Author Archives: Anton Takken

About Anton Takken

I chose to focus on estimating for a few reasons. Chief among them was that it's a position that's hard to fill in most companies. Job security and advancement is easier as a result. Unique to this job is a higher vantage point over the company and its place in the market. Bids are generally over in a few weeks which keeps things from getting boring. The reasons few of my colleagues pursue estimating comes down to a few misconceptions. The first is that it's the builders version of accounting - perceived as a lonely and quiet life among the charts and plans. The second is that it's not engaged in the construction process. Lots of the appeal of the construction industry is the sense that individual effort brought a plan into reality. The teamwork and camaraderie present among tradesman seems conspicuously absent at the estimators desk. Finally, I think the last reason is that it's daunting to be responsible for setting the price of something that's never been done. The good news for folks in estimating is that it's much more social than advertised. An estimator's phone is constantly ringing. Taking the opportunity to build relationships with the bidders creates a positive atmosphere and encourages everyone to do their best. It can be too much of a good thing which is why it's common to arrive at their voicemail when you're calling with a question. A strong rapport with the bidders can be invaluable. Subcontractors have much more exposure to what's going on in the market and they're often eager to share their knowledge. Learning from these experts is a priceless opportunity that's often overlooked. More on this in a bit. I decided to start this blog because I noticed that estimating has applications in many arenas. Over the last few years I've helped estimate in fields ranging from software development to blacksmithing! The more I thought about it, the more I realized that it's not about knowing what everything costs, it's about knowing how to figure that out. I believe the very first step to knowledge is to seek it, the second is to retain it, and the third is to pass it on. I hope to share some insights into how estimating is done and hopefully have some fun doing it. My experience is mostly commercial construction, but I'll try to make everything as generally applicable as I can. There are many aspects of business that all markets share yet it's remarkable that one of the most consistent is the failure to recognize that estimating is the very first step to a successful project. So if you're frustrated that work isn't profitable, or exasperated that there's never enough time to get the job done, this blog will be worth your time. Feel free to email me at: estimatorsplaybook@gmail.com

Would you recommend estimating as a career?

I was recently asked if I would recommend estimating as a career.  This being the first time anyone ever asked me this question, I was unprepared for how complicated it felt to answer.  I find myself between two competing perspectives on this vocation.  On the positive side, most people who major in Construction Management do not voluntarily pursue estimating.  As a result, there is usually a tremendous amount of competition for Project Management positions, which in turn, limits the individual’s ability to move up the ranks.

Project Managers multiply like…well you get the idea!

The Good

Estimating in contrast, has very little competition.  It’s very common for successful estimators to get rapidly promoted to senior positions. A quick survey of construction contracting will reveal that estimators are well represented at the ownership level.  Estimators are in a unique position to witness market and industry trends.  If they’re paying attention, they can see what’s going on both inside, and outside of their firm to make better decisions.  Estimating is a wonderful way to network with professionals in your market.  Bid deadlines can be very short, so coordinating everything and everyone requires a lot of direct communication.  That direct communication provides lots of opportunities to stand out as an individual.  Being perceived as a real contender attracts market leaders, which can make you a winning bidder.  These are the proven connections between your integrity, your reputation, and your success.

Plus you’ll be surrounded by some good company!

The Bad

The construction industry has some serious challenges that will factor heavily into your daily life as an estimator.  It’s entirely possible to be the lowest complete bidder and still lose the job.  Major economic trends cascade through the industry upending everybody’s plans.  It is very frustrating to see hard-won projects getting postponed or abandoned when your firm badly needs work.  Oftentimes there will be lot of pressure to generate results when work is scarce.  People tell me that they wouldn’t want a job that depends upon their day to day performance.  I see it differently.  Just about everyone’s job depends on their day to day performance.  The same transparency that exposes all the bids I lost, will equally showcase all the jobs I won.  I can see, and more importantly prove my value to my employer.

The Ugly

Desperation encourages a lot of bad behavior on all sides of this industry.  I often remind people that it’s not the job you lose that puts you out of business, it’s the job you win.  All of the very worst projects of my career had one thing in common; dishonesty.  You will encounter a lot of people who will rationalize dishonest and unethical business practices as being somehow necessary.  “The thing you gotta understand…” is the familiar preamble, cheating is the inevitable conclusion.  It’s presented in terms of negotiation where the arrangement just so happens to require cheating the winning bidder out of their contract award.   If they didn’t want to work with a firm, why did they accept the bid?  As crazy as it might sound, I’ve had clients who claimed they had a lower bid than mine and asked me to beat it after the fact.  When I declined their request (called their bluff), they went quiet for a while, then sent me a contract for my full bid amount.  Some days, it can be very difficult not to take it all personally.

Jim does his best to stand out from the crowd, but sometimes the job eats at you…”

So where do I start?

