To Be Used With The Webpage / Analytical Estimating: analytical-estimating-cost-matrix-sample-template.xls
This narrative should be read in conjunction with my spreadsheets that identify the Cost Matrix as well as the Example Estimate , both are included within this website. Please note that these two excel spreadsheets are simply two different sheets of the same webpage entitled Analytical Estimating. The intention of these two documents is to enable you to develop a preliminary estimate, which will eventually develop into your final estimate, for a construction project. This specific presentation references a multi-family type of project, however this general format can be used to manage and develop an estimate for any type of construction project.
Some general comments that should be considered when developing any type of construction estimate.
1.) The individual that develops the estimate must clearly understand the construction process. It is my opinion that estimating should be associated with knowledge and experience. This is NOT the position for anyone that is learning the business, or trying to move up in the construction industry. A successful and accurate estimate should be developed by an experienced individual, who has been involved in the construction process for several years.
2.) The development of any estimate is based upon the associations of the estimator with the various subcontractors, as well as the ability to describe the projects scope, in an accurate, as well as clairvoyant manner. This ability only develops through years of experience and devotion to the construction industry. By clairvoyant, I mean the ability to predict the outcome of a project. The construction industry exhibits an extraordinary level of repetition, in terms of occurrences, problems, issues and situations that seem to reoccur on almost all projects. Once you have experienced these issues, multiple times, the repetition is almost surreal. A good estimator can predict these issues, and build the estimate to interact in a positive and profitable manner, as the project advances. Lack of this clairvoyant knowledge will not allow this interaction to occur.
3.) The unit values (Cost Matrix) are not precise, or by any stretch of the imagination, 100% accurate. It is essential that the estimator understand, that when developing an estimate for a project, the estimation of unit values, as well as the time required to complete an individual activity, is your best guess at the time. I am continually amazed, at the lack of understanding of the reality regarding a construction activity, which young and inexperienced estimators have. This lack of understanding will relate to the cost of an activity on a jobsite. In many cases, they have never been there, so how can they have a clue how long the activity should require? I remember an old estimator responding to my question regarding a unit value. He told me to review the process in my head, and evaluate the actual number of hours that it would require me to perform the task. In this manner, the unit value was developed, and not simply memorized. This was an important lesson in the art of estimating. Build a unit value by understanding the process as well as the material and equipment required. Failure to understand will result in inaccurate and unrealistic unit values.
4.) There will always be substantial push back, when attempting to estimate a project, based upon knowledge and experience. It is extremely difficult for someone that has not put in the time as well as the effort to understand construction, to succeed as an estimator. Yet, we all have been involved with individuals that will identify themselves as estimators that have never touched a hammer, a nail, seen concrete placed or structural steel erected. Yet, they will inform you that they are estimators and have an understanding of how much a project will cost.
5.) An estimate is an accumulation of estimated values. What that basically means, is that the estimate has its pluses and its minuses. Together, they will identify the overall cost of the project. It is impossible to initially identify accurately, each and every cost on the project. This is the reason that experience and knowledge of construction is required to accurately identify the cost of a project. There will be pluses and minuses that will cancel themselves out to generate an overall estimate. It is the understanding of these pluses and minuses that will allow an experienced and knowledgeable estimator to assemble the correct mixture of prices, which will sum up to the overall cost of the project.
6.) The old fashion method of estimating was to develop a spreadsheet for each trade. This would require the takeoff of all of the material, equipment and an estimation of the manpower. This spreadsheet would be assembled, and any subcontractor pricing compared to the already assembled estimate. If the estimator identified some inaccuracies between their own takeoff and the proposal from the trade contractor, there would be a serious conversation. This conversation would acknowledge, and discuss the differences between the estimate and the proposal. The objective of this interaction would be to decide the accurate price for the trade. The original takeoff and line item estimate, as developed by the estimator, might be the correct value, not the subcontractor’s proposal. However, this knowledge could not be determined unless the estimator understood the business the manpower requirements, as well as the material and equipment necessary to complete the work.
7.) The simple collection of proposals from trade contractors and the summation of these values is NOT the preferred method of developing an estimate. This is the current contemporary method of estimating, that engages the total and complete use of “canned “estimating programs. This is a dangerous method of estimating a project, and must be carefully evaluated for accuracy. This method of producing an estimate is simply a regurgitation of the same data that all of the competitors have regarding the same project. The key to a successful estimate is the understanding of the details, and the ability to project any cost savings and efficiencies. This can only be accomplished with knowledge and experience.
8.) Although we have repeatedly indicated on this website, the importance of summary sheets and what are referenced as “ leveling “ sheets for identifying the proper subcontractors to be used on the project, I have witnessed a total lack of understanding when it comes to leveling sheets. The intent is to ensure that the trade proposals that are collected are equal in scope of work. The numbers are not important, if the scopes of the work are not balanced. This is exactly what a leveling sheet is meant to perform, a leveling of the proposals.
9.) The use of published cost data that is supposed to be specific to the region of the country and also provides, manpower usage and production rates are helpful, but NOT the end all. It is essential that the estimator understand the region, the construction climate, as well as the degree of competition that is being generated by the specific project.
10.) There are an unlimited number of influences on a project, and the resultant successful proposal. If there is limited competition, the unit values could include additional profit, if the project is highly contested and a very observable and heavily advertised project, then the profit margins must be maintained lower. Each project is totally specific to the environment, and the conditions of the individual project. All of these conditions must be evaluated and managed by the professional estimator assembling the proposal for the work.
