The accuracy of your construction estimate is a critical component of a project’s profitability. Underestimate, and you either need to submit change orders for your mistakes or take a hit to your profit margin. Overestimate, and you may lose the job to a competitor with a lower bid.
Unfortunately, creating accurate construction estimates isn’t inherently easy. Because they include so many details, your estimates can complicated to create and difficult to review. This increases your likelihood of making mistakes right off the bat.
If you’re still using spreadsheets, you’re at even greater risk of costly errors. This blog explores three ways spreadsheets may be hurting your ability to produce more accurate estimates.
1. Errors of omission
The more complex a project is, the easier it is to accidentally leave something out. Your risk only increases if you’re still relying on manual estimating methods instead of a standardized process.
Takeoffs are just one example of a manual process that leaves too much room for error. Accounting for takeoffs is critical to determining the various material and labor costs required to do the work and deliver the project. But if you’re relying on manual processes, you’re going to be challenged to capture everything.
There are also other variables that are easy to forget and factor in, such as winter weather conditions, city laws banning construction at night, or job sites that are only accessible from one lane of traffic.
If you’re unable to leverage cost assemblies, overlooked costs and forgotten variables can add up quickly. Cost assemblies capture the standard materials and labor costs associated necessary for a construction task, along with the cost formulas to arrive at the final cost. Calculating these in a spreadsheet is possible, but it’s manual and painstaking without a template to follow.
What’s the solution?
Develop and follow a systematized approach to building your estimates. Ideally, your process should incorporate modern takeoff capabilities and the ability to create unit cost assemblies. Setting these up takes the guesswork out of your estimates. You have a fail-safe formula you can rely on, instead of recalculating (or copying over from older projects) with each new bid.
2. Miscalculated and/or incorrect costs
Even when you include everything, the data entry aspect and complexity of basic spreadsheet estimates makes them especially prone to error.
According to the research, 94% of spreadsheets contain errors—and only 60% of them are found. When you consider the sheer volume of cells contained in a construction estimating spreadsheet, those numbers become frightening.
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The more complex your estimate, the greater your risk of data entry errors. The problem compounds when those errors contain calculations that depend on other cells. If your estimators copy and paste formulas from previous estimating spreadsheets to create new ones, your bid can contain miscalculations from the start.
And since spreadsheets lack an audit trail, you’ll be hard-pressed to find these errors once they occur. The moment someone clicks the save button, the previous version is overwritten. The original information is forever lost, making it nearly impossible for you to find where things went wrong. If you have several people contributing to an estimate—or you’re consolidating several estimates—it’s even harder to spot missteps.
What’s the solution?
Encourage your estimators to leave comments whenever they make changes. Set up a system for saving each version of an estimate, which includes a summary of the changes made. With an audit trail in place, it’s easier to go back and pinpoint which version got off track.
3. No value engineering
Skipping value engineering can mean the difference between winning or losing a project.
But if you don’t have a standard estimating methodology in place, you can run out of time to value engineer. It’s also much more difficult to test the viability of potential value-add alternatives in a spreadsheet.
Since construction costs are the highest costs associated with a building project, your ability to value engineer can lead to significant cost savings and a competitive advantage. Clients expect to be presented with options. They want to see key areas where you can provide the same – or better value – at a reduced cost.
If you don’t provide them with these options, you forfeit the edge you need in competitive bid situations. Your bid stays high, since you ran out of time to identify clear cost-saving opportunities. You also lose the opportunity to demonstrate your mastery and competence.
Clients have no reason to be confident in your expertise, and they have no sense whether you’re concerned about their bottom line. All they see is a high bid with no options.
What’s the solution?
Make value engineering a part of every estimate. Look for opportunities where you can increase value while reducing costs. Are there different materials or alternative manufacturers you could use? Leverage a standardized estimating process to gain the time and tools you need to explore the best value options.
How do you avoid these mistakes?
Errors of omission, miscalculated costs, and missed value engineering can hurt your confidence and your ability to compete. On the projects you do win, they end up hurting you down the line, eating into your margins and maybe even tarnishing your reputation.
Standardizing your estimating process is your best defense against those mistakes. When you use a consistent and repeatable estimating methodology, you can:
- Leverage cost assemblies to save time and minimize errors of omission
- Establish an audit trail to catch mistakes when they do happen
- Gain time to value engineer and produce more competitive bids
For more ways to increase the accuracy of your construction estimates, get the FREE eBook.