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 

Estimating Construction Projects is a Science and an Art

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 Construction 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 materials 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:

  1. 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. 
  2. 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. 
  3. 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. 

How to Use 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. 

CostCenter for Construction Estimates

CostCenter’s cost estimating tools give you the power to create detailed estimates backed by accurate construction cost book data. If you’re looking to utilize intuitive estimating software to place better bids, visit costcenter.com

 


 

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. 

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.

How to Use Parametric Estimates to Resolve Construction Challenges

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.

How to Adapt to Changes From COVID-19 to Make Better Construction Estimates

By Frank Richardson

The Effect of COVID-19 on the Construction Industry

In times of boom, bust, or even war, the construction industry is accustomed to pricing volatility. But the impact of the COVID-19 pandemic on construction material costs is unlike anything the industry has seen before.   

As “non-essential” manufacturing businesses shut their doors, supplies dwindled, and prices skyrocketed. Now, as the U.S. economy comes roaring back and demand continues to outpace supply, the construction industry remains saddled with high prices and delays.

According to the Joint Center for Housing Studies (JCHS) of Harvard University, the price of structural steel more than doubled since the start of the pandemic. And lumber’s retail price hit an all-time high – up 323%. Meanwhile, in the residential building sector, the cost of new and remodeling construction input costs jumped 23% and 21% percent respectively. 

Project holdups are also part of the new normal. The National Association of Homebuilders says that in 2021, more than 90% of builders reported delays and material shortages of everything from concrete to copper wiring.

The knock-on effect is palpable. And nowhere is this more keenly felt than in cost estimation.

Before the pandemic, when a contractor requested a quote from a supplier, they could expect that price to be locked in until the materials were needed – typically a window of several months. But in today’s volatile market, suppliers won’t take that risk. Often, the only way to lock in a price is to buy now, even if the job won’t be completed for years into the future. This places 100% of the risk on contractors. They either buy now or risk a material price jump down the road and cost overruns – a growing likelihood in this exceptionally volatile time. 

Couple these dynamics with an acute labor shortage, and contractors and building owners have a tough time ahead. 

3 Ways Contractors Can Mitigate the Impact of COVID-19 on Construction Estimates

Going forward they must have a contingency plan to control material costs at the outset or mitigate the impact of price fluctuations and delivery delays. Let’s look at their options.

  • Timely, accurate cost estimates

Because dealers and suppliers are only holding pricing for a few days, cost estimators need accurate, up-to-date cost information before the bidding phase. Acuity is responding to this need by updating the pricing in our SaaS-based cost estimation tool, CostCenter, on a more frequent basis.

With the insight from the cost estimation tool, contractors can set expectations with owners – before they bid – based on the most current data with a timestamp of when the price was sourced and where it originated from. They can also line up potential financing in parallel with the bid process to move on the project as soon as possible and take advantage of locked-in prices.

  • Use cost data for more informed, collaborative decision-making 

But estimators can’t just focus on numbers and processes. Given the dynamics of recent times, they must become a student of the world, look to the economy for cues, and have a finger on the pulse of what’s changing. 

This doesn’t happen in a silo. Each project stakeholder – architects, engineers, contractors, and today’s informed owners – must come to the table together early in the design-build process to consider the impacts of market forces and review cost data to make smarter decisions while controlling costs. With a holistic view of construction costs from start to finish, they can devise solutions to address price volatility and availability. Options can include ordering alternative lower-cost materials, negotiating “buy now, deliver later” agreements with owners and suppliers, setting thresholds for the owner’s liability for increased costs versus when the contractor is held liable, and other best practices.

  • Leverage advances in technology

If necessity is the mother of invention, nowhere is this truer than in the construction industry. Although traditionally slow to adopt new technology (the construction industry spends 80% less of its revenue on information technology than other industries), the pandemic propelled firms in this sector to make more use of the technology in their toolkits.

Some of this adoption was spurred by COVID-19, such as cloud-based collaboration platforms and mobile apps that aid in real-time information flow between office and field. Others provide a fix to systemic challenges in the industry. For instance, building information modeling (BIM) transforms cost estimation by allowing contractors to make more accurate and detailed estimates during a project’s conceptual stage. Meanwhile, 3D printing is now in the field, reducing the time it takes to build a house from months to hours.  

It’s hard to imagine a construction job site today without technology. It’s reshaping the industry, filling gaps in labor shortages, mitigating risk, improving accuracy in cost estimation, and helping contractors and owners do more with less. 

Partnership at all Levels is Key

If there’s a silver lining in the pandemic, it’s that out of crisis comes opportunity. By working together and working smarter, everyone becomes a stakeholder in the success of a project. In this way, the pandemic is changing the nature of relationships between architects, engineers, contractors, and owners – and for the better.

Instead of just tolerating each other; communication, transparency, and trust between owners, contractors, and subcontractors are critical to solving today’s unique challenges and ensuring more successful outcomes.

 


 

About the Author  

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.

To learn more visit costcenter.com.

PT&C Releases the First Collaborative Cloud-Based Cost Estimating Solution With Native MII Interoperability

With the rapid rise in cloud computing, the Project Time & Cost (PT&C) team, based in Acuity’s Center of Excellence for Construction Engineering, has rolled out a significant update for their cost engineering cloud suite. This is a milestone release of robust features that include Geographic Cost Index (GCI), accelerated database updates, and native MII interoperability.

The growing PT&C team has provided professional services and technology solutions for commercial and federal agencies for nearly 40 years. While their history focuses on consultancy, this release of PT&C CostCenter software and construction cost data will revolutionize the estimating space.

“Cost estimation is both an art and science,” said Frank Richardson, Senior Cost Estimator. “You need reliable cost data and the ability to make immediate adjustments to accommodate unpredictable environments. We’re setting a new standard with the transparency of our cost data by showing you the source of our data and when it was updated.”

The team that supported major parts of the Tri-Service Automated Cost Engineering System (TRACES), including MII and Area Cost Factors, aims to provide engineers and managers an innovative cloud solution with their newest features.

Architecture, Engineering, and Construction (AEC) teams can leverage the various applications within PT&C CostCenter to ensure they have access to up-to-date information for accurate detailed estimates. Along with construction cost estimation functionalities, seamless USACE/TRACES MII interoperability allows agencies to gain maximum value from their investments. AEC teams, regardless of their physical location, no longer need to worry about MII file versioning and the time required for rework. With PT&C CostCenter, users get a single source of truth to keep projects organized, a view of progress, insights on key financial indicators, and have real-time collaboration for accelerated productivity.

“To empower estimators, our responsibility as engineers and cost experts is to keep our cost database current,” explained Andy Reape, VP of Engineering & Consulting. “For us, it is also essential to provide users a tool where they’re not bound to a single device and can develop complex estimates with teammates spread across the world.”

In this release, PT&C is rolling out an industry-leading white-glove pilot program, a tailored onboarding experience offering users a dedicated success representative, priority support, and a direct line of feedback on product roadmaps. This is an open pilot program that comes with training benefits at no cost and grants users firsthand experience with the newest improvements.

PT&C has delivered solutions within the engineering field for decades and their recent expansion is indicative of the advancements in construction technology. AEC firms that assess their technology stack today, and implement specialized tools sooner, will find it easier to remain competitive. A peek at the larger roadmap within the PT&C CostCenter tools includes exciting capabilities such as assemblies, parametric modeling, and even advanced analytics backed by artificial intelligence.

About Project Time & Cost, LLC:
PT&C is a leading provider of professional services and solutions to U.S. federal government agencies and commercial clients. The company provides consulting, project management, and technological development services. For additional information visit construction cost data. 

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