I could list off all the education and work experience stuff, but it won’t lead to success on it’s own.  Estimating is a unique profession in that I meet very few who pursued it intentionally.  The vast majority of beginning estimators go on to pursue other lines of work.  It’s my belief that this career misalignment is largely due to two things;  clarity of purpose, and perspective.  When people don’t really understand what they’re supposed to achieve, they make poor decisions that prioritize process over production.  This kind of thinking is how we end up with “bid mills” where firms push their estimators to recklessly bid everything in hopes that it will increase their odds of winning.  It doesn’t work, it never worked, and it’s always been a very bad practice.  The estimators purpose is to secure profitable work by managing risk.  If you want to be an estimator, you’ll need to maintain clarity of purpose.  Chasing everything to appear busy is confusing motion with progress.  Aiming at the opportunities you can actually hit is where perspective comes in.

Jared was all eyes and ears which is why he’s always running around”.

There’s a meaningful difference between perspective and opinion in this context.  Perspective comes from the honest observation of what’s going on, driven by the curiosity to determine what actually matters to success.  Since we know that our success is defined by securing profitable work, we can focus our attention on the variables that affect that outcome.  A word of warning here, make sure that your focus is proportional to the indicative value of a given variable.

Here’s an example of what I mean.  Let’s say you’re competing on near-identical projects like retail chain stores.  If you find that you’re losing by 5%, it makes sense to find a way to trim 5% from your bid on the next one.  However, if you make that cut (or more) on each successive bid, yet continue to lose by 5%, you should focus your attention onto other variables.  Find out how it’s possible to “miss” with such precision.  Are you working with the same people as the wining bidders?  If so, there may be relationships you need to build up, or work around, to improve your odds of securing profitable work.  If the work in question is outside of your efficiency of scale, your company will need to make structural changes to profitably secure that work.

Give me a lever long enough, and a fulcrum on which to place it, and I shall move the world

Archimedes

These are just some of the many reasons that estimators must have the perspective to know what is and is not, a viable opportunity to pursue.  With clarity of purpose and the right perspective, you will be well equipped to recognize the risks and rewards of any given “best practice” in estimating.  There are a lot of “solutions” that are worse than the original problems.  I worked for a company that painstakingly measured every square inch of each paint color where painting was consistently worth less than 1% of the total project cost.  When I started, this same company used crude, square foot costs for complex trades like structural steel and Electrical which were consistently worth 12% and 20% respectively of the total project cost.  Over 30% of their project value was guesswork because the estimator never found time to learn how to quantify and estimate the more complex trades.  The rationale was that the painters weren’t very good bidders, compared to skilled trades so they needed fine detail to verify the painters bids.  While this was generally true, it ignored the relative risk versus reward.  Any error in a skilled trade bid was probably worth more than the entire paint scope.  Simply put, there was no reason to even measure the paint because we could plug in double the average paint contract value without materially affecting our odds of winning the overall bid.  In fact, most of their jobs were won or lost on the basis of six critical trades.

Learn from your losses

Careful readers have likely noticed that there’s a lot of valuable information to be gained from losing a bid.  Depending on the internal bureaucracy of a given firm, it can be difficult for an estimator to know how successful their wins really were.  There’s a built-in delay on this feedback because you must wait for the project to conclude before the full story is revealed.  Estimators working in booming economies may not lose enough jobs to keep their perspective honed.  When things slow down (and they always do), these estimators are often blindsided by layoffs.  Savvy estimators who know the market value of, and market leaders in hardscrabble work are in a much better position to weather a downturn.  Wherever possible, seek the tutelage of a senior estimator who has weathered recessions.  There is no greater test of an estimators skill than to consistently land profitable work in a recession.

Walk tall

Estimating is a humbling pursuit because it’s impossible to achieve your potential without experiencing some failure.  There are however, many moments where you’ll know your worth with a clarity that is undeniable.  That confidence adds to everything you touch, and inspires the good people you’ll work with.

There will be opportunities to help people who may help you in a time of need.  In so doing, you can change your corner of the world for the better.  If all of that encourages you to become an estimator, I hope to see you out there!


Growing pains

Time is money, the customer is always right, estimates are free, every company wants and needs to grow.  These expressions are so familiar that they sound like universal truths. Life has a way of being more complicated than we’d like it to be.  I’ve definitely encountered rare situations where costly time was squandered, customers were wrong, and estimates cost a fortune.

Is growth always good?

To answer that question, I’ll ask another one.  What puts more companies out of business, losing too many bids, or winning too many?  This isn’t a trick question, and it doesn’t require any extensive market knowledge to answer.  Consider the following.  If a company doesn’t win any work, they’re not getting any income which means their overhead is consuming their capital until they’re insolvent.  The overhead and the existing capital are known entities to the firm.  This means that it’s possible to accurately define how long the company can remain in business without landing work.  More significantly, it defines how the company can fail without owing anyone.

If a company wins more work than it can complete, it’s in a very dangerous situation.  Contractually they’re obligated to complete the work and penalties for failure are severe. In real life, things don’t fail in a neat and orderly manner.  One bad job has a way of taxing resources on all the others, systemically spreading the failure to everything the firm touches.    A company that might ordinarily be able to weather one bad job is now facing the prospect of losses on all their projects at the same time.    Taking on that one additional job might well doom the entire operation.  The knock-on effects of this are severe.  Clients and subcontractors are often left in serious financial jeopardy.  It’s difficult to know the total downside risk, but it’s clearly much worse than having to close up shop for lack of work.

