Determining the cost of a construction project, whether it’s a new-build home or a refurbishment, an infrastructure scheme or an office or commercial development, is, as many stress, just an estimate.
It spells out, as well as possible, how much building materials and other vital elements will be used in delivering a project, how much they will cost, and considers potential issues that may affect the overall cost of the scheme.
A lot of work will have already been done before putting a spade in the ground on a construction project, not least in trying to ascertain how much the proposed job is expected to cost.
Getting the correct cost estimate for building materials, labour costs and so on will impact whether a scheme delivers a profit or loss.
An error estimating a scheme’s costs not only impacts a firm’s bottom line, it can also have devastating consequences for building safety, particularly if builders make shortcuts to save money.
Research suggests that firms need to improve their approach to conducting estimates. According to a recent survey, nearly a third of respondents said they came away from a job with less profit than they expected based on their estimates, while a quarter said it would only take two or three inaccurate estimates to terminally damage their business.
In addition, a fifth of respondents said estimating the cost of projects was “the hardest financial process to get right”.
Estimate everything possible
According to the UK government‘s Infrastructure and Improvements Authority (IAA), which oversees the delivery of public sector schemes, having clear ownership and accountability for the cost estimate of every proposed project is fundamental in ensuring the reliability of any assessment.
The IAA’s guidance warns that developers and contractors must avoid using a single cost-estimating method for the duration of a project’s development. Instead, the approach “should reflect the quality of available data and the level of project definition”.
With this in mind, reliable data is key, says the IAA. Construction is a risky business, and estimates ought to account for potential risks and uncertainties.
Who’s in charge?
The value of ascertaining the likely cost of a scheme is clear, but who does the estimating?
Construction estimators are often experienced built environment professionals with backgrounds in architecture, engineering or other construction design disciplines.
As well as being good at mathematics and analysis, construction estimators need to be excellent communicators, given the range of disciplines they work with on a project. They should also be comfortable presenting detailed data and related information to a variety of stakeholders, all of whom want to know how much a scheme is costing at any stage and to be kept up to date with any changes that will impact the project and their business case.
In the UK, a quantity surveyor (QS) fulfils a role similar to that of an estimator, which is more likely to be found in the US. According to contractor Wilmott Dixon, among his or her responsibilities, a QS carries out feasibility studies to determine if a scheme is likely to make or lose money, as well as sourcing and periodically presenting detailed information on the cost of particular elements of work and managing those costs to make sure it doesn’t exceed the initial budget.
The ramifications of estimating can go beyond merely ensuring a project comes in on budget. The inquiry into the causes of the Grenfell Tower fire in 2017, in which 72 residents died, heard that a costing error on the refurbishment of the block had been minimised by the use of certain replacement panels which proved to be more combustible than a more expensive alternative.
Things to do and to avoid
There are numerous pitfalls to avoid when drawing up an estimate. Similarly, there are things that must be done when pulling one together.
Experts stress the need for those doing the estimating to visit the proposed site, while current market conditions also need to be considered, including the potential for materials to rise in price due to a surge in demand – particularly related to an event such as the COVID-19 pandemic or the war in Ukraine.
Failing to properly consider materials and labour costs, along with poor risk assessment, poor communication and not compiling a job-costing report, all contribute to an inadequate estimate.
Those overseeing estimate creation for a project, large or small, would also do well to bear in mind things like having strong relationships with suppliers – enabling them to be better informed from the outset and avoid making educated guesses.
According to James Fiske, a director at the Royal Institution of Chartered Surveyors, if cost estimates are to improve, the construction industry needs to share more data and knowledge. “It’s only by sharing that we will be able to understand from other projects what worked and what didn’t, and then apply this learning to drive improvements on future projects.
However, it’s not just about sharing the costs, says Fiske. “It’s also about sharing the context behind the costs. The costs are just numbers that have no meaning unless you understand the reasons behind them.”
Fiske says he “would go as far as to say that data can be detrimental to the quality of an estimate if the context behind it isn’t fully understood; data can easily be misinterpreted and used incorrectly”.
Smart tools can help
The increased use of software will undoubtedly aid companies in determining a more accurate estimate.
Take Bluebeam Revu’s smart take-off tools. Dublin-based engineering contractor ClearTech has seen a 50% increase in the number of won projects since it began using Revu. The first time Solid Earth Civil Constructors, based in Colorado in the US, used Revu for digital estimation, it caught a $50,000 mistake on the project quantity estimation.
And when Belgium-based energy efficiency system group Plumco went over to a digital platform for its work and began using Revu, it was able to deliver quotes 75% faster and saved around 80% of time taken to cost a quote for a job.
At the end of the day, no estimate is going to be perfect or absolute. But using smart tech, a thorough and ‘real-life’ assessment of the likely costs of a scheme and the best data available – bolstered by experience and an awareness of what the likely and potential risks might be – will go a long way to helping deliver a scheme that is both on budget and fit for purpose.
