Tag Archives: RS Means

Where do estimators get their prices?

This simple question is complicated because the answer depends on the application. Just as fruit comes from plants, it also comes from soil, water, and sunlight. The more specific the answer, the more it will involve larger, and more complex factors.

Pick any two; Fast, Complete, Cheap,

The way an estimator proceeds will be balance their client’s needs against their firms risk.

If a client wants a fast answer with no margin for error (complete), an estimator will reduce their risk by raising their prices, and padding their bids with contingencies. The bid-day price is high, but the client is relatively safe in assuming it won’t cost more than that amount.

If a client looking for fast and cheap pricing, should expect lots of exclusions on the proposals. Expensive and necessary items may not be included so client takes a risk in relying on this information.

Complete and cheap pricing only comes from a dedicated effort to find only what’s needed, and get the best pricing possible for it.

Balancing act

Estimators must weigh the likelihood of being awarded a profitable contract against the effort to price the work.

Where do estimators get their prices?

Artistic rendering of a conceptual bid

Conceptual or budgetary exercises are often done as courtesies to clients and architects. Historical pricing of past projects is the most useful resource for this work. Comparing the proposed project against past projects gives the estimator a project-level price comparison.

By taking each projects cost and dividing its square footage, an estimator can compare square foot costs across differently sized projects. Experienced estimators exercise great caution here because some costs are not proportional to the area.

For example, restrooms and kitchens are very cost intensive because they require the work of so many trades. A large and a small office might have the same number of restrooms and kitchens. The contributing cost of these rooms is spread over a higher square footage in the larger office.   This leads to a lower square foot cost than would be reasonable if the exact same finishes were used in a smaller office.

Estimators lacking historical data may refer to annual publications of cost data such as the RS Means books. There are reference books ranging from building use cost data, to trade-specific unit pricing. Every book includes adjustment tables meant to factor for regional cost variations, project size differences, and so forth. The important thing to understand about these resources, is that they’re national averages driven by audits of last year’s work.   It’s very precise for comparison, but not very accurate for bidding.

Accuracy versus precision

Accuracy and precision are not interchangeable terms. Accuracy is an approximation of how close a measurement system is to the subjects actual value.  Precision is an approximation of a measurement systems repeatability.

Where do estimators get their prices?

It turns out that Baxter is a precision instrument…

So to apply this to estimating, the contract is awarded to the lowest bidder. Any significant difference between low and second low benefits the client by driving down the project cost. Therefore estimators seek to just barely beat their competitors to maintain profitability. The degree to which an estimator is able to hit that mark is their accuracy. Winning a job with a 5% spread is substantially less accurate than a 2% spread.

Mistakes in the bid can easily make winning the project, a fate worse than losing. The estimators ability to reliably deliver an error-free bid is their precision. Successful estimators must be accurate and precise.

Think of it this way, you could theoretically win a profitable project by guessing on every bid until you were successful.   The win was not repeatable so the methodology is rarely accurate because it not precise.

Now if you come in within 3% of the low number on every bid, you know with 97% accuracy that your methodology is precise. Figure out how to cut 3% on the next bid and you’ll probably win.

Relevant detail in the big picture

Earlier I referred to the cost data books as precise for comparison but inaccurate for bidding. The market price for work is constantly changing according to prevailing economic forces. While each participant is a rule unto itself, as a collective, the market will follow fairly predictable trends.

Where do estimators get their prices?

Downward trends are easy to spot…

General Contractors (GCs) typically subcontract (sub) portions of the project scope. The GC writes a subcontract laying the responsibility to furnish and install whatever is stipulated for that scope on the sub in exchange for the subs proposal amount. The GC isn’t concerned with tracking the changing price of a wing-nut because they aren’t responsible for buying them, the sub is. GC estimators focus on quantifying scope items that will help define what to expect of their bidders. They use these expectations to scope the subcontractors proposals on bid day.

Professional subs in the skilled trades will conduct detailed estimates down to the literal counts of nuts and bolts. The advancement of computerized Quantity Take Off (QTO) systems has made it possible for subs to estimate with greater speed, precision, and accuracy than ever before.