Risk versus reward

Businesses operate on risk versus reward relationships.  Growing a successful business is often assumed to be a low-risk, high-reward proposition.  After all, you’re just copying whatever worked to capture more of the market.

There are two assumptions underpinning this plan that have the potential to upend the whole risk to reward relationship.  I’ll pull them out here.

“…copy whatever worked…”

and

“…more of the market…”

 

Let’s start with copying “whatever worked”.  On the surface, it might seem like any entrepreneur or professional would have a solid handle on what they do, why it works, and how it can be copied.  In my experience, this sort of corporate self-awareness is extremely rare.   Quality control efforts tend to focus on detecting the signals and causes of failures.  People just aren’t that curious about their successes.  If something is working, there isn’t much incentive to push boundaries in search of weaknesses.

With their heads in the clouds, management keeps tripping on molehills

I worked for an entrepreneur who proudly told me that “big and clean” ground-up construction projects were the bread and butter of the company.  A quick review of the accounting would show that “ugly and small” remodel projects constituted 85% of the annual revenue, and well over 95% of the annual profits.  Simply put, the “ugly” remodels didn’t attract as much competition, so we could win with higher fees.  Since they were smaller, we could do more of them per year with the same size workforce.  This entrepreneur is by no means an isolated case.  I regularly encounter professionals whose company “identity” has little resemblance to reality.  Projecting the image of what they think they are into new markets rarely works out for them.

So, what’s the assumption with the “more of the market” part?

This is a two-part problem.  First, if the firm doesn’t know what they’re good at, they’re unlikely to be aware of the market factors that influence their success.  Very few companies are “good at everything” so there will only be a select few market segments that are viable to any specific firm.  Those segments can have many factors that influence the quality, quantity, and frequency, of opportunities to seize upon.  Simply put, there might not be “more” of the target market to pursue.  This is especially true for niche contractors in depressed economies.  Just before the last recession hit, there were lots of companies boasting about their growth into diversified client bases.  After the recession hit, most of those firms had layoffs.

The venturi effect 

Giovanni Venturi discovered the venturi effect which is visible with a simple experiment.  Blow at a right angle to the opening of a straw placed in a glass of water.  The venturi effect will cause pressure in the straw to drop, drawing the liquid up the straw.

During an economic boom, it’s not particularly hard to win bids.  Companies quickly decide that they need to grow in order to capture more of the expanding market.  So, they hire more people, buy more equipment, and generally take on more overhead.  Now that they have this overhead, they need to win even more work to pay for it.   The constant expansion creates a venturi-effect on overhead.  Some readers have gotten this far and figure this is all normal growth.

The bids aren’t just placeholders in the process of converting opportunities into profit.  Bids freeze the value of the project before it’s begun.  Adding overhead to the company post-bid is effectively trading profitability for growth.  During a boom, the revenue can be expanding so rapidly that it’s hard to tell that the individual job is actually getting less profitable.  Eventually, many such firms reach a point where their very survival depends on growth because none of their jobs were won with sufficient overhead to pay their own way.  Some readers might be asking themselves why the estimators at these firms didn’t react by raising the overhead in their bids.

While I’m sure that some of them do try, they’re often obliged to prioritize the more immediate problem of staying competitive enough to keep winning work.  Estimators should understand that businesses in general, and managers in specific, tend to prefer a flawed but executable plan over an effective strategy that requires constant judgement.

Strategy versus planning

As individuals, it’s impressive how easily professionals can spot the unfortunate outcomes of rigidly following a plan.  When personal accountability is threatened, many will claim “their hands are tied” by these selfsame plans.  People respond to incentives.  A “plan” sounds much less risky because people assume, they’ll be rewarded for following (or at least appearing to follow) the plan.  A strategy that requires judgement means you might be solely responsible for anything that goes wrong, even if your reasoning was sound.

Longtime readers of this blog know that estimating isn’t about a plan or a process.  Estimating is about controlling risk which requires good judgement.  In my experience, the better your judgement, the less you have to fear in terms of accountability.

“Matt spends a lot of time looking for a place where his reflection matches his image.”

Where do you start?

Estimators need to understand the power of perception.  Hard-charging entrepreneurs hire estimators to control risk, so they can focus on growth.  When sports cars are advertised; the horsepower, the speed, the looks and the luxury are all prominently featured.  Nobody’s talking about the brakes.  Race car drivers know that better brakes slow the car in less time which means they can maintain higher speeds for a bit longer before they must brake for a turn.  This means that they’re covering more distance in less time.  As odd as it might sound, it’s entirely possible for a car with better brakes to win a twisty race against a car capable of higher top speeds.

Estimators looking to gain traction with leadership need to illustrate the effect of controlled risk.  How does winning a given bid relate to securing a better position for the company in the future?  Mindless assumptions should be challenged.  I had a boss who wanted to “really impress” a municipal client with a very low hard-bid in hopes of securing no-compete contracts for future work.  The city in question has charter rules expressly forbidding city contract award without a competitive bid.

Strategic thinking looks beyond the client-retention platitudes.  In this example, there will always be competition, so the focus should be on maximizing profitability at the market-leading price point.  In practice, we found that we were able to profitably win work in a handful of cities.  Looking deeper, I was able to determine that a longstanding culture of bid-shopping among the local General Contractors (GC’s) in one city had created an incentive for the local subcontractors to work with out-of-town contractors.  By being honest and forthright about everything including bid results, I was rewarded with better subcontractor pricing than my competitors.

