Cost Estimation in construction is by far the most important factor. Profit margins are mainly based on how accurate these estimations are. According to a study by KPMG, a global accounting firm, only 31% of construction projects came within 10% of their budgets. Overlooking in some aspects may cause long-term problems. As they can span over the whole project as time passes. It is an expert’s role to make sure that estimates are accurate and within budget. There is a high probability that one mistake can result in countless errors in the respective estimations.
There are numerous ways that estimations can affect the aspect of profitability but the most common ad is as follows:
- First, a Cost Estimate Engineer makes estimations detailed but high. Thus, a construction company may not get the bid.
- Second, a Cost estimation bid is too low and cannot compete with other bids. Thus, resulting in a loss of bid by a company.
Ever wondered where estimation errors usually occur? In this article, we will discuss in detail which areas are most prone to errors
Mistake 1
Insufficient interpretation of plans
To precisely perform the process of Cost Estimation, it is necessary to evaluate plans and their specifications. If the assessment of plans is not thoroughly done, it can result in faulty estimations. Thus compromising the whole project. Also, to check for any specific requirement by a client will incur a cost. Thus, that must be included in the estimation process.
Rectification
Perform detailed and accurate evaluation of plans as Cost is associated with every aspect of the estimation process. Make sure to follow up with any specification demanded by the client and incorporate it accordingly
Mistake 2
Skipping site Visit
Sometimes experts rely on their expertise more than needed. In the process of Cost Estimation, to skip a site visit can have dire consequences. It is better to get an idea about the lay of the land. Once the estimation process starts, it all gets out of hand and that will be a point of no return.
Rectification
It is a must to conduct a site visit. Not only for the Cost estimator but for all the related parties of a project. This will give a rough idea of what is needed.
Mistake 3
Incomplete takeoffs during Cost Estimation
Not enough data or information results in this type of mistake. Understandably, an incomplete material takeoff list can set back the estimates by a hefty amount. Cost is a factor that constantly varies. If such information is not complete. It can throw a professional away from accuracy.
Rectification
An extensive list of all. the materials must be provided with any specific tools that are required. For instance, if an Electrical Estimator performs a material takeoff. All the material must be categorized and any particular tools which are needed to be mentioned.
Mistake 4
Inaccuracies in Labor Cost and Ignorance of Indirect Costs
Firstly, it is important to note that labour costs are considered to be the most expensive aspect of a project. Their significance can be judged by their impact. As they can amount to around 40% of the budget. A common mistake in this is that all the tasks are not evaluated. Additionally, what level of skill is required is also overlooked.
In terms of overheads, it is paramount to include all the overheads in the costs. Often, overheads are overlooked and not incorporated in the estimation process. This has a great negative impact on the prospect of profit margins.
Rectification
The most vital point about labour costs in Cost Estimation is to thoroughly understand all the tasks at hand. After that, allot time and number of personnel to those tasks. This will give an expert an estimate regarding the costs of labour in a project.
All the overhead costs must be included in the estimations. An expert must analyse all the tasks. Thus, check if there is to be any overhead cost associated with it.
Mistake 5
No planning for Risks and contingencies
In construction, especially when Cost is involved, the probability of risk is always present. This occurs because of the poor financial management. Risks can occur at any time and it will be hectic in the future to deal with. Furthermore, not setting aside a contingency fund is also a mistake made by experts. Any unexpected event can happen in a project as a construction site is prone to uncertainties.
Rectification
Start assessing risks from the initial stages. And constantly review the process of Cost Estimation.
For Contingency funds, it is wise to set aside 5 – 10% of the budget to deal with any uncertainties. At SMA Estimating LLC experts make sure to include contingencies. Their strategy is to assess all the tasks. Thus, set aside a contingent fund for the most complex ones.
Final Comments
How to make the process of Cost Estimation easier? This is a pickle for construction companies. Although it is not difficult to achieve. Estimations are considered to be the base of a construction project. The estimates must be accurate and maintaining them is the ultimate goal. This article points out the most common mistakes and how they can be rectified.