It’s important to take a moment to point out that granularity does not correlate to accuracy or precision.   Square foot cost’s can be just as accurate and precise as a detailed estimate. What changes is the uncertainty. Detailed estimates allow minute changes to address uncertainty related to the smaller issue. In larger firms, estimators have their work checked by the department head who doesn’t have time to conduct their own detailed estimate to check the work. Instead, the totals for meaningful scope areas are compared on a square foot basis. Detailed estimates require great focus and attention to compose properly. Many estimators end up reviewing their work many times before it’s completed. By then the numbers become familiar and it becomes harder to see when something is wrong. Estimators who don’t have anyone to check their work are well advised to review old bids to improve their ability to identify square foot costs. Being able to switch perspective from micro to macro without losing accuracy or precision is a critical estimator skill.

Detailed estimates are used to reduce uncertainty within the bid. However the bid is only accurate and precise through the crucible of competition. Market value is typically provided by only the base bid amount. This crude metric must be interpolated to define how things added up to that number. The only things not subject to opinion, are the Construction documents, bid amount, and the square footage.

But…

Market leaders set market prices. The only accurate estimate is the profitable win. Estimators who spend all their time looking for stuff to include aren’t considering what the market leaders are doing. Their common excuse is that the low bidders are giving the work away.   This excuse is rooted in the notion that market leaders get the same sub prices as everyone else. In fact, market leading subs may decide to only bid to the best GCs. GC estimators with stagnant bid-lists may go their entire career without ever seeing a market-leading subcontractor proposal.

Estimating is about controlling risk. Counting stuff and ringing up the tally is a cashier’s job. Estimating demands much more than tidy spreadsheets and vigorous accounting. Controlling risk requires judgment, strategy, communication, and relationships with market leaders. There are estimators who fall short on these factors and they lose a lot of bids.

It’s probably a let-down for some people to learn that there isn’t a set price for anything. Even if you’re self-performing the work and you know with great certainty exactly how much it should cost. The going rate may be more or less than the amount calculated due to the economic forces of the local market. The best we may do is to stay current on pricing to maintain an informed opinion.

Where do estimators get their prices?

It’s much easier said than done

Summing up, Estimators get their prices from their from a combination of QTO’s, estimate templates, subcontractor proposals, proprietary software systems, historical data, direct vendor quotes, market conditions, and brute-force accounting of what their company needs. All of which are constantly re-evaluated and adjusted to reflect market insights and field conditions. Every price is subject to change, so be wary of trusting any resource that promises otherwise.

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© Anton Takken 2015 all rights reserved

 

 

 

 


Organizing your work

It all seems so easy.  The owner sent you some plans and a deadline – you answer with a dollar amount.  What’s so hard about that?  Well everything’s neatly included in the plans and specifications.  You could go through and measure everything, count everything, and categorize everything.  Then you could take that stack and price each bit.  Stack all the bits together and add them up and what have you got aside from a tower of paper?  You’ve got a rickety and slow operation like most beginners.  Here’s the thing; every moment spent quantifying a given thing needs to be efficient by being  logical, repeatable, and also changeable.  There are two things that will remain constants if you spend any time as an estimator.  The first is that you’ll have to get faster with each job just to keep up, and the second is that you’re going to be interrupted right when it’s most critical to keep working.

A little perspective on precision

Let’s start with a bit of perspective.  The more complex a project is, the more subcontractors will be needed to do the work.  As a General Contractor (GC) looking to subcontract this work, the GC’s estimate needs to be set up to reflect what you expect each subcontractor to bid.   This can be as simple as a list of critical features or it can be as precise as counting individual bricks.  So how precise do you need to be?  Well the answer to that lies in what you want to do.  Precision gives you flexibility at the cost of time, whereas coarse measurements may not be useful enough to merit their work.  No matter where you settle, it’s much harder to fill in information once you’ve started.

