Basic Principles of Estimating

Prof. Awad S. Hanna

 Estimating
 A prediction of probable cost.
 Is figuring out how to put the pieces
together in the most economical
manner.
Estimating is both art and science.

Prof. Awad S. Hanna

 Estimating (cont.)

 Identify and quantify the pieces-takeoff.

 Identify construction methods.
 Engineering - Will it be stable during
construction?
 Productivity

Prof. Awad S. Hanna

Bidding is NOT the same as Estimating

 Identify RISK
 How do you get paid?

Prof. Awad S. Hanna

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

Prof. Awad S. Hanna

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

Prof. Awad S. Hanna

 Estimating Requires:
 Skills
 Effort
 Above all, an organized system that will
prevent errors and omissions.

Prof. Awad S. Hanna

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

Prof. Awad S. Hanna

 Cost of Estimating
Chart 1
55
50
45 A

40
hours

35 B

30
25 C
20
15
10
100 200 300 400 500
Size of Project in Thousands of Dollars

A Simple project
B Medium complexity
C Difficult project

Prof. Awad S. Hanna

 Cost of Estimating (cont.)
170
Chart 2
16
0
150 A
140
130 B
hours

12
0
110
100 C
90
80
70
60
50
40
30
1.5 2.0 2.5 3.0 3.5
Size of Project in Millions of Dollars
A Complex
B Medium complexity
C Simple
Prof. Awad S. Hanna
 Profit Should Correlate to Risk
 Job Comparison
Compare two jobs of identical direct cost,
yet very diverse in overhead and risk
factor: Job “A” Job “B”
Material $200,000 $100,000
Labor 20,000 230,000
Subcontractors 100,000 10,000
General Expenses 30,000 10,000
Subtotal 350,000 350,000
Overhead @10% 35,000 35,000
Profit @10% 38,500 38,500
Selling Price $423,500 $423,500

Prof. Awad S. Hanna

 Profit Should Correlate to Risk (cont.)
 Job Comparison
# labor

5 5 6 6 5 5 7 7 7 5 5 4
1 2 3 4 5 6 7 8 9 10 11 12 week
12 weeks  65 labors

# labor
15 15
10 10
2 3 3 2 2 3 2 3
1 2 3 4 5 6 7 8 9 10 11 12 week
12 weeks  65 labors

Prof. Awad S. Hanna

 Profit Should Correlate to Risk (cont.)

 Materials Low to medium risk

 Labor High risk
 Subcontractors Low risk
 General Expenses Low risk

Prof. Awad S. Hanna

 Accuracy is Critical for Success

 A typical project can be broken down as

follows:
Material 40-45%
Labor 35-40%
Equipment Expenses 8-10%
Overhead 10%
Profit 2%

Prof. Awad S. Hanna

Common Estimating Mistakes
 Misread or misinterpreted specifications,
drawing, or any other contract document
 Takeoff omissions or overlaps
 Missing quotes
 Estimating by unit prices
 Using the percentage method to establish the
cost of certain systems
 Prorating indiscriminately
 Crumbling under pressure to procure work
Prof. Awad S. Hanna
Common Estimating Mistakes (cont.)
 Cutting prices to meet or beat someone else’s
quote
 Underestimating the complexity of a project
 Expecting and excessive amount of favorable
changes
 Overemphasizing volume purchasing
 Undertaking a project with incomplete bid
documents
Scaling drawings

Prof. Awad S. Hanna

 How to Improve your
Estimating Procedure
 Company labor tables and current material
prices should be stored in your database.
 Manual estimating is not cost effective and it
is subject to more errors and omissions.
 Computerized estimating should automate
and expedite the manual estimating process.
 Establish the company labor unit sand labor
factoring tables.
 Maintain current material pricing.
 Establish an estimate review procedure.
Prof. Awad S. Hanna