Cost Estimating Fundamentals and Tricks of the Trade
PDHonline Course P159 (3 PDH)
Cost Estimating and Tricks of the Trade - A Practical Approach
Instructor: Timothy D. Blackburn, MBA, PE
2020
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PDH Course P159
Cost Estimating and Tricks of the Trade ? A Practical Approach
Timothy D. Blackburn, PE, MBA
Course Content
Course Introduction We as engineers, consultants, owner reps, and project managers are frequently asked to
provide estimates. How do we go about this? What minimum scoping/design is needed to achieve a stated estimate accuracy? What accuracy can we be reasonably expected to attain at a given scope/design level? This course will answer these questions and provide practical insights to developing meaningful estimates. The course will also offer advice to avoid common pitfalls and exclusions from estimates. This course is filled with practical insight from the Instructor's considerable experience with both the Consultant and Owner's perspectives. The course discusses estimates from the earliest stages to those with well-developed scopes.
What is an estimate? What is an estimate? Many of our customers view an estimate as a menu. For example,
before you go to the grocery store, you could make a list of what you want. A gallon of milk, bread, cookies, etc. By simply adding up the individual cost of items you then have an estimate of your bill. However, construction estimating is not that simple. Rarely are two projects identical. Webster defines an estimate as arriving "at an often accurate but usually only approximate statement of the cost of a job to be done." The Means Illustrated Construction Dictionary defines it more closely for our purposes; "The anticipated cost of materials, labor, equipment, or any combination of these for a proposed construction project." In real-world
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PDH Course P159
terms, a construction estimate is simply a projection of the likely cost of a project based on an assumption of scope and cost data.
But there are more misconceptions . . .
Popular Estimating Misconceptions Not only do customers (and sadly, some in the profession) oversimplify an estimate, there
are many other misconceptions as well that must be dispelled. !"All you need is a phone ? This can also be referred to as "phone call engineering." Just call up a vendor or contractor, give a verbal, succinct description of the scope, and they give a highly accurate estimate for you. Wrong. Many projects have failed financially because of this approach. A vendor needs a defined, written scope to evaluate probable costs (except for off-the-shelf items). !"An exact science ? Actually, estimating is more of an art, but requires a well-rounded knowledge and experience in the profession. Estimating requires instinct based on experience. An estimator will create an estimate with many line items, with the expectation that the whole will be within the expected range of accuracy. A customer might wish to check each line item of an estimate after bids come in, and probably none will be an exact match with received bids. However, statistically, a well-developed estimate should average out closely to the final aggregate bids. Some line items will be high, and others low. !"Can be perfect on all projects ? Even with experienced and excellent estimators, there will be projects which will be under or over-estimated. As above, estimating isn't an exact science. There are just too many variables, especially prior to design (scope,
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PDH Course P159
historical relevant costs, market influences, etc.). But as with a good estimate, the sum total of the estimates should average out. !"Something all engineers are naturally good at ? Many customers (as well as inexperienced engineers) can make this flawed assumption. Actually, a relatively small percentage of professionals, unless specialized, are good at broad-scope estimating (in the Instructor's experience.) !"Something Architectural/Engineering firms are naturally good at ? Actually, in the Instructor's experience, the opposite is often true. A/E firms should be excellent in their core business ? developing scope and design. Often, design disciplines are asked to develop an estimate even though they do not have experience or hands-on knowledge of market pricing. Later, we will learn a strategy to improve such estimates. !"Can accurately predict bids ? Bids can fluctuate wildly even after the design is final. There are many dynamics that determine final bid values from subcontractor or vendors. These include material pricing arrangements, workload, proximity, etc. !""It can't cost that much . . ." ? Often, people have a preconceived notion as to what something should cost. Budgets can even be set without proper knowledge of the scope. However, things simply cost what they cost. The key is to agree to a well-defined scope, and then estimate the project. !"Go with the lowest early price ? This category is akin to "phone-call engineer." When multiple vendors provide assistance with pricing, be careful of taking the lowest estimate. They might not understand the scope adequately, or have performed only a cursory review. On the other hand, also be cautious of such estimates when they appear high ? the vendor could be covering itself.
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PDH Course P159
!"You should be able to accurately estimate in a hurry ? The opposite is true. The accuracy of an estimate is associated with the time to develop it. The time element is more associated with scope development than actually entering cost data in a spreadsheet. It simply takes time to properly determine the scope to a level a reasonable estimate can be developed. (However, no amount of time can improve an estimate if the project design steps aren't properly developed.) The following chart illustrates this:
Estimating Time vs. Accuracy
+/- 50% +/-10%
Fundamental Scope and Budget Schematic Design
Preliminary Design/ Design Development
Hours Days/weeks
Weeks/months
Now that we've learned common misconceptions, lets look at some truths of estimating. The Truths of Estimating
!"What you don't know will hurt you ? Estimating requires a great deal of practical experience to anticipate scope. But even with experience there are simply things that can't be anticipated. Therefore, we apply contingency at higher percentages early in scope development (to be covered later.)
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