Flexibility for the win

The reason precision equates with flexibility is best shown through an example.  Take an interior concrete slab.  With very little trouble you can figure out the area of the slab.  If you wrote down “Interior slab: 200 SF” you could probably use that information to check bids for furnish and install interior slab work.  However, concrete firms will provide direct quotes for the material.  Buying the material directly gets rid of the subcontractor’s material markup which is great.  However concrete is bought by the cubic yard, not the square foot!   Any mistakes can be costly.

Do your own work

You might be thinking, “Just ask the concrete guy how many yards they had figured to install”.  Here’s the thing: a subcontractors quote can be viewed as a promise to do the job for a sum of money.  If they short change themselves on material, they still have to honor the bid.  If you’re not paying them as a consultant, you have no reasonable guarantee of accuracy.  Plus it’s bad form to assume that they have to share information that may help their competition.  With your own measurements and pricing you can error check.  For example, if you have a furnish and install quote that’s lower than the cost of material you have very good reason to suspect there’s an error on that quote.  Ethical issues aside, it’s important to see that establishing your budget on bad  information is going to cause a problem for your company.

Organizing your work

Sure they look the part, but you don’t want to trust their figures…

 

How it all comes together

Relating back to organizing your work it’s important to classify the ways a given scope of work may be approached in bidding.  They could furnish and install (also called turnkey),  They could furnish material only (often called vendors), they could also install only (often called installers, erectors, carpenters, or millwrights).  Another option is for your company to self perform a task.  If you want all these options, you’ve got to break things down to whatever material units you’d get quoted.  If you can live with only turnkey bids, it’s fine to only measure assemblies like “Chandeliers 100 each “.  Complex trades like Mechanical, Electrical, Plumbing (MEP) fall into this camp.  It’s simply not realistic to purchase materials for them to install, and even if you did, they get better pricing due to volume purchasing so no money would be saved.  The degree of precision can be called granularity.

Continuing with the classification, the work must be divided into the pertinent trades.  The Construction Specification Institute is a uniform standardizing body that has assigned a “Master Format” CSI number to each scope of work.  Originally there were 16 major divisions, which were revised to 32 in 2004.  On projects with a well-developed specification manual, the divisions and subdivisions will be listed out in the table of contents.  The RS Means Building Construction Cost Data book provides a handy reference for  how work is priced.  Look in the links section for more on CSI Master Format and the RS Means books.

C.S.I. vs. Trades

While this provides a very precise means to divide up the work, it’s also a potentially tedious endeavor.  Electrical for example has many subdivisions all of which are normally included in the electrical contractors bid.  This can be a very frustrating thing because it often feels as though there is no rhyme or reason as to why some divisions are so fragmented.

Organizing your work

Other times the reasons are fairly obvious…

 

Get used to asking subcontractors what they do and don’t do.  It’s absolutely worth the time to keep a database that references each CSI Code to a subcontractor.  Most companies have a contacts database that is severely reliant on user knowledge.  For example a database that only allows a search for a company by name or address but not what they do. Some bid-letting software includes subcontractor databases.  Be advised that it’s no guarantee that the subcontractors actually agree with what the software say’s they’ll do.

So assuming we’ve determined what trades will be bidding, and how they’ll be bidding, we have a general level of precision in mind for each situation.  Give yourself a moment with the plans and develop a narrative of what’s going on with the project.  A reasonable synopsis would include what is getting demolished, what is getting added, and generally speaking how is that going to happen?  Take note of unfamiliar things and scan for overall symmetry.  For example a roof top unit would likely appear on Architectural, Structural, Mechanical, Plumbing, and Electrical plans.

Setting up the pipeline

Now take a moment and consider how you’re going to deal with the information you generate.  It’s here that technology and technique must be in line with one another. We’ll save bidding software discussions for a future post but it’s necessary to touch on the point that you need to know how the information gets from the plans into your estimate, and how you can manipulate that information once it’s there. It does no good to build a template that doesn’t accept the way you’ve quantified the work.

