E STIMATING : G OALS, O BJECTIVES, AND R ISK I SSUES BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University.

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Presentation transcript:

E STIMATING : G OALS, O BJECTIVES, AND R ISK I SSUES BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison

What is Estimating? vEstimating is the process of defining the realistic cost of a project vThis process requires a detailed and accurate takeoff with realistic labor hours and current material prices, along with job expense, overhead and markup to arrive at a final price.

Successful Estimating vContractors are not in business to win bids. vContractors are in business to make money. vEstimating is the base of a company’s success.

Estimating for Profit vGood estimating minimizes contractor’s risk and facilitates project management and defines the scope of work. vThe estimate is the plan that furnishes the field people with all the details in a controlled and prearranged format.

Estimating Requires : vSkills vEffort vAbove all, an organized system that will prevent errors and omissions.

vEstimating is very expensive; therefore, we must use out time wisely and effectively if we are to be successful.

Profit Should Correlate to Risk vMaterials low to medium risk vLabor high risk vSubcontractors low risk vGeneral Expenseslow risk

Profit Should Correlate to Risk (cont.) vJob Comparison ]Compare two jobs of identical direct cost, yet very diverse in over head and risk factor : Job “A”Job ”B” Material$200,000$100,000 Labor 20, ,000 Subcontractors 100,000 10,000 General Expenses 30,000 10,000 Subtotal 350, ,000 10% 35,000 35,000 10% 38,500 38,500 Selling Price$423,500$423,500

Checking the Estimate vReview the labor percentage of each division in relation to total labor. vReview the labor percentage of each labor code in relation to total.

Accuracy is Critical for Success vA typical project can be broken down as follows : Materials 40-45% Labor 35-40% Equipment General Expenses8-10% Overhead 10% Profit 2%

Common Estimating Mistakes vMisread or misinterpreted specifications or drawings. vTakeoff omissions or misplaced. vExtension miscalculations vMissing quotes. vEstimating by unit prices. vUsing the percentage method to establish the cost of certain systems. vProrating indiscriminately. vCrumbling under pressure to procure work.

Common Estimating Mistakes (cont.) vBeing overly optimistic. vCutting prices to meet or beat someone else’s quote. vUnderestimating the complexity of a project. vExpecting and excessive amount of favorable changes. vOveremphasizing volume purchasing. vUndertaking a project with incomplete bid documents.

How to Improve your Estimating Procedure vCompany labor tables and current material prices should be stored in your database. vManual estimating is not cost effective and it is subject to more errors and omissions. vComputerized estimating should automate and expedite the manual estimating process. vEstablish the company labor units and labor factoring tables. vMaintain current material pricing. vEstablish an estimate review procedure.