- Posted by Dennis Dixon on March 9, 2010
In today's economic world, the ability of contracting professionals to accurately produce a Cost Estimate is a skill that is more essential now than in previous times. When things were booming in the contracting business, the consumer contract price was often a back burner consideration, behind financing, the interest rate and the market value of the work after completion. Consumer demand for services often exceeded supply in the form of qualified and professional contractors, suppliers and tradesmen. "Time" seemed to be the driving force in our industry.
Market prices were not always directly related to the level of quality.
The demand for contracting and remodeling work has declined since 2008 and is not expected to experience a dramatic growth spurt for quite sometime.
Here in the first quarter of 2010, consumers are demanding facts, figures, services ...and accurate pricing for their projects. It isn't just the consumer, as the financial rules have been and are still being re-written and modified to produce clarity and accuracy - whether it be new construction or remodeling. All eyes are on the money!
One key to success in the current situation of the construction industry is accurate and factual Cost Estimating. Professionals, such as architects, designers, contractors and remodelers need to know their facts, figures and production costs. Ballpark guesses about a projects' costs won't allow you to get past the cattle call audition.
So...How can I tune-up and polish my estimating skills for the 2010 marketplace? Incorporate the five steps and suggestions as listed below:
1. Plans and Specs need to be fully defined before offering a price. You cannot accurately estimate and solicit bids from subs until things are fully defined. (Maybe this should be steps 1 through 100 because lots of contractors and subs ignore this rule).
2. Work with the clients to complete the plans. Incomplete plans often lead to problems of indecisions, expectations not being met, and a requirement for lots of client-builder-architect interaction while that time should be spent building the project. Does a skier ever secure their bindings after proceeding down the mountain? You working hand-in-hand with the client produces synergy and comradery.
3. Minimize, if not totally eliminate Allowances. Filling in a spot with an allowance is postponing a decision. It generates a void/a pothole/a problem that must be resolved later. When is later? If a client cannot finalize selections, models, wants or needs associated with a specific line item of the production, such as appliance models/details, the ramifications of indecision multiply quickly. Lack of appliance models and selections impact: Cabinetry, Elec/Venting/N-Gas Plumbing, Countertops and even perimeter items such as floor coverings and wall colors. Allowances are a catalyst for discontent, false expectations and an unhappy client. Lastly, projecting an accurate allowance cost for an estimate Line Item Cost Category is difficult. Any additional costs, charges, fees, taxes, etc. are going to leave clients with an unprofessional opinion of you.
4. Estimate projects that you can handle. Taking on and estimating projects that are out of your experience realm are dangerous. You're in shark infested waters. And the sharks are the client, their referrals and their bankers. They'll be poised for attack at any sign of poor professionalism or experience. This situation occurs in difficult economic times because everyone is seeking work. If you still proceed into a situation such as this, be prepared to spend more money on supervision, book-keeping and paperwork.
5. Don't spin gold out of straw (as if you can anyway!). Novices can always find ways to save or cutout non-existent funds to save money and land the job. "I'll do the tile myself for $5 per SqFt and I'll use up all the old tile scraps that I have from my other previous projects". Some jobs aren't worth landing. Just because a potential client has an approved budget of $35,000 for a total Kitchen Demo and Remodel, does not mean that you should take this job. The clients arguing with you about the budget being able to provide funds for granite countertops vs. laminate tops is an argument that you cannot win (unless you donate the cost out of your pocket and or profit). Work with realistic clients, budgets and financial expectations. And, never, ever cut field supervision on the job to save money. It will lead to more problems.
Dennis A. Dixon, owner of Dixon Ventures, in Flagstaff, Arizona, is an author, speaker and general contractor, mainly focusing on combining craftsmanship with profitability in custom home building. Dennis has more than 25 years in construction, plus he is the author of Finding Hidden Profits: A Guide for Custom Builders and a columnist for Custom Home magazine. dixven@aol.com
