A financially sound construction business depends on accurate estimates to create bids that are competitive and profitable. Creating an estimate takes time, skill and reliable data.
A poorly performed estimating process can cost you money on materials, overtime, project delays and even business bankruptcy in the worst case scenario. To avoid these risks, a construction company needs to improve its estimating processes.
Understanding Your Local Market
In order to devise a proper marketing strategy, a construction company must first understand its local market. This includes understanding who might buy the company’s products or services, how far they are willing to travel to do business with it, and what competition exists in the area.
The best way to do this is by conducting market research. There are many resources available for businesses looking to conduct this kind of research, including the Small Business Administration and local industry publications. However, it is also possible to gain valuable insight by attending industry events and networking with other professionals in the field.
Local market knowledge is particularly important when constructing estimates. This is because most construction costs depend on factors like the local economy, the availability of labor, and the cost of materials. In fact, it’s necessary to adjust almost all standardized cost data to account for these factors when preparing a construction estimate.
Additionally, local market expertise helps during the negotiation process. For example, if an agent knows that the Lincoln Yards development will impact nearby property prices, they can inform buyers of this before signing a contract. Additionally, a realtor who has deep local market knowledge can help during appraisals by explaining the effects of certain neighborhood characteristics on a home’s value. This can include things like knowing that parking spots in the Clock Tower Lofts sell for much less than garage spaces in the building, or that Smith Park and Mitchell Elementary have seen improvements that send local property values higher.
Understanding Your Competitors
When it comes to construction estimation, understanding your local market is essential. This is because it gives you a better idea of who your competitors are and how they may be approaching the project. This can help you determine how much to charge for your services and whether or not you need to provide any discounts.
The local market is also important for estimating labor costs. According to a survey by QuickBooks and TSheets, labor is the hardest element of construction estimates to nail down accurately. This is because there are so many variables at play, including worker availability, their experience level, rate of pay, and productivity. Having local market knowledge can help you estimate labor costs more accurately and improve the quality of your bids.
Local market expertise is also essential for determining material costs. This is because some materials are more economical in certain areas, like wood in regions near lumber mills. Having local market knowledge can save you money by allowing you to choose the right materials for the job at hand.
In addition to reducing material and equipment costs, local market knowledge can help you keep your clients happy. After all, a major reason why projects go over budget is due to unforeseeable reasons that can’t be predicted by an original estimate. This can damage your reputation and cause you to lose business.
Creating a Business Plan
Before a construction company can even think about building a project, it has to secure financing. And before that can happen, it needs a solid business plan to show to potential financiers. This will give them their first impression of the business and its abilities.
A solid business plan must be based on real world numbers that reflect the current market conditions. That’s why it’s important to keep a finger on the pulse of local economic trends. You can do this with a variety of online resources, such as the Small Business Administration’s site, which offers hard data on customers and markets.
Local indices for labor, materials and equipment are also useful for cost estimation. But they must be used with caution. Errors in analysis can have significant impacts on cost estimates. The most common errors are due to inflation, changes in relative prices, and overoptimism.
Once a detailed market and competitor research has been conducted, the next step is to prepare the estimate. Depending on the stage of the project, different types of estimates will be needed. For example, a preliminary estimate can help determine whether a project can be completed within the allotted budget. Alternatively, an estimate during the design phase will help the owner decide whether to modify the scope of a project in order to stay within budget.
Cost estimates are a necessary step in moving a construction project from preconstruction to completion. Owners rely on these estimates to determine whether a project is feasible within their budgets. They also depend on them to make design or scope modifications that will reduce project costs. Contractors, on the other hand, need accurate cost estimates to prepare bids that will be competitive and profitable.
A major challenge faced by estimators is that standardized cost data can vary greatly from one region to the next. This is particularly true when it comes to labor costs. Local economies, labor availability and demand, and weather conditions can all influence a project’s final cost. To account for these fluctuations, estimators typically adjust historical labor data to local rates when creating new estimates.
Another challenge is that the quantity takeoff process requires a deep familiarity with local materials prices, including nonstandard items. For instance, wood may be cheaper in regions near lumber mills than it is in other areas. This makes it important for estimators to visit the construction site before preparing their estimates.
In addition, an estimator must be careful not to include too many items in a single work package. Otherwise, the final estimate will not be representative of the actual work needed to complete a project. This is especially true for estimating services such as excavation, demolition and foundations.