Engineering cost estimating is horseshoes, not hand grenades
A good project manager and his project team need to be good cost estimators. To do so, the team needs to play horseshoes, not hand grenades. This means that we need to aim as close to the target as possible if we want to provide the best consulting service to our clients and finish close on bid day.
It also means starting with a range of potential prices not a given price, no matter how high that upper end of the initial price range may seem. Starting with a range instead of a specific price conveys to an owner that the ultimate price will always vary, depending upon what is included in the final design and market conditions at the time of bid.
Developing an ‘opinion of probable cost’ is an iterative process, but one where downward adjustment is the objective. It starts when a project is conceived and doesn’t end until the job is complete. An effective alliteration to improve accuracy and avoid embarrassment are the “Four Cs of estimating” – collaborate, collect, confirm and contingency.
Collaboration is key
Different engineers see the same project from different perspectives and this increases accuracy. Collaborate with the project team when developing the initial range of probable cost. The range should be a broad as possible, depending upon variability and accuracy of scope.
As the project develops and the scope becomes more defined, so too will the range. However, keep the team involved, it always helps.
Collect recent local cost data
Whether the project is material, equipment or labor intensive, obtaining copies of recent bids for similar projects is essential. In the case of equipment jobs, engage manufacturer’s and/or vendors early in the process, their initial budgetary estimates should be 10 percent high. Obtain final equipment costs immediately before the job bids to avoid surprises.
In the case of material and/or labor-intensive projects, contact local vendors and contractors to gauge the variability and availability of both commodities. As the advertisement date gets closer, determine how many bidders intend to chase the project. This will provide insight as to the anticipated margins.
Confirm the quantities and items within the schedule of values
In the case of lump sum bids, check and double check the plans and items to be included with the bid. Final takeoffs are best performed by someone who is not on the design team. This allows a fresh set of eyes to look at a job and perform a methodical takeoff without a pre-conceived idea of the scope or budget.
It is OK to use a common database for pricing materials, labor and equipment, but take-off quantities should be confirmed by someone not submerged in the details of the project design. Confirming contract quantities is one of the most basic elements of estimating, but one that is most-often overlooked.
Contingencies can make you a hero instead of a zero
Contingencies should be included with estimates throughout the design and bidding process. When possible, include allowances and/or contingencies within the bid as line items, percentages or in the form of additional quantities. Planning for the unplanned always makes sense because it almost always occurs.
Including contingencies clearly and consistently provides a level of comfort for knowledgeable owners, design professional and contractors. Excluding contingencies implies a level of certainty that is not realistic in a dynamic market, it should be avoided.
The most ingenious, well designed project will not be constructed if it is not funded. A project will never be funded if cost estimates are not prepared well. Following the “Four Cs” does not insure accuracy, but it does establish procedures that need to be followed if you want to deliver consistent outcomes.
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