Since repeat business depended upon winning bids, we had an incentive to reveal any design-driven chicanery that threatened to exceed the client’s budget.  On one such project, there was a sole-specified vendor for window coverings that was three times the cost of their competition for a plain “white goods” product.  From a strategic standpoint, the estimator has three options.  They can bid per plans and specs hoping that everyone else does too.  They can carry the cheaper product in their bid in hopes that it will be accepted by the Architect, and finally, they can expose the cost difference to the client on their bid form.

Options one and two depend heavily on the integrity of others for success.  Option three risks angering the Architect by exposing their chicanery.  When weighing the strategies, compare the relative risks.  Any one of them might fail, thus losing you the job.  Option two might still anger the architect when you submit on the “wrong” product.  If the alternate material is rejected, option two could result in winning a job at a loss which is worse than not having a job at all.

Option three presents the least total risk and most potential reward. If the base bid is per plans and specifications, you’re not violating any trust or instructions.  The alternate is voluntary and can be truthfully presented as an alternate equal. If presented as a way to achieve their design intent within the client’s budget, the Architect can accept your alternate and save face.

The “savings” presented can be whatever you choose to offer.  Strategically, it’s smarter to allow yourself greater profitability to counterbalance the potential difficulty in getting an alternate approved.  As an estimator speaking to leadership, this strategy is a win for the client and the contractor.

 

A journey of a thousand steps

Strategic growth is more difficult than it sounds.  During the ebb and flow of larger market trends, it can feel as though a perfect strategy has no priority over your daily concerns.  There will almost certainly be times where the best course of action is to simply press onward, making the best of what you have to work with.

Quick story.  I started working for a company that chased hard-scrabble projects for low budget General Contractors (GC’s).  Every client who put us on their bid list was treated like an unassailable gift from the heavens.  Bidding was miserable because deadlines were short, bid shopping was rampant, and the work was virtually worthless.  Things weren’t much better in the field where most of the jobs ran late, over budget, and suffered from chronic mismanagement.

Strategy was regarded as a nicety we never had time for.  Since the jobs were small, I was constantly inundated with bids to keep everyone busy.  Chasing larger projects with the same class of client didn’t improve my fortunes.  By one year in, it was clear that our three “best” clients were a financial illusion.  They hired us for more work than anyone else, but all of their work was so poorly managed that we lost productivity and profitability on everything else we had going at the same time.

I was deeply frustrated, and at an annual review, I presented a list of the top 100 GC’s in my area to my boss.  I insisted that we make an earnest effort to get ourselves invited to bid on their work.  Some put us on their “small projects” list which was a feeding frenzy of projects identical to the work we were trying to escape.  Others only invited us to bid on work that was too far from our market.  Eventually, we were invited to bid on a modest job with a major GC.  It was a rousing success!  Every single project since has been awesome.  We met with their pre-construction managers where we learned that they were very selective about who they’ll invite to bid.

Mesas and Buttes

Mesas and Buttes are often confused.  A Mesa is flat topped land mass where the width is greater than the height.  In contrast, a Butte is a flat-topped land mass where the height is greater than the width.

Submitted without comment.

It’s pretty easy to spot market stratification in the construction industry.  Some projects command higher prices than others, even when they are very similar.  When we see “price point” markets, there’s a wide selection of mostly standardized offerings from similar providers.  I once bid a job which had a tremendous number of bidders in each trade.  Plotting the bid amounts on a continuum from smallest to largest, it was plainly obvious that the bids clustered around three separate values.  Broadly speaking, the clustered bidders had strong similarities in terms of market share.  Among peers in their cluster, all of the bidders were strong competitors.

Comparing individual bidders from one stratum to the other, it didn’t seem probable that they were looking at the same scope of work.  For the most part, the bidders in a given stratum had similar economies of scale relative to the scope of work.  At the cheapest stratum, the bidders were neither too big, nor too small, they were just right.

Bid invitations that are open to all comers will generally result in an award to the stratum that best matches the scope of work.  We can visualize the market stratification as if there are populations living atop mesas of different heights. Everything is organized roughly the same on each mesa, but they’re too far apart to bridge the gap between them.  Moving from one mesa to the other requires painful transformation because there are no resources at the valley floor.  It’s dark down there, and there’s no one to guide you so only the determined, or desperate dare to try.

Markets can stratify in less obvious ways as well.  Elite clientele may decide to solicit bids from only the most qualified general contractors, who in turn, will only solicit bids from the most qualified subcontractors (subs).  In many cases, the business is conducted with such discretion that only the most observant of the mesa dwellers can tell that it happened at all.

Getting to this level is a formidable struggle, which is why there is less competition.  We can visualize this kind of market stratification as a butte.  The butte can be at the same height as a mesa, but the butte dwellers benefit from a completely different client base.

