overruns in the field may drive them to increase cost estimates.
Eric Sellman, vice president and general manager of the civil group for Mortenson Construction, says a unified system for estimating and field tracking allows the company to get estimates coded just right and make sure all the job cost IDs and tracking accounts are perfect before sending it to the field tracking system.
“Our estimators can go directly into the field tracking system and see how exactly the estimates that they prepared are performing, and our field staff and our project teams can go back into the estimating system and find what they need to plan the project,” says Sellman. “This has given such a good appreciation from our field team members to the job that our estimators do and it’s created this feedback loop of continuous improvement.”
- Connect with the accounting system
Transferring information from an estimate automatically to an accounting system also increases accuracy and saves hours of re-work and re-keying of data. Full featured estimating software allows seamless exporting to dozens of accounting/ERP programs and to project management systems like MS Project and Oracle Primavera.
Seamless is the word Jessica French Goyett, vice president at W.L. French Excavating, uses to describe how the Massachusetts company’s estimating software integrates with it accounting software. “Collaboration between our internal departments has increased tremendously, not only from estimating to the field, but also estimating to accounting,” she says. “Once the job is awarded to us, the estimating department simply uploads the budget to a shared file and sends it to my accounting system. We essentially set up the job together, the budget is sent over to accounting and the job is set up. No room for error. It’s exactly what we estimated and it’s done in a matter of 3 seconds with a click and a send.”
- Optimize electronic DOT bidding systems
Estimators that frequently prepare bids for Departments of Transportation (DOTs) in the United States and in Canada gain big time saving advantages when they have an estimating software system that allows them to import electronic bid forms, convert estimates automatically to match the required DOT format and then upload the bid for submission.
Specialized software can also go a step further, providing a built-in database containing all of the cost items in the DOT bid forms for every state or province. These DOT databases includes item numbers, descriptions and units of measure for each item that each particular state may require on its bid forms. Users can work out how they cost those items in advance. When it’s time to put together a bid, the predetermined cost items can literally be pulled in within seconds.
Estimators import an electronic DOT bid form and match it to a DOT database that they have already established. The software will search its internal DOT database of templates for any items that match the required items in the bid and copy them into the estimate automatically, including the quantities from the bid the DOT put out, and all the labor, equipment, crew costs and material cost from the estimating software database of templates.
The need to manually chose and enter the items is eliminated. Estimators can then proceed immediately to reviewing the estimate, modifying crews and changing any costs as necessary. When the bid is complete, they easily export to a bid file and submit electronically.
“The process of prepopulating cost items according to the DOT structures and seamlessly importing a bid form, conforming our bid and exporting it is extremely fast and accurate, and there is no way you can duplicate that with spreadsheets,” says Duininck, vice president at Duininck, Inc., a heavy construction and aggregate company that operates across the United States, with federal, state and county projects accounting for a high percentage of the projects.
Individually, each of these habits can improve a contractor’s ability to estimate with maximum speed and accuracy, free up more time to focus on strategy and, ultimately, win more bids at better margins. There is also strong crossover and complimentary effect across all seven, with specialized estimating software and the concept of real-time connectivity playing important supporting roles.