Construction cost estimation is difficult, especially since countless potential setbacks can derail your initial projections and create additional costs at any moment.
But that doesn’t mean you shouldn’t strive to make your estimates as accurate as possible.
Let Marble Hill nuclear power plant serve as a cautionary tale for everyone second-guessing the significance of accurate construction cost estimations.
The project began in 1973 with an original estimate of $1.4 billion. But as the project progressed, there were huge cost overruns and delays, so new estimates rose to $7 billion.
Unfortunately, the company already spent $2.5 billion on the project and abandoned it in 1984, yet the construction was only half-finished and never completed.
This story clearly illustrates how important it is to take into account as many factors as possible to forecast a construction project’s costs.
That way, contractors don’t lose money, and the client avoids overpaying for a project.
But let’s further elaborate on why accurate cost estimation is important.
In this article...
Ensures Thorough Project Planning
Construction projects take place in multiple phases, and consist of numerous processes, methods, and activities.
The larger the project, the more complex these components are—and the more important it is to stay on track with your cost estimations.
While estimations are generally considered ballpark figures and not contract-binding quotes, remember that every procedure in the construction project will cost money.
Therefore, you need to carefully plan for every activity and schedule that will go into a final project.
Essentially, if you want to give an accurate estimate to the client and win a bid, you need to account for every aspect of the project, set deliverables against a realistic timeline, and properly allocate resources.
Your planning efforts will determine whether a project can start and finish successfully, or if you’ll have to fight numerous bottlenecks.
Generally, the more detailed your project plans are, the better you’ll estimate the costs.
Project planning consists of many steps which you’re not aware of from the outset, but as you get deeper into it, you can find more things to account for and better understand numerous project costs.
Just like this contractor said on Reddit:
Following that, no matter the size of your construction project, there are several things you need to keep in mind to provide an accurate estimate.
The first and often neglected step is site visits.
Projects can be similar in scope, but the terrain, type of soil, or weather can be significant factors that will affect the project timeline and the types of work to be performed for successful completion.
Obviously, site conditions will differ in southern California and rural Iowa, so your experts need to get to the location and analyze it to create more accurate estimates.
Second, time is precious in construction. Every delay costs contractors and clients money and post-project coordination.
If delays occur, clients won’t be able to use their property when they planned, and contractors can’t begin a new job, among other things.
All in all, to give more accurate estimations, you need to do granular work on your project planning and control your projects better.
Makes Budgeting Easier
What is the main purpose of an estimation?
To monitor and control project expenses but also to find the maximum profit within an allocated budget. That way, you can avoid the regrets this contractor has.
Estimations should go hand in hand with budgets because they ultimately determine whether the project is feasible or not.
The amount of money the contractor can work with will impact the project’s scope, the time they can spend on it, and the type of materials they’ll install, among other things.
Logically, if you don’t have enough money to do certain work, the project will be delayed or, in the worst-case scenario, completely abandoned.
Actual costs don’t always match the budget, but estimations make budgeting easier.
When you have an idea of what your expenses will entail, it’s easier to find areas where you can save money and increase your profits.
Of course, there will be fixed costs you can’t change, such as subcontractor rates or permit fees, but it pays to look into flexible categories such as materials where you can use cheaper alternatives without sacrificing quality or disregarding project requirements.
Or, try to figure out if you can finish certain project phases sooner to save up on labor costs and overtime work.
Basically, any way you can save money without affecting timely project completion should be considered.
But you can only do that after you make your initial and accurate estimation. Without it, any savings you might have counted on will inevitably be spent during construction.
Remember that budgets are the backbone of any construction project, and without them, you can’t do anything.
But to better control your allocated budget, it’s necessary to create accurate estimations first.
Encourages Team Accountability
Project estimations are the result of team effort. This means that accurate estimations can’t be done without input from different stakeholders and sharing the ‘’load’’, as one contractor put it.
But here’s a benefit you probably overlooked: accurate estimates also make your team more accountable.
How?
Well, when you assign critical roles and designate tasks for each of your field workers, they’ll be able to handle the work without delays.
They’ll be more familiar with task schedules and procedures for giving feedback and mitigating risks.
But most importantly, they’ll know exactly how much each (in)activity will cost the company.
This means that they’ll be more diligent in carrying out the work when you put clear numbers next to their project tasks.
In the scope of an entire project, when the team is aware of the cost estimations, they’ll be more accountable for their actions to prevent budget overruns and schedule extensions.
Enables You to Win Bids
While you may think that underestimating costs will help you win more bids, that’s not true. And even if you do, those projects will rarely be profitable.
Moreover, you wouldn’t want to work for clients who are only looking for the lowest bidders anyway.
Many contractors on the BuildZoom forum agree that those customers are never a right fit.
Obviously, clients want to get the job done with the least amount of expenses, but low-balling can hurt you in the long run.
First, there are always unforeseen expenses during construction, and if you don’t account for them in your estimation, you’ll be forced to eat up the additional costs.
Inevitably, this will negatively impact your expected profits, and you might even lose money, not to mention damage your reputation with the client.
Construction News reported that 22 construction companies in 2019 had to close their business due to numerous cash flow problems.
Still, in most cases, the root cause was repeatedly underestimating bids for projects.
On the other hand, overestimating won’t save you either.
You might “round-up numbers” to allow for contingencies, but at one point, your bid can become too high, and clients might think you’re out to scam them.
Or, in the best-case scenario, they will just opt out of continuing with the project.
The bottom line is, if you’re continually overestimating your bids, you will lose to contractors who are more realistic with their numbers and give accurate estimates.
So, what can you do?
To win the right bids, you should always stick to providing an accurate estimate. The right clients will appreciate the professionalism and quality work, even if they have to pay a bit more.
They also need to be reasonable about their expectations, and a realistic estimate can give them the clarity they need to make an informed decision.
Finally, follow the advice of this contractor:
To remain in business for a long time, you have to provide good service, pay your workers well, and price what you’re worth.
Sometimes your bids won’t be as competitive, but they will certainly win over the clients who appreciate high-quality work with accurate estimates.
Reduces Materials Waste
A big bonus to creating accurate estimates is efficiently analyzing how much construction material you actually need.
Why is this important?
You’re probably aware that construction materials make up a large portion of every construction budget.
So, you’ll want to make the most out of the materials you procure and avoid going over your initial material cost estimations.
Furthermore, effective material quantity estimates significantly reduce the amount of waste per project.
The latest EPA report about construction material waste dates from 2018, but it serves as an example of the construction industry’s standing for decades.
According to the organization, the US produced almost 600 million tons of construction waste.
When you also consider the fact that 40% of construction waste was unused construction material, it means that material cost estimations weren’t accurate enough, which caused the contractors to waste precious resources.
Accurate estimations will ensure you only order materials you need, so every brick and shingle goes into a building and not to a landfill.
All in all, accurate estimations help you use up all your resources and protect the environment at the same time.
Conclusion
Each project is unique and comes with its challenges, so the key factor to successful project completion is accurate cost estimation.
So, experts need to take time and effort to consider numerous variables that make up each individual project.
Then they can come out with a realistic estimate that can benefit all project stakeholders.
In the end, estimations can be difficult, but the benefits far outweigh the trouble experts have to go through to give accurate numbers for successful project completion.