An island in the clouds

Chasing elite clients sounds like a foolproof plan, and honestly, there’s a lot to recommend it.  However, there’s a big difference in the relationships that underpin every opportunity.  Going back to my butte metaphor, it’s significant to realize that while the height might seem familiar, the boundaries are sheer cliffs.  Any failure to perform, even the perception that you might fail to perform, may be all it takes to be kicked out.  It’s critical to understand that these rules apply to virtually everyone on the butte.  A GC with a sub that’s not performing, is an existential threat to their livelihood.

The greatest advantage of life on the butte is that you can’t exist here without doing construction management right.  Half-baked, absentee Project Managers (PMs) doing their best to maintain plausible-deniability are not tolerated at all.  This is a huge improvement for all concerned, including the GC, because the client is willing to pay the going rate for qualified leadership.

So what’s not to love?

Elite clients have different motives than commodity level consumers.  Time and money may not be their primary concerns.  For example, bank tellers require a lot of costly in-house and on the job training. Once a given teller has the necessary skills, they can easily work for a competitor.  The bank was much more concerned about inconveniencing tellers, than time or money.

Elite clients know that they’re paying a premium, so they expect the build team to do whatever it takes to make the project successful.  Design teams aren’t appraised by their construction documents (CD’s), or the efficacy of their management, but by their portfolio of built projects.  The quality of the finished work may not reflect the quality of the original design.  Astute readers will note how this “cuts both ways” for every professional involved.

There are many unique challenges to working for elite clients, but the biggest risk by far isn’t obvious to most people.  When things are going well, life on the butte is pretty awesome.  As a company, you can be doing less revenue for higher profit with less overhead, and manpower than you’re used to.  When an elite market slows down, your company may face some really difficult adjustments in order to successfully pursue hard-bid work.

Estimators love to think that they’re constantly diversifying their client base in case of a turnaround.  In reality, the butte work is always the highest priority.  Coming down from that height and climbing back up the hard-bid mesa isn’t as easy as it sounds.  Even if the estimating department is up for the challenge, the leadership and the workers all need to adjust to very different priorities.

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© Anton Takken 2020 all rights reserved

 

 


Who pays the price for being wrong?

I’ve spent most of my working life in the construction industry and it’s a rare day when everything goes to plan.  Mistakes, misunderstandings, or simple lack of thinking things through causes a whole lot of negotiation about what comes next.  Change orders can be immensely profitable, indeed many businesses depend on them to be profitable.  That being said, negotiations don’t always land in your favor so it’s important to understand what’s at stake.

I’ve seen situations that escalated because one or more parties’ lost sight of the bigger picture.

“You know, I think we’re looking at this negotiation all wrong, we’d love to have you for dinner tonight”

For example, let’s say the client is on a shoestring budget.  The design team didn’t get paid to investigate existing conditions, so lots of surprises are popping up.  Further, let’s say the client decided to purchase salvaged materials that turn out to be different from what they told the design team to include.

So far, it sounds like this is all clearly the client’s fault, and they’ll have to pay to remedy the situation.

Let’s say this client is desperate to open on time because they would otherwise miss out on peak season that accounts for nearly all their annual revenue.  To protect themselves, the client required a payment and performance bond for everyone on the job and stipulated liquidated damages of $10,000 per day for being late.

The client is in a tough situation, so they’re particularly concerned about overpaying on change orders.  This leads to squabbles that go on much longer than they should.  To be efficient and productive, the work at issue needs to happen before other tasks so the job doesn’t progress like it should.  A lot of low-budget construction clients aren’t very experienced.  They’re not concerned with how this squabble is affecting the overall job because they have contract terms and bonds ensuring their deadline.

So, who pays the price for being wrong?  In situations like this, the immediate answer depends on timing.  If the squabble drags on long enough, the client may call in the bonds to replace the contractors and get their project built.  The replacement contractors aren’t going to be cheap because they’re getting paid for by the bonding agency who can (and likely will) seize assets to settle the exorbitant tab.

Now I’m not a lawyer, nor do I play one on TV, so none of this should be misconstrued as legal advice.  I suppose it’s possible that a contractor could win a case against the client, but that will take a lot of time and money.  Keep in mind that said legal battle would probably take place after you’ve had assets seized by your bonding agency which likely preclude you from conducting business anywhere else.

For most contractors, getting their bond invoked is an “extinction level event”.  I’ve seen situations where a particularly malignant client drove the project into delays, then used the threat of invoking bonds to demand extreme discounts.  Over the years I’ve had several situations where it was considerably cheaper to pay for the clients mistake so we could avoid more costly problems.  That’s something to consider the next time the client wants to change something on the project.

I’ve found that more contractors go out of business because of problems with a job they won, than from all the jobs they lost.  Don’t let it happen to you!

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© Anton Takken 2019 all rights reserved

 

 

 

 

 

 


The market changed, what do I do?

The daily tasks of an estimator involve a lot of repetitive measurements, processes, and conversations.  For some, the estimators job is almost a ritual, complete with the enduring faith that “this time it’ll work”.  A losing streak  sends estimators in search of answers.  The most common conclusion is that the market has changed.  Ok, now what?  Sadly, many estimators figure they should do whatever they usually do just faster and cheaper.  If that sounds familiar, you probably know what comes next.

The Bid mill

Bidding more leads to winning less because there’s never any time to focus on the opportunities you could actually win.  High-speed cost-cutting generally comes down to lowering your personal, professional, ethical and moral standards.  Many of the most significant problems in our industry have roots in this practice.