Comments relative to the Cost Matrix and the Example Estimate, presented as excel documents within the webpage entitled Analytical Estimating.
1.) The cost matrix is a development of basic unit values, which can be used to assemble a relatively accurate estimate on the project. These unit values have been developed by accumulating the costs of various projects, and analytically analyzing the resultant unit values. The values are based upon the estimator’s knowledge and history of similar projects. Once you have estimated several projects that are similar, you will develop a sense of cost for these projects.
2.) The cost matrix should be set up as a “live” matrix, that can be changed, based upon the individual project. What are some of the conditions that could change the cost matrix for different projects?
a.) Location of the project. Dependent upon the location of the project, the unit values could be different. The cost of installing an 8” concrete block in NYC as opposed to the suburbs will be totally different.
b.) State of the construction industry. If the industry is busy, the prices will be higher than if the industry is slow and contractors are more desperate to win projects.
c.) Subcontractor competition. Are there several subcontractors attempting to win the same project, or are there only a few subcontractors and several projects? The current amount of available subcontractors, as well as available work, will influence the cost matrix for a particular project.
d.) Uniqueness of the project. Is the project a standard project that is common in the area, or is the project unique to the area, with the requirement for specific specialty subcontractors?
e.) Material and equipment availability. Does the project require common, easily available materials and equipment, or are there specialty materials and equipment required?
3.) Set up the cost matrix to fill the estimate with live cell transfer from the cost matrix to the estimate itself. Ensure that the updating of the cost matrix cells will change the estimate as you make the one update. It is important that the time be taken to accurately build the cost matrix and understand its transition of values to the estimate. This will save time and efficiency, when creating estimates using this format.
4.) Add to the cost matrix as projects increase your ability to identify unit values. The cost matrix should be a constantly growing matrix of costs and should be updated as prices and information is available. The use of an accurate and updated cost matrix will enable you to provide almost instantaneous estimates for similar projects.
5.) Continuously investigate the unit values of all trades, as the proposals are received. If several cost proposals are received for the same trades, decipher each of the proposals and use the average unit values obtained by the various proposals. For example, if you receive (3) different asphalt values for the same square footage of asphalt work. Average the (3) values and use this average for you unit value in the cost matrix.
1.) The example estimate is simply an example of how to develop a multi-family estimate for a project. It is important to understand that each project will require a custom scope of work. There will be no projects that are exactly the same. Each estimate will incorporate various activities that are only specific to that estimate.
2.) The excel spreadsheet that is used for your estimate, must be developed with the understanding that it will be populated by the values in the cost matrix. By succeeding with this population via the cost matrix, the need to only update the one cell within the cost matrix, will update the entire estimate spreadsheet.
3.) The more items that can be broken out in the estimate, the better. My opinion is that the more detailed the estimate, the less chance that a mistake will cause a large percentage error on the overall cost presentation. For example if the exterior doors are broken down into the frame, the door itself, the hardware and then another three prices, for the installation of each of these items, the overall influence of an incorrect value for the frames will not influence the entire estimate. Break down the cost estimate into as many smaller parts as physically possible.
The entire reason for having the cost matrix is to allow the generation of unit prices to remain as current as possible. The setup of other independent matrixes is recommended, and can be made to also populate the general spreadsheet. For example, a matrix that identifies all of the particular line items for the sitework, such as an equipment list, material list, manpower list, all with the appropriate unit values can be used to populate the sitework portion of the entire estimate.
It is also important to keep a running account of the estimates that you have assembled. These estimates should be matched with the costs that were required to win the project. You will not win all of the work; therefore it is important that there is a detailed history of bidding. This detailed history will allow you to identify your losses in an analytical fashion, and attempt to modify the unit values to parallel the winning proposals.
Data collection is the foundation of this entire system. There are several software programs that will support the accumulation and summary of this data. Estimating is an analytical function that can be easily accounted for. However, this analytical development must be supported with a true understanding of the work supported by the inherent abilities of a professional estimator.
There are so many estimating issues, concerns, comments and observations that all seasoned estimators can add to this discussion. To estimate a project as a general contractor is an art and a skill. The subcontractors that concentrate on one trade, such as masonry, structural steel, painting, etc. can focus on that one division of work. The general contracting estimator is responsible for the accumulation of all the divisions, the understanding of the work, the deciphering of the schedule, and the intrinsic feel of the owner and the architect. How all of the values are assembled and presented to the owner and architect are necessary skills of a successful estimator.
Good general contracting estimators are extremely difficult to find. I always laugh at the headhunter that will call up and indicate the need to fill a Chief or Head Estimator position. I laugh because the position is a no win position. If you are accurate and logical, you will NOT be the low bidder. If you are the low bidder, it was normally not due to your superior intelligence or knowledge; it was because you missed something.
Estimating is an impossible game that is being played by in many cases, extremely underhanded characters. However, it is an analytical procedure that is enhanced by the proper use of an excel spreadsheet as well as historical data.
In addition, the skill of the negotiator, the deception of the poker player and the luck of the Irish are all necessary to be a professional and successful estimator.
GOOD LUCK! / IT IS THE MOST DIFFICULT POSITION IN THE CONSTRUCTION INDUSTRY