Clean sweep

One method is the “one pass take off”.  You get everything on the page before going on to the next one.  For example,the finish floor plan. You measure the length of the sides of the room.  From this you get the perimeter and the area of the room.  If you are doing this on paper drawings, You could write the perimeter in linear feet (LF) and the area in square feet (SF) inside of that room on the plan.  A quick check of ceiling and wall heights give all the needed variables to calculate the Drywall, Tile/Carpet, Floor base, Paint/ Wallcovering, and acoustic ceilings. Each of which would be separately cataloged according to the estimate template.

Not only is this fast, it’s secure because all the relevant details of a plan have been recorded before moving on.  Plus by looking at a feature as an assembly you are more likely to see where trades will overlap.  Help your future self and leave a trail of where you’ve been and what you’ve measured.  If you’re doing things manually, use colored pencils and shade whatever you’ve completed.  Estimating programs have various ways of doing the same thing. Some people prefer to scan the entire drawing set one trade at a time.  While this provides a fairly linear logical exercise.  It’s easier to miss something you’re not looking for as you scan all the pages in the set.  Studying one page at a time tends to reveal small scope items.  Also, a considerable amount of time is lost flipping the sheets around looking for things to take off.

In all of this it’s important to ask yourself what questions will come up on bid day.  What do you actually need to answer these questions?  Software can be a tremendous boon by automating various processes.  It can also strip an estimator of their ability to think on their feet.  Last minute changes are part of the business.  Whenever  a sub couldn’t answer a question without “running it through the software” it seemed like the program was calling the shots. They were constantly “going to the oracle” for answers they should know. However there are times where it’s valid.  For example the MEP trades are very complex in that they use thousands of different parts that are subject to price swings making it a daily struggle to stay on top of the current price.  Still it’s annoying to wait a half hour to get the adder for another outlet.

Build your own tools

This leads to what should be considered to be the mark of a professional: building your own tools.  Earlier we covered an example of quick calculations for an interior room.  Office buildings have these kinds of things all the time.  Taking the time to make a spreadsheet that allows you to enter the room number, room perimeter, room area, wall height, and ceiling height for each room allows you to move quickly from measurement to sorting.  Some plans will have a finish legend which is organized by room number.  Mimicking the finish legend that same spreadsheet can be made to allow a selection for flooring, ceiling, paint color, and so on.  Building on basic formulas it’s quite easy to have a summary total for each trade.

Test before you trust

Beware of building a monster!  Spreadsheets that go sideways with a weeks’ worth of data entry is a wasted week.  You should build spreadsheets gradually and test them often.  Over time you’ll have a series of tools that make you faster, more accurate, and less stressed out.

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© Anton Takken 2014 all rights reserved


Principles of Estimating

“So…how do you figure out how much it’ll cost?”

There’s a lot to it but everything builds on one concept; estimating is about systematically getting closer to the answer.  The most simplistic method is bounding the answer.  By defining the range that contains your answer, you’ve reduced the problem.  The next step is to determine what you need to know to reduce that range further.  As counter-intuitive as it may seem, asking yourself what you don’t need to know can be very helpful.  The idea is to reduce uncertainty by systematically answering questions that divide the range sort of like playing “I spy”. For example: a client asks for conceptual pricing on an office remodel.  The number of occupants and what paint colors they’d choose are irrelevant.  The square footage of the space won’t change in a simple remodel and the cost of paint isn’t typically driven by color choice.

Right off the top it’s important to understand that it’s very hard to remove all uncertainty.  Better design, or past-project similarity can help to reduce the uncertainty but some will always remain.  I like to think that estimating is actually about controlling risk rather than pricing stuff.  There are lots of ways to arrive at a price – heck you might even win a competitive bid by throwing darts at numbers.  But here’s the thing that makes the estimating mindset different from an Entrepreneur.  It’s never the job that you lose that puts you out of business, it’s the job you win.  Look at it this way, the total bid amount is the company’s minimum risk for not completing the job.  That risk goes down as the project reaches milestones, and only goes away entirely after the warranty period.  All the projects a company has underway have risk which added together amounts to running risk.  More than one company has had to drop everything to jump on a project that was going badly.  That can make every job suffer which is why it’s important for someone to be thinking about this at the bid stage.  Every time I think about the risk to reward ratio in the construction market, my respect for the entrepreneurial spirit grows.