Advancements in estimating technology are still in testing… 

Obviously this approach isn’t a solution to the problem.  Now what if I told you that we’re trying to solve the wrong problem?

Estimators have an image problem

On the surface, it seems pretty simple.  Estimators are supposed to win work.  When they don’t, it seems reasonable to focus on production.  After all, what else can you measure?

This is where estimating bites itself.  Everyone outside of estimating figures that the estimator should be able to “count stuff” and report back with a semi-obvious answer.  Another way to phrase this would be to say that an estimators credibility is directly tied to the generation of “charts and graphs”.

Summing up, estimators are perceived as process drones whose credibility is directly proportional to how much they prove their faith in the aforementioned processes.

Did you ever get the feeling that people just weren’t listening to you?  This is probably why.

OK, so everyone thinks we’re drones. What can I do about it?

Well, for starters we could consider the credibility of the information we are working with.  I typically check in with the trade publications for RealtorsArchitects and Contractors to see what’s going on at least once a month.  In my experience, the most accurate information is bad news which is typically reported in retrospect.  Construction trends track over time from Realtors to Architects to Contractors as clients move from speculation to occupancy.

The American Institute of Architecture’s past reports have suggested that an average commercial project takes a design firm six months to get to construction documents.  This is a particularly important factor to the construction estimator because downturns are bad news which aren’t prominently reported when they happen.  What I have found, are articles published months after the downturn began, predicting growth in comparison to the first month(s) of said downturn.  By the time an estimator is reading actual figures on the downturn, they have effectively lost six to nine months of prospects.  I’ve read Realtor reports indicating several months of stagnation on the very same day that contractor publications were predicting a boom.

From the estimators desk, none of these problematic trends will be visible until there’s suddenly a whole lot more competition for whatever is bidding.

We’ve got competition coming in HOT!

People in hard times tend to present their favorite excuses to explain what’s going on.  False conclusions will limit your options.

Please keep in mind that it’s entirely possible that the aforementioned Realtor’s report and the contractor publications prediction will prove to be true.  That’s difficult to act upon without context which is why it’s important to track the trends from Real Estate, to Architecture, to Contractors over time.

You can’t plan without strategy

So everybody’s got a plan to trade work for money.  We like consistency so we tend to repeat whatever worked last time.  No matter what the break-room poster says, in most companies the “plan” is one part repetition, and several parts reaction.  The success of the plan is dutifully tracked in accounting, scheduling, signed change orders, etc.  Process is built around those metrics, bureaucracy happens, next thing you know, everyone is in meetings reporting on the metrics of the processes.

With thinking like this, it’s inevitable that market shifts will be a huge problem.

Priorities are the foundation of strategy

Estimators often overlook one of their most significant skills; prioritizing information.   Measuring stuff generates a lot of data points.  Some of it is really important, some isn’t.  There are often relationships between data points that pull out a unique circumstance that influences everything that follows.

For example, open to structure ceilings.  When the Mechanical, Electrical, Plumbing, etc. trades are all exposed to view, the installation will be more expensive.  HVAC return-air lines have to be ducted with attractive material, exposed electrical is generally required to be in costly conduit compared to inexpensive cable.  Structural supports for these systems have to be better-looking which takes more time and material.  In some cases, the total cost impact would exceed the price of a ceiling.

A savvy estimator anticipating a budget blowout might suggest adding an acoustical ceiling to save money.  This naturally leads to bargaining against the design intent.  “How much (or little) ceiling would it take to save money?”  That’s a tough question to answer for your competitors.  In this example, prioritizing cost-effective options gave the estimator a viable strategy to succeed.

Priorities should be defined, ranked, and consistent.  

I’ve encountered a lot of construction marketing that placed three words below the logo suggestive of priorities such as “Integrity, Excellence, Vision”.

Nobody working for such a business could prioritize integrity over excellence without guidance from whoever picked those words.

The estimator trying to fill in these gaps should start by doing something uncommon.  The estimator should determine what the company is actually good at.   In most of the companies I’ve worked for, the leadership overlooked the successful nature of boring, difficult, or small jobs.  Next, determine what makes them good at that work.

“Chris is a snazzy dresser but that’s not what makes him a good boy”

It may sound counter-intuitive but working from successful outcome to requisite priorities is a more productive approach.  If so, consider what you’re likely to get by asking why pure intentions and brute force were unsuccessful!

With clear priorities, the next step is ranking.  If every priority has equal standing, there’s no strategy beyond placation to whoever set the priorities. Consistent priorities encourage accountability because everyone is working with the same standards.  Inconsistent priorities are a major source of conflict between marketing and estimating.  Everyone has to be pulling in the same direction.

Growing pains

In many companies, growth is a major priority.  A lot of contractors in a boom figure they can pay today’s bills with tomorrows growth.  When times get harder, there’s a huge push on estimating to “grow” into new markets as the old ones falter.

Much harm can be done in blind pursuit of a single priority.  It doesn’t get mentioned very often but the majority of contractors fail because of contract work they wonbut couldn’t complete. This happens in good times and bad.

