“Guesstimate” Method
Many old-timers in the business use this system, which is based on the estimator’s knowledge and experience without any calculations except very basic measurements, at most. By this method an addition would be figured by square feet, perhaps $70 per square foot for a frame addition and $90 per square foot for brick. Little if any thought is given to layout, access, special requirements or particular specifications.
Kitchens and baths are figured based on low, medium or high priced cabinets and appliances. Some jobs, such as aluminum siding, roofing, concrete or even storm windows, might not have any square footage or quantity figured at all, but the estimator would simply look at the house and name a selling price for the job.
In some parts of the country this method is known as the “wag” or “swag” system. A “wag” is a wild-ass guess, while the “swag” is a scientific wild-ass guess.
Stick Method
The stick method of estimating generally includes three major processes:
1. A complete materials list is made up for the job, including a materials take-off for everything from footings through framing to trim.
2. The cost of labor is calculated for every operation included in the job.
3. Every subcontractor is asked to give a price on the exact specifications for the job, and will usually be required to review plans and specifications as well as visiting the prospective job site.
When these processes are complete, the estimator totals the cost and adds a mark-up to get a selling price.
Unit Pricing Method
This system combines unit costs with predetermined standard prices from subcontractors, and a judgement on special job conditions. While no pricing book available can provide all the information for a complete and final estimate, most estimating manuals are designed to estimate quickly and accurately up to 90% of the cost on a remodeling project.
The last 10% or so of an estimate requires the estimator’s judgement on such things as special site or access problems, scheduling demands, or customer’s requirements. And, of course, the appropriate mark-up must be added to obtain a final bid or selling price.
A unit pricing system includes the following factors:
1. Each operation in a project is broken down into standard units of measurement, such as per square foot, cubic foot or lineal foot, or per item.
2. Standard labor and materials costs are established for each item. The materials costs will take into account not only large items such as studs, but details such as roofing paper, nails, bridging, spackling compound and sandpaper. The labor figures will include the normal waste factors associated with remodeling such as set-up time, layout time, clean-up, time spent talking with the customer, even some travel time. In order to be realistic, the costs must reflect the normal inefficient conditions of the remodeling business.
For example, if you are estimating a 10×10 stud wall (100 square feet) and you consider only the amount of labor to build the wall when the materials and the carpenter are already set up and on the job, you might figure an hour to build the wall with a $20 per hour labor rate, or 204 per square foot. But if you look in a HomeTech estimating manual, you will find a labor cost for stud walls of approximately 604 per square foot. That 604 per square foot is a realistic figure which reflects the built-in inefficiencies of the remodeling business.
Any special requirements or unusual operations must be priced individually, such as a special light fixture or bathtub, an unusual plastering job, etc. The estimator will figure the cost of materials, include a labor figure that includes normal inefficiency, and set a price.
In some cases, an item may be included in a contract with an allowance at contractor’s cost. That allowance is then marked up with the rest of the total job cost, by whatever amount the company chooses, to cover overhead and make a profit.
Comparison of Estimating Systems
Using the “guesstimate” method is like playing Russian Roulette with your company. It is notoriously inexact, and the variation in profit margin from job to job is enormous. The method almost always depends for its success upon the ability of one person, usually the principal in the company, to guess accurately. While it is true that some old-timers seem to be almost psychic in determining the cost and price for a job, trying to run a business this way with today’s rapidly changing inflationary price structure is not recommended.
The stick method has certain advantages, particularly in its precise measurement and figures on materials, but there are also some real disadvantages:
It takes a lot of time to prepare a complete materials take-off, and if you bid 4 or 5 jobs for every one you get, which is normal, you are spending too many hours on jobs that you don’t sell.
If you don’t have a detailed checklist and uninterrupted time to work — both of these are rare — you will probably find yourself guesstimating on the small materials items, which means that the materials take-off isn’t really accurate after all.
Most estimators figure labor costs based upon how long it would take them personally to do the job, rather than allowing for the varying skills of different mechanics.
Calling out subcontractors to give prices on every job is inefficient and a great waste of time. And if you have the usual closing ratio of 1 out of 4 or 5, your subcontractors are going to be reflecting their wasted time in their prices to you.
Many estimators do not know the varying waste allowances for different products well enough to make an accurate materials list. Such products as clapboard siding, hardwood flooring, etc., must have a waste factor included or the materials list will be substantially out of line.
Unit pricing has the following advantages:
It is quick and accurate, allowing an estimate up to about $40,000 to be figured in no more than two hours.
It does not require a construction expert to figure out materials costs or total prices. Since the unit prices are determined by study, and include realistic costs for all materials and labor, the estimator only needs to prepare a quantity take-off of the various elements in the job, and extend the prices according to the unit cost system.
It is easy for an estimator’s calculations to be checked by another person, even someone who is inexperienced in construction. Simple arithmetic is all that is required.
Since so much of a job can be figured so quickly, there is ample time for the estimator to consider the specific job conditions — site, access, customer requirements, etc. — which will require an adjustment in the bid price. This type of judgement will be required to arrive at a correct bid no matter what system of estimating is used.
It is not necessary to prepare a complete, detailed materials list until a job is actually sold.
Subcontractors who have negotiated standard prices know that when they are asked to confirm a bid, the job is actually in hand.
A unit pricing system should start with a standard unit cost estimating system.
As a general rule, any cost estimating system should be precise, systematic and accurate for all standard elements of work, and should require expert judgement only for the specific requirements of a particular job.
Many remodelers who say that their company does “highly custom” work do not believe that a standard unit pricing system will work for them. But a “custom” addition still uses standard footings, foundation walls, floor, wall and roof framing, etc.
A relatively small percentage of the work to be estimated is the actual customization. Most custom contractors have three or four custom features that characterize their work, and even these can have a unit cost applied once their costs are identified.