How Construction Estimators Can Leverage Data and Technology for Accurate Estimate Costs 

Estimating Costs Is Challenging – But Crucial to Business Success. Here’s How to Get It Right 

By Frank Richardson and Chris Thomson 

Experienced construction estimators know that estimating large and complex commercial projects is both a science and an art. That’s true whether your organization is the contractor planning the project or the owner of the built asset. And it’s especially true when estimating labor costs. 

The science of estimating is based on data: historical numbers from previous projects, current numbers based on trends, forward-looking numbers drawn from external sources. 

The art of estimating relies on experience. After you estimate enough projects, you gain a feel for when an estimate feels high or low. 

Trouble is, art isn’t consistent or repeatable. You might nail an estimate today but badly miss tomorrow. That fact can have negative repercussions for your business. 

But what if you could transform estimating so that it’s less art and more science? With the right data and technology, you can. In the process, you can make labor cost estimating a competitive differentiator and a driver of business success.  

Why you need accurate estimates now 

U.S. construction activity is forecast to ramp up in 2022, especially as COVID-19 wanes and organizations return to the office. Construction costs will likewise continue to rise by up to 7% over the next year. 

Labor costs climbed 4.5% in 2021, largely due to scarcity of qualified workers. They’re expected to grow at a similar pace in 2022. President Biden’s Executive Order on Use of Project Labor Agreements could drive further increases for large federal projects. 

These trends highlight the importance of accuracy in labor cost estimates. After all, in the US, labor typically accounts for up to 40% of a project’s budget. 

The threats of underbidding and overbidding 

The biggest risk in estimating is underbidding or overbidding. Underbid, and your company will realize slimmer margins or even lose money. Overbid, and you risk missing out on the business altogether. Either way, a serious miscalculation could put your enterprise in jeopardy. 

Of course, contractors and owners have different mindsets when it comes to under- and overestimating. Owners want estimates on the higher side, especially for government contracts. That’s because if bids are substantially higher than their own estimate, they need to consider narrowing the project scope. 

Contractors want estimates to be low enough to win the contract but high enough to earn a profit. In a lean market, they might bid lower than they normally would, accepting that they’ll earn a lower profit. That will let them maintain cashflow and retain their workforce, avoiding business interruptions and layoffs. 

Understanding knowns and unknowns 

Why are under- and overbidding so common in estimating costs? Because in estimating, there are knowns and unknowns. And labor involves a lot of unknowns. 

Equipment and material costs are almost always easier to predict. Yes, pricing and availability of equipment and fuel can vary. But whether you own, lease or rent, equipment essentially costs what it costs. 

Likewise, pricing for material such as timber and steel can be unpredictable – especially as tariffs are implemented or repealed. But overall, material costs what it costs. 

Labor isn’t so cut and dried. Sure, there’s a going rate for particular talent in a particular market, and union labor rates aren’t negotiable. But many factors that affect labor costs are unknowns. Most notable is productivity, which can have a huge impact on the cost of labor. 

Productivity is affected by three key factors. First is location. In an urban environment, it takes more time to move equipment and materials than in a suburban or rural environment. In a remote area, in contrast, you might not have access to local labor, and bringing in outside labor can take time. 

Next is congestion, especially in interior spaces. If the project requires a lot of workers to be onsite simultaneously, they can get in one another’s way, slowing things down. 

Last is security. Getting workers into and out of a high-security site on a daily basis takes time. And security protocols can slow the work itself. 

Data and technology for accurate cost estimates 

The good news is that the right data and technology can help you turn unknowns into knowns – and get control of material, equipment, and labor costs. 

Start with a trusted advisor that has extensive experience in estimating labor costs. It’s crucial to have valid baseline numbers that are built on real-world scenarios and that factor in both historical data and current trends. A qualified consultant can provide reliable baselines that break down costs by prep-work time, direct-work time and nonproductive time. 

Then, effective software can equip you with purpose-built tools to help make consistent, accurate cost estimates. The solution should allow you to work with many thousands of unit line items that are researched, validated and routinely updated by knowledgeable cost engineers. 

A cloud-based platform can give key stakeholders access to projects from any location and on any device. A dashboard view should enable you to review estimates through a single interface, with a real-time view of estimate status. Collaboration features should allow multiple estimators to work together and co-edit as needed. 