Many firms find it’s relatively easy to land work in a boom so they simply add staff to pursue more contract work.  Every addition increases the overhead.  Most construction contracts include a retainage provision which withholds 10% of the contract total until the project is completely finished.  In most cases the contractors profit margin is below 10% which means that every active job is contributing to an overhead deficit for your firm.  An average commercial ground-up construction project has a six month duration. Which means…

We need more work to pay for all this overhead!

Now the firm will have to fund the retained portion of their overhead out of their earnings to date for the duration of each job.   Every job added to the ongoing work queue has the potential to magnify a cash-flow problem.  The smart way to proceed, is to increase the overhead on all bids going out during a boom, before additional staff are hired.

That includes interns

This leads to a lot more work for fewer people.  Growth is slower but it’s “paid for”.  So when the market changes (as it always does), the firm isn’t running a line of credit to fund cash-flow issues with overhead.  I’ve witnessed market downturn situations where firms that grew exponentially during a boom laid off entire estimating departments without notice.  One week they were hiring new people, the next they laid off 30 percent of the firm.  “Growth” is not a sustainable plan.

Strategy is neither a task, nor a goal.

Earlier I outlined how an estimator could determine the priorities that guided their firms through and to their most successful projects.  Seasoned estimators with a lot of successful bids would call this “good judgment” or “wisdom”.  These estimators have incredibly valuable insights to share but as I mentioned before, their credibility is often tied to a pile of charts and graphs.  In many firms, wisdom and judgment are downgraded to opinion which is dismissed when some shiny thing captures leaderships attention.

I thought I had a lot of things worked out until I actually did the priority development for the companies I worked for.  I made a lot of surprising discoveries.  For example, the single most definitive feature of a successful project that was visible from the estimators position was client honesty.  The second was client competence. Opportunities that resembled our bread and butter work came in third.

I suspect a lot of estimators reading this figured an honest or competent client would go into the nice to have category, well behind important stuff like contract value, duration, or proximity.

This is where we unlock the real value of strategy.  Mindlessly chasing whatever is worth the right amount, at a convenient time, within range of your business isn’t a strategy, it’s a  reactionary plan that’s very likely shared among all of your competitors.  That means that every ideal job will have increased competition pushing profitability down.  We don’t have equal odds of winning bids.  That’s a loathsome myth ranking up there with “free estimates“.  There is no sense in shooting at stuff you can’t hit.  There’s even less sense in winning work that threatens your company’s survival.

“Never interrupt your enemy when he is making a mistake ”

Napoleon Bonaparte

With the right priorities, the real opportunities become clear.  Chasing the ugly little project that’s out-of-town might well be the very best strategy for your firm.  The goal is to be successful.  Estimators need to link their credibility to results rather than reports.

So what do you do when the market has changed?

The plan starts with credibility.  No amount of busy-work will offset a plan built on misinformation.  Estimators need to see market trends before they arrive.  Major trends should chart through related industry publications over time.  Think about what these trends will mean to each industry.  Follow up to see what actually happens in your market.  How these trends actually affect your situation is what matters.

Figure out the priorities that lead to successful work.  Make sure the priorities are visible from the estimators position during the bid.  Work out the ranking, and lock them in so everyone involved is pulling in the same direction.

Apply these priorities to what’s available on the market in the context of oncoming trends.  This is where strategies form.  Patience, courage, credibility and commitment will be tested. If this was easy, someone else would be in charge.  Learn from mistakes and do the best you can with what’s available right now.

“I’m just not sure the grass will be greener on the other side of the fence”

Above all, stay informed of oncoming trends.  Unpleasant (but critical) information is often delayed or downplayed which can leave little time for reaction.  Conversely, good news is reported immediately.  Keep in mind that positive changes in the market can take a long time to materialize at your level.

 

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© Anton Takken 2018 all rights reserved


Finding Mistakes

In a lot of businesses, estimating is a bothersome hang-up standing between an opportunity and a contract.  It can be painstaking and detailed work that has little resemblance to whatever the business actually does.  Making a mistake in the bid can have devastating consequences so it’s a pretty big deal to get things right.  The main problem is that there typically won’t be anything you can compare your bid against to spot if something went wrong.  For little stuff, it’s pretty easy to “see” the whole picture as a list of stuff adding to the total.

When things get more complex, the estimate can be several pages of fine print.

The bigger an estimate is, the more opportunities there are to make a mistake.  So how do we spot them?  Well a whole lot of estimators would tell you to just go looking for them.  That sounds good, but unless the mistake is fairly obvious, it won’t stand out as one entry in a list of hundreds (or thousands).  So now you’re combing through the spreadsheet looking for small deviations.  Maybe you’ll catch a few, maybe you’ll miss a few.  This is where estimators will tell you to do another review, in hopes the second dragnet will catch whatever you overlooked.  So, you start again with the fine-toothed comb, going over every entry.

By this point, you’ve probably seen everything in that estimate several times.  Anything you really analyzed has become familiar to the point where you’re memorizing figures. When people play a matching game, things only “look right” when the relationship they remember stays the same.  It’s happened to me, and I’ve basically gone “blind” to mistakes I was actually looking at.

Artistic rendering of an estimate under review.

