Eating Elephants

I fondly remember my college calculus classes because for someone who likes numbers, calculus problem solving was fun. Don’t tell anyone but I actually will read a calculus book for enjoyment! With calculus you can sum up many minute pieces of an area or volume and arrive at a very accurate conclusion. How does this relate to construction estimating? Well, you can improve the accuracy of a project’s budgetary estimate by breaking the project up into pieces and pricing them separately then adding them up  to make the “whole” again. As long as you can define the parts and know enough about construction to think through the AE, Context and means execution of the work issues you will arrive at an accurate cost conclusion for a project. I call this eating your elephant one bite at a time. Any scary project can be accurately budgeted with some knowledge of construction scope and understanding of the pieces. Many times I have speculated on the cost of a project as a whole and then proceeded to put the time into quantifying and pricing the pieces to find out my “whole” guess was off base. Of course many people react with “but that takes time.” They’re right, it does take time! Accurate cost estimating for correctly budgeting projects takes an investment of time. Welcome to the world of estimating. There is definitely a time/accuracy tradeoff in construction cost estimating. If you want to put little time into budget estimating a project you will most likely arrive at some degree of inaccuracy in the estimate depending on the ugliness of the elephant. The typical estimating process on the owner’s side will generally start with a Conceptual OR Order of Magnitude cost estimate. This is quick and based primarily on historical (at times hysterical) numbers. Typically the elephant is not defined and many assumptions are made about scope. With this type of estimate I would not feel uncomfortable with a 15% to 20% estimate contingency depending on the size of the project. New construction projects are easier to get your conceptual arms around because there are good historical numbers on new construction projects. Historical costs per unit floor area are helpful with new construction projects. Remodel projects are more conceptually challenged because of the uniqueness inherent in repair/remodel projects. I have not yet seen an identical repair/remodel project. Budgeting at a conceptual stage of design (AE Scope) is a challenge; the complete scope is fuzzy and it takes a good imagination to swallow the project in large undefined bites.

 

As the project moves through a design process a second cost estimate is typically (should be anyway) compiled at the design/development stage of design (40%  thereabouts). Project owners are wise to perform this second estimate just to make certain that the project is still within budget. If the project exceeds budget it is easier to deal with scope changes at design development rather than at the time of bid opening where it is discovered that you cannot afford the project. This happens all the time and it is frustrating because it may mean going back to the funding source for more funds OR cutting the project scope. Neither option is pleasant. Correct budgetary estimating through the design process can prevent this embarrassing dilemma. The approach taken here is an improvement in accuracy over the conceptual cost estimate because the project is better defined. A typical approach is to break the project up into “assembly” type pieces. Assemblies are great for budgeting projects at this stage of design and with the right thought process and good assembly unit costs the accuracy is much improved. I would peg the contingency factor at about +/- 15% depending on the size of the job. An example of an assembly bite of an elephant might be a 4” concrete slab on grade with welded wire fabric, a steel trowel finish and 4” of granular base. In current local dollars (Seattle) this would run around $6.50 per SF depending on the site, time of the year and location of the placement.

A third estimate is generally completed at an 80% working drawing stage of design. This type of estimate is closest to the one bite at a time philosophy and is called Unit Price estimating. Unit price estimating is time consuming because at the current design so much of the scope is defined right down to the size of the reinforcing steel and specified quality of roofing material on the roof. An accurate budget is arrived at by looking at the pieces, scoping them, quantifying and unit pricing. The summation of all the estimated pieces is then the whole. As a project is better defined and the bites become clearer theoretically the contingency is reduced. At this stage of design with a good unit price estimate a  +/- 5% to 10% estimate contingency is applicable. Contingency is to cover the “stuff” left out or not yet defined and is related also to the knowledge of the cost estimator of filling in the blanks with some construction experience.

In construction budget estimating through a design process 3 different cost estimates are generally performed. The reason is to keep a project design in line with a budget. The time and cost required to eat a project in pieces is worth it if accuracy in budgeting is achieved. Inaccurate budgeting costs an owner time and money.