Providing accurate bids that are competitive is one of the key elements of a successful construction business. The struggle is often finding that balance between competitive and accurate. How can you improve your bid estimating skills?
You always want to submit a competitive bid, but accuracy is key to ensure you get your money back for the job. It’s a tough skill to master, which is why many construction owners bring in project management professionals to assist with this part of the job.
If you want to improve your bid estimating skills, we want to help. To discuss the overall construction project budgeting process, we must begin with a firm understanding of what makes up an estimate and how to become more accurate. One website describes estimating as a “statistical art rather than an exact science.”
Predicting the costs up front is often challenging; many construction professionals will recommend preparing estimates periodically throughout the job.
You could start implementing that rule of thumb on your next job. Agree with your client early on that each part of the job will be estimated as it comes. This helps to maintain accuracy and improve cost control; both of which are better for the client and your company.
Types of Project Costs
To begin down the path to improve your bid estimating skills, make sure you have an accurate accounting of the three main costs that you can expect during a job.
- Fixed costs: These are costs that won’t change no matter what type of job or project you’re working on. Examples could be management salaries, rent on your office property, insurance, etc.
- Variable costs: The opposite of fixed costs, these will change depending on the materials and supplies you use on a project or the direct labor you hire. A subsegment of this could also be direct costs which are costs that are directly assigned to a specific project task, like a specialized tradesman or materials used as part of an installation.
- Sunk costs: While you may not be able to prepare for these types of costs, you should be aware of what they are and that they often can happen on a job. They are expenses that are committed and can’t be recovered. Analyze your last 5-10 jobs to get a sense of the average sunk costs.
Three Tips To Improve Your Estimating Game
Now that you have a good idea on the types of costs to consider, how do you take that knowledge and improve your bid estimating skills?
- Analyze: Consider all the factors likely to affect the cost of the project, including any changes that may occur with labor fluctuation and material substitutions. Thoroughly vet the scope of work and itemize your bid so that potential customers can compare your bid with a competitor apples-to-apples. Establish a master checklist of activities that need to happen for the project to reach completion. Check your bid against this list each time to work towards a greater accuracy hit ratio. Maintain and update the list as you learn about new products and costs.
- Remember the costs: You should always know what your fixed costs are going to be, so start your budget with those numbers in mind and work from there.
- Update: As mentioned earlier, remember to update the cost estimates as the project goes on. This helps to ensure you remain in budget and don’t over (or under) promise.
Becoming an expert estimator won’t happen overnight, but that doesn’t mean your construction company is doomed from the get-go. There are plenty of tools out there, like Thunderbolt, that can help you manage your project budgets and improve your bid estimating skills. With these tips, and those tools, you are well on your way.