As the volume of construction projects increases, and as construction costs remain volatile, cost estimating will be a challenge. But with the right data and technology, estimating labor costs can become consistent and accurate – and help contribute to business success. 

 


 

About the Authors 

Frank Richardson is the Senior Cost Analyst for CostCenter’s database of constructive tasks and assemblies. CostCenter is an advanced facility lifecycle solution that empowers professionals with cost estimating tools and current cost data. 

Chris Thomson is a Senior Professional Engineer for Acuity Engineering and Consulting.  By applying sustainable business practices, proven project management techniques, and effective cost analysis and engineering principles, Acuity Engineering and Consulting helps our clients manage costs, risks, and schedules. 

To learn more visit costcenter.com. 

 

The Future of Pre-Construction Parametric Estimating for Retail Chains and Franchises

Before any retail chain or restaurant franchise developer moves forward with a new construction project, they must first conduct a cost feasibility assessment. But it’s a tricky process. Cost fluctuations, supply/demand issues, labor shortages, and local construction regulations can all introduce uncertainty and risk into the estimation process.

To introduce reliable insights into pre-construction estimates, cost estimators have increasingly turned to parametric estimating.

What is parametric estimating?

Parametric estimating helps developers determine the cost of a new project by drawing on the relationships between historical and statistical data to deliver high-level estimations quickly and with different levels of granularity.

Retail chains and franchises use parametric estimating during the pre-construction phase to develop comprehensive conceptual models to understand the budget, opportunity, and planning required. This is particularly critical for large, complex projects where cost confidence is critical during the pre-construction phase and best-guess estimates of old weren’t as informed or as accurate as they needed to be.

For instance, Publix Super Markets recently announced plans for its first store in Kentucky, with a grand opening in Louisville slated for late 2023. Before deciding whether to break ground on a project like this, developers typically establish a high-level estimate using parametric models based on actual project data from previous developments.

These conceptual models are also adjustable. As the parameters of a project change – such as the size of the building or the use of new construction materials – cost estimators can dynamically account for these variables and achieve confident cost projections.

Once the model is developed, it can be reused for similar projects and the quality of data is improved with each iteration.

Construction market dynamics create challenges – but innovation brings answers

Even with these data-driven insights, market developments and fluctuations can throw a wrench in the works, potentially delaying budget approvals and bid solicitation process. For example, before the pandemic, if a contractor requested a price from a supplier, that estimate was good for six months – today, it may only be valid through the end of the day. As a result, cost estimators often reprice a project numerous times to accommodate unpredictable environments as well as client requirements.

Modern parametric models can help streamline this process. Not only do they allow estimators to create estimates faster than ever, they also provide the flexibility for users to change their inputs and run different scenarios – making it easier to anticipate and account for price fluctuations.

Check out this earlier blog from Acuity’s Frank Richardson. Frank shares some valuable tips on how building owners can control material costs from the outset and mitigate the impact of price fluctuations.

Another challenge that developers and owners face is finding ways to mitigate the disconnect between high-level parametric estimates during the conceptual stage and detailed cost assessments as the project matures. This is an area where Acuity International continues to innovate.

CostModeler is a breakthrough in the Acuity team’s development of a strategic vision to accelerate pre-construction productivity supported by big data and analytical insights. Through the parametric application, users can develop and adjust comprehensive conceptual models in the preliminary stages of any project to better understand the budget, opportunity, and planning.

As new project opportunities progress towards later stages, parametric models built within the new CostModeler tool can be converted to a comprehensive, detailed cost estimate with just a few clicks.

This puts up-to-date cost data into the hands of developers with full transparency into the source, quote date, and direct pricing for rapid decision making – a capability that has become more critical in today’s dynamic construction market.

The future of parametric estimation

CostModeler is just the first step in our advanced roadmap for the pre-construction industry. It will soon be followed by what-if analysis, geo-mapping, the next phase of risk analysis, and forecasting.

Learn more about how parametric estimating advances facility lifecycle capabilities.


About the Author

Mark Clark, Senior Cost ConsultantMark Clark is a Senior Cost Consultant with over 30 years of experience managing commercial and residential projects. He is experienced in all phases of construction and renovation and is knowledgeable in compliance standards relating to all government regulations and codes. Mark has supported various large and small-scale projects in the private and public sectors.

Connect with Mark at mark.clark@acuityinternational.com.