Accurate Estimates: The Key to Construction Success

Successful construction companies depend on creating accurate estimates for bids and projects. Accurate estimates are essential for everything from winning bids to securing a company’s long-term success.

The process can be quite difficult, though. It requires considering many factors that are beyond a company’s control, such as the cost of materials and the condition of the worksite. Unforeseen events like weather can delay a project or cause costs to rise. An estimate must consider these risks to the greatest extent possible.

The following article discusses many of the ways that creating accurate estimates can help construction businesses succeed.

What Is a Construction Estimate?

A construction estimate takes all of the likely expenses and risks associated with a construction project and provides a projection of the total cost. This requires extensive knowledge of the construction industry, including processes, equipment, materials, administrative procedures, market forces and risk factors. A construction estimate must consider the following factors:

• Project scope: How big or expansive is the project?
• Site features: Does the location of the project present unusual challenges, such as rough terrain or drainage issues?
• Material requirements: What materials will the project require, and in what quantities?
• Material availability and pricing: How much are the materials likely to cost? Will there be any difficulty procuring any essential materials? Can the contractor obtain any material at a discount?
• Labor requirements: How many construction workers and subcontractors will be necessary for the project? Can they be available on the project’s schedule? How much will they cost?
• Insurance needs: What types of insurance coverage and bonding will the project require?
• Indirect costs: What costs are connected to the project, but not directly related to the construction itself? This might include permits, professional services or temporary offices.
• Overhead costs: What portion of the contractor’s overhead, such as rent, utilities and administrative staff payroll, can be allocated to the project in order to keep the contractor’s business in operation?
• Contingencies: How much should the contractor set aside to allow for contingencies like schedule delays or cost overruns?
• Profit: What sort of profit margin should the contractor include in the estimate?

Once the estimate is complete, the construction company can include the amount as part of its bid for the project. It can also use it for its own business planning.

How Can Accurate Estimates Help a Business Succeed?

Creating a construction estimate involves a significant amount of number crunching, but its impact extends far beyond bid forms and financial statements. Consistently producing accurate estimates can be the key to a profitable business. The following are only a few of the ways accurate estimates can help construction contractors.

Winning Construction Bids

Perhaps the most direct benefit of accurate estimates is a higher rate of successful bids. Customers do not always go with the lowest bidder. They may choose the bidder who has the most accurate understanding of their project, and who provides them with the most comprehensive and realistic proposal. A contractor that builds a reputation for candor, and that follows it up with efficient and skillful work, is likely to have more success in winning contracts.

Maintaining Cash Flow

Cash flow is critically important during a project. A contractor needs to build trust with customers to ensure that they receive payments in a timely manner. Accurate estimates provide the best way to anticipate cash flow needs and communicate those to the customers.

Project Management and Accounting

An accurate estimate can help a contractor manage a project efficiently, keeping it on schedule and under budget to the greatest extent possible. It can also help the contractor manage their accounting obligation, such as their quarterly reports for matters like banking and insurance reporting requirements.

Long-Term Business Planning

A track record of accurate estimates and proper job cost accounting, provides information that a construction business needs to create a strategic plan that goes beyond individual projects. It allows the business to estimate their future profits with reasonable accuracy, which enables them to make important strategic decisions like hiring new personnel and purchasing equipment.

Accurate Accounting and Financial Statements

Banks, insurance companies, and other agencies require submission of financial statements on a regular basis. Proper job cost accounting is essential to produce accurate financial statements. A construction contractor with accurate historical accounting records, and estimating procedures is best equipped to keep up with these requirements and avoid falling out of compliance.

Learn More about Creating Accurate Construction Estimates

Many unpredictable factors can affect a construction business’ financial success. Accurate estimates can help them plan for setbacks and allocate their resources as efficiently as possible.

Estimating is a difficult process that requires extensive knowledge and preparation. Professional help is available to ensure that contractors produce the most accurate estimates possible.

To learn more about LGT and how we can serve you, contact us here.