Principles of Estimating

Especially the cat washing contractors…

 

So how do you reduce risk?  As a bidder there are several approaches.  The most common is to define what is included and what is excluded from your bid.  Contract parlance refers to these as inclusions, and exclusions which appear on the bid proposal.  These can range from standards like “daytime working hours”, to more project specific details like “excluding carpet on floor two”. Remember they’re called “General Contractors” instead of “Builders” for a reason!

Another way to reduce uncertainty is to put part of the work out to bid. Things go out to bid for several reasons.  The first and most obvious is to use market competition to keep the price down.  A  less obvious reason is to reduce risk.  Let’s say that three subcontractors bid on a project.  The two low bidders are 3% apart.  If you win the bid with the low bidder amount and later learn they’re missing something huge, or they back out, you can hire the 2nd low for 3% more which makes your minimum risk 3% for that trade.

A good principle of business is to have a policy of “the record is always on”.  Anything you put in writing, you should expect to be saved and used later.   The subcontractor bids will have inclusions and exclusions on them.  Comparing them against each other is very illuminating.  It won’t take long to see that exclusions are the embodiment of the expression “The devils in the details“!  I’ll get more into reading bids which is called “Bid scoping” in a later post.

For now, it’s important to see that risk is contained by knowing the spread (difference between bids), and  knowing the differences in the exclusions.  Sometimes the high bidder picked up on something significant that the competition didn’t which spells disaster if you’d hired the low bidder.  Remember to call your clients attention to anything you’ve included that was tricky to see, or understand.  For example: the plans may show something is existing that you find missing during your job walk.

It’s a terrific illusion that the construction documents will provide enough information to know every quantity, every time.  In the commercial construction world, the owners and architects expect the estimator to “make reasonable assumptions” often based on “standard means and methods” when a design fails to cover something.  The consequence of these expectations is the practice of stating assumptions via inclusions and exclusions on the bid form or proposal letter. Control risk by clearly defining what you are and are not including in your scope of work.

This brings us to the Estimators Paradox which is:

When you win you worry about what you overlooked, but when you lose, you worry it’s because of something you shouldn’t have included.

Next I’d like to cover a few principles of effective estimating.  It’s hard work to count and measure everything on a project.  Conceptual or budgetary efforts for a client or an Architect are “free” services that consume valuable resources.  Many times historical data, allowances and minimal research will provide adequate accuracy for the purpose.  Having Subcontractors price conceptual work should be studiously avoided whenever possible.  Every bid should be retained for use as historical pricing.  I’ll get more into how to track your files to make this easier in a later post.

Historical pricing is only as useful as your records, and your efforts to improve on what you’ve learned.  At the General Contracting level there is a tremendous range of acceptable detail  for estimating measurements called Quantity Take offs.  (QTO).  In my experience, a more detailed QTO is a more useful QTO provided the detail exists on the plans.  For example, If the plans resolution is to the nearest foot, there is no advantage to QTO’s carried to the nearest inch.  While on the topic of inches, it bears mentioning to those inclined to the metric system that a decimal foot is a far more useful system for QTO’s i.e.twelve feet, six inches would be notated as 12.5′.  No accuracy is lost and the spreadsheets are immensely simplified.

Measurements alone are not useful without showing how they relate to cost.  I’ll provide some simple template ideas in a future post.  Speaking of units, the unit of measurement for materials aren’t always obvious.  For example carpet is measured by the square yard whereas floor tile is measured by the square foot.  The “RS MEANS” series of books will provide valuable insight into both the units of measure, and what ballpark price to use.  There are other similar resources, but I’m most familiar with RS Means.  Beware of trusting one source implicitly.  There are many factors that must be adjusted to reflect the exact situation you’re facing.  Anything that strives to be all things to all people fails on both fronts.  Get used to the idea that you’ll have to use multiple references to check accuracy.

 

.Principles of Estimating

 

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© Anton Takken 2014 all rights reserved