 

If we checked in with estimators again, they’d probably tell you that they factor in a contingency to pay for mistakes they couldn’t find.  How much?  Well that really depends on how badly you intend to screw up doesn’t it?  With all that said, it’s probably not too surprising that there’s a lot of turnover in the estimating profession.

However, all is not lost.  For starters, I think it’s important to point out that wherever (mostly) normal people are working, emotions will factor into their behavior.  On the surface, estimating seems to be a strictly facts and figures profession.  People take the job and eventually the facts don’t meet the figures.  Then the estimator succumbs to the stress and seeks alternate employment.  That approach has some obvious problems.  Instead, what if we emotionally connect with the risks and the rewards?  See making a mistake is a risk, catching it is a reward.  That emotional and mental balance promotes agility, creativity, and confidence.

So how does that apply to finding a screw-up on page 6?

Well for starters, you have to connect with all the little things you’ve caught along the way.  Most of the time a little mistake gets swept aside as quickly as possible.  Maybe it seemed embarrassing, or trifling.  Take a second to consider what would have happened if you hadn’t caught it.  Chances are good that some of them would have been pretty serious.  The key here is to take this as a rallying point.

You just caught a costly mistake.  Maybe it was a decimal point, or a typo, or some other subtle detail that would have had big consequences.

Now you’re connecting an emotional reward with spotting subtle details.

Enjoy the moment.

You’re also learning to spot patterns in your work.  Consistently making a mistake you can correct is the long way around.  There’s no point in “rough drafts” that include pointless errors, so you’ll stop making most of them.  By being emotionally connected to your process, you’ll start looking where these errors are likely to hide.

Circling back to finding that mistake on page 6, we must understand that we’re not the sum of our mistakes.  Going looking for every mistake you’ve ever caught is going to doom you by experience.  I’ve been doing this for ten years.  I’ve caught thousands of mistakes in my estimates.  I once had a boss who wanted me to compose a binder listing every single mistake I’d ever found which was to be used as a “checklist” against all future work.  If every job was consistent enough that an item specific checklist was worthwhile, there would be no “estimating” involved.

Instead, I go through the estimate and I allow myself to reminisce about the processes that put each figure on that spreadsheet.  That keeps things familiar without mindlessly memorizing everything I see.  If you’ve ever reminisced about an experience, you’ve doubtlessly recalled thoughts and emotions.  Sometimes you’ll remember a thought, or a feeling that you hadn’t had in years.  As often as not, you’ll remember something tangential to the topic, like the scent of your favorite food when you reminisce about your childhood home.

It works the same way in estimating.  All those little successes in catching an error will suggest themselves as you’re reminiscing your way through today’s spreadsheet.

Bonus points if you look cool doing it!

Bystanders might see what I’ve done and attribute it to experience or painstaking diligence.  I can tell you that I’ve worked with some seriously intense people who had more experience than I do.  They work awfully hard to catch stuff that just pops out for me.

There are some downsides to my approach.  Perhaps the worst of which is that my approach requires sincerity.  You must genuinely feel a reward for finding a mistake.   People in general, and your employer in specific may tend to focus on mistakes as the source of all problems.  Tell your boss that you caught a huge mistake, and they’re likely to only hear that you’re a danger to the business.  It’s difficult to keep your chin up in these situations so you often must keep your own council.  That’s a whole lot harder than it sounds, especially when you’re working with/for insincere people.

Another downside is that it’s easy to get infatuated with your own inventions.  If any part of your process is faulty, no amount of massaging will offset that fact.  I’ve sunk lots of time into constructing elaborate error catching shortcuts that overlooked something critical.  Sometimes these shortcuts would work, other times they wouldn’t.  It was like an ambulance with a dodgy starter.

Every little thought that pops up as your reminiscing won’t be relevant.  People are capable of spotting patterns that don’t really exist.  Unless you’ve arrived at the cause of your mistake, you can’t celebrate catching it.  Playing it fast and loose with what you actually know is guessing, which is worse than being wrong because it’s irresponsible.  Again, everything here depends on sincerity.

It occurs to me that I know a lot of people I know might have read to this point and come up with an equivalency without realizing it.  See it’s super-common for people to think in terms of the proverbial carrot and stick.  Whatever incentive is proposed may be equally substituted with a sufficient punishment without affecting the desired outcome.  This may explain why so many employers cling to the notion that all estimating mistakes are perfectly obvious oversights.  To this way of thinking, an estimator should be motivated by fear of missing stuff.  There’s a huge, gaping hole in this logic.  They’re basing this assessment on omissions found in winning bids.   It’s anywhere from possible to probable that the entire reason you won the job was because of an “omission”.  Nobody (but the estimator) cares about the absolutely perfect estimate that lost the job.  This point of view encourages big contingency funds (sandbagging) which won’t win work in a tight market.

Finally, my approach has a fatal flaw for anyone who started out in a boom.  When it’s easy to win work, there’s less risk in being wrong so standards slip.  Everyone has to start somewhere, so if you’re starting in a boom, seek out an estimator who was successful during a down market.  If they’ll review your work, acknowledge each mistake as a discovery.  Challenge yourself to find them on your own and give yourself credit for improving when you find them.

Hopefully this approach will be as helpful to you as it has been for me.

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© Anton Takken 2018 all rights reserved