Covering all the Costs in Your Projects

Intermediate size remodeling projects those with some demolition, construction and finish work as opposed to additions usually do not lend themselves to piece rate estimating. They tend to be very labor intensive and open to unexpected contingencies. While potential customers for this type of project prefer a fixed price contract, it's often difficult to accurately estimate what the costs will be.

The keys to making sure that all of the costs are covered is to carefully evaluate the project, have a systematic process for preparing your estimates and a system in place to provide you with feedback at the end of such jobs.

This is the time to educate both yourself and your clients about what is involved in their project. In most cases, the clients are only vaguely aware of what will be involved and what the cost will be. From the cost standpoint, you are walking a tightrope between establishing a reasonable budget and scaring the client off. If you're too brutally honest, the client may get discouraged or be tempted by a competitor's low-ball estimate.

In the evaluation stage, the objective should be to make sure that you fully understand what will need to be done to execute your proposed design. It's also an opportunity to make sure your clients know how you will approach their project and the level of detail that your design and estimating process will involve.

"Low ball" estimates are often produced without a thorough and detailed estimate, so the time spent educating your clients will help them make an "apples to apples" comparison of your company with competitors. During the evaluation stage, you should avoid guessing at total costs since this will only serve to hem you in when it's time to present a more studied "ballpark" estimate.

Estimate preparation
The preparation of an estimate must include the client. The first stage of preparing an estimate involves trying to establish a budget for the project. One way to accomplish this is to prepare the fairly detailed "ballpark" estimate mentioned above. In order to be reasonably accurate, you should have a method of making sure that all portions of the work will be included. Based on experience and your previous job costs, develop several computer spread sheet templates for use in preparing these ballparks.

This process will be most effective if it can be structured to allow the clients to feel that they are a part of developing the project and its budget. If the clients feel that they are in control of where the process is leading, they're much more likely to approve a budget and move forward with the planning and actual estimating.

Once a scope and budget for the project have been agreed upon, the actually planning and estimating can proceed. After you have completed the ballpark estimate and your client has agreed to move forward, it's time to prepare the detailed estimate that will be the basis of the contract.

In this phase, accuracy and completeness are paramount. Planning and estimating should proceed together so that the budget is not blown as the client is exposed to new and exciting products. While it's normal to have the cost of a project increase during the design process, it's important to bring the clients along with such changes and not surprise them at the end with a big jump from the ballpark estimate.

As noted previously, estimating mid-size projects is extremely difficult due to the fact the there are a lot of elements that are labor intensive and somewhat unpredictable in the degree of difficulty that may be encountered. It's a fact, however that the biggest errors in any construction estimate are not due to underestimating a portion of the work, but rather from completely missing that portion.

The danger of leaving out significant (or even fairly insignificant) parts of an estimate is the most compelling reason to develop a systematic method of estimating projects. Again, computer spread sheet templates can provide a step-by-step accumulation of the detailed cost that build up for different types of projects (kitchen, bathroom, small addition, etc.). By utilizing such templates, it becomes less likely that pieces and parts of the project will be overlooked. You can also combine these spread sheets with the project specifications to allow a cross check that everything specified is costed.

Feedback
While every project is different, there are many similarities that run across each type. For instance, removing lath and plaster from a kitchen will take a certain amount of time, and that's different from how long it takes to remove sheetrock. Adding a circuit, running a gas line and installing appliances are all things that recur on a regular basis from job to job.
The trick is to track what it costs to perform these functions, and to use this as a basis for jobs going forward. The way we do this, of course, is with some form of job cost system. A useful job cost system will allow you to track your labor costs for each job by function, i.e. demolition, framing, plumbing rough-in, etc. It will also accumulate material costs in a similar breakdown. Once this information has been gathered, it can be compared to the amounts that had been budgeted.

Then, by adjusting your estimates based on this experience, you will be able to improve the accuracy of future estimates. It should be noted that the true value of a job cost system is not just the history it provides. It must be used to analyze how to manage and control costs on future jobs.

The best way to ensure that one covers all of the costs involved in a project is to make a careful evaluation of the project itself prior to putting forth a guess at the ultimate cost. When there is a sense that cost will be an issue with the client, there is a temptation to gloss over some costs in order to "sell" the project. Systematically accumulate all of the costs to make sure that such costs are consistent with previous experience.

If you include your clients in developing the plans, specifications and cost of their project, you will find that "selling" the final project will virtually take care of itself.

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