Make Sure Project Estimates Make—Not Break—Your Business
Reposted with permission from constructionexec.com, July 23 2019, all rights reserved. Copyright 2019.
At 327.2 million people, the United States’ population has increased by nearly 20 million in the last 10 years. The need for residential housing, commercial real estate and convenient transportation is growing. As a result, the construction industry is booming.
A recently released Statista report revealed construction spending in the United States is at an all-time high—topping out at nearly $1.3 trillion in 2018. Thanks to a growing need for ports and airports, transportation construction rose by 4% in 2017, according to a 2018 FMI overview. Meanwhile, commercial construction crossed the $85 billion mark—up 11% from the year before—and single-family residential construction saw an 8% increase from 2016.
But it’s not exactly coming up daisies for construction business owners.
Despite the industry’s high demand (and equally high success), 90% of U.S. general contractors say they still have major concerns about labor shortages, and 57% say they have trouble finding skilled workers. On top of that, the cost of the products and materials most frequently used in construction are increasing as well. And with new tariffs affecting many of those construction materials, contractors often can’t raise their prices to compensate for higher costs.
In other words, it’s never been more important to get labor and materials estimates right. One in three construction companies says they walk away with less profit than expected, according to a 2018 construction industry survey by QuickBooks and TSheets. And higher labor costs combined with higher material costs results in an ever-shrinking margin of error for construction job estimates.
THREE WAYS CONSTRUCTION MANAGERS GET PROJECT ESTIMATES WRONG
Many of these same business owners (about 20%) say that estimating projects is the hardest financial process to get right. Meanwhile, almost 21% say they struggle with over-estimating project costs, while 22% experience the opposite. So what are they doing wrong?
1. Relying on manual processes to track project costs
Nearly 54% of construction business owners say they’re tracking project costs without using a job costing software. They’re crunching those complex and ever-changing numbers in spreadsheets, on paper or in their heads—and impacting the overall accuracy of an estimate.
2. Not consulting a financial expert
Just more than 30% say collecting the data to create a job costing report is their biggest challenge. This could be because many construction business owners take on this responsibility themselves rather than recruiting the help of a financial expert—once more impacting the final estimate.
3. Moving forward with low confidence
Only 60% of respondents say they feel “very confident” in their project estimates. That means roughly 40% of construction teams are moving forward on a project without a reliable estimate. That’s a huge gamble for those who said one bad estimate could mean the end of their business.
FOUR WAYS TO IMPROVE THE ACCURACY OF PROJECT ESTIMATES
Fortunately, there are some easy steps construction managers can take to improve the accuracy of their project estimates, lower the risk of under-estimating a bid and make more money.
1. Review and document project costs daily
Respondents who said they review projects costs daily were more likely to keep their projects on budget. Almost 76% of those who say they review costs daily claim their estimates are either very close or exact.
2. Create a job costing report for every project
The survey found that those who create a job costing report for every project feel more confident in the accuracy of their project costs and are more likely to complete projects faster than those who dive in without.
3. Forecast labor costs using cold, hard data
In addition to being the most expensive, business owners pointed to labor costs as the hardest line item to estimate. But almost 35% of construction business owners say they forecast labor costs based on past experiences rather than hard data, and 22% rely on site managers to track labor hours rather than an accurate time tracking system.
4. Invest in software and recruit financial experts
Nearly 20% of business owners say they’re still using spreadsheets to track project reports, and just less than 8% say they do the math in their heads, without keeping records. Accounting and job costing software can significantly increase the accuracy of a project estimate, while mobile technology means construction teams can track time and materials from a job site.
Too many construction businesses walk away from a job with less profit than they worked for. It’s time to rethink jobs costs and project estimates. Just ask the 46% of construction business owners who use job costing software to save time and money and every project.