Editor's Note: This article is the fifth in a series of twelve to lead you toward entrepreneurial excellence by our regular contributor George Hedley, owner of Hedley Construction and Hardhat Presentations.
Has this ever happened to you? You negotiate an easy project to build with a great customer who trusts you, doesn't question your costs and awards you the job at your price. Then, seven months later, you discover your estimator didn't put enough in the labor budget to complete all the work required. The time and energy building a trusted customer relationship has been wasted because of a poor estimate. This is a contractor's worst nightmare!
So, you ask your estimator what happened. He blames it on the project manager, the superintendent, the weather, the architect, the engineer, bad plans or his bad childhood. What do you do? You can't fire him. You need to bid lots of work to keep the pipeline full. Plus, you don't have enough time to find and train another estimator. Now what?
Construction is Not Easy!
Building an excellent construction business is tough. Most successful construction companies were founded by entrepreneurs who are excellent cost estimators. Building projects is important, but calculating accurate costs are necessary to make a profit. To get a signed contract, you find a sales lead or customer who needs what you offer, then, you prove your company is qualified to do the work. You pick up plans, do the take-off, secure subcontractor and supplier bids, prepare your final estimate, mark it up and then submit your bid. Next, you wait for the bid results. They call and ask you to revise your bid to include more items. You call the customer to review your inclusions and exclusions. You cut your price again to get the job. Finally, you sign the contract and hope you'll make some money.
As I built my business, estimating systems were the foundation to my overall business success. When you know costs going into a project, you can manage jobs better and make more profit. But as your business grows, you have to delegate estimating to others. To do this, you need to create and maintain accurate estimating systems and controls. As you develop systems, remember your goals are to replace yourself with systems and produce the same results every time.
Know Your Job Costs!
The first goal of accurate estimating and bidding systems is to insure you know and track job labor, equipment, material and subcontractor costs. Ask yourself these questions as you think about preparing your next bid:
- Do you know and track job costs?
- Do you recap final costs versus the estimate?
- Do your field timecards reflect the real costs per work item?
- Does your accounting system give timely job cost reports?
- Will your estimate produce accurate costs?
- Do you keep track of labor costs?
- Do you have a cost history library?
- Do you feel confident in your costs?
- Are your general conditions costs accurate?
- Is your labor burden rate correct?
- Is your crew bidding rate accurate?
- Are your equipment rates accurate?
- Is your overhead markup sufficient to recover your overhead?
- Is your profit markup enough to give you a proper return?
What's your estimator's No. 1 priority? When I speak at conferences or conventions, I get many responses to this question. They include the following:
- Bid lots of jobs
- Get lots of work
- Maximize sub-bid coverage
- Be competitive
- Know what things cost
- Make a profit
The top priority for my estimator is to arrive at accurate job costs. I don't want our bid to be an estimate of what a job might cost, plus or minus 10 percent. Estimating accuracy is a key to long-term construction business success. The only variable on any bid should be the profit mark-up. Excellent and experienced estimators know what things cost. In my opinion, their estimating goal must be to prepare bid estimates within
