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Construction Cost Estimation Background and Purpose

Construction cost estimating is the process of forecasting the cost of building a physical structure. Of course, builders and clients both worry about the financial impact of cost overruns and failing to complete a project. That's why they devote time and effort to estimating how much a project will cost before deciding to move forward with it. Clients considering large projects often seek multiple cost estimates, including those prepared by contractors and those calculated by independent estimators.

Project owners use cost estimates to determine a project's scope and feasibility and to allocate budgets. Contractors use them when deciding whether to bid on a project. You usually prepare estimates with the input of architects and engineers to ensure that a project meets financial feasibility and scope requirements.

A good cost estimate prevents the builder from losing money and helps the customer avoid overpaying. It's a core component of earned value management, a project management technique that tracks a project's performance against the total time and cost estimate.

A good starting point is this construction estimator template.

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Creating a construction cost estimate is good practice for anyone who cares about how much their project will cost. You routinely do cost estimates for all kinds of construction projects, from building new structures to remodeling.

Accurate estimates are especially critical for development projects, which have budgets and timelines closely linked to paying back lenders and generating revenue as early as possible. They are also essential for large civil projects or mega-projects because of their sizable scope and the potential involvement of public money. On a mega-project, small miscalculations become magnified. In projects constructed with public funds, cost estimates increase accountability, provide transparency, and enhance trust in your ability to manage the project properly.

Failing to prepare a reliable cost estimate can have disastrous results. One notorious example was the Marble Hill nuclear power plant in Indiana. The owner abandoned construction in 1984, seven years after it began. The Public Service Company of Indiana had completed the project only halfway and spent $2.5 billion due to cost overruns.

Estimating the cost of any project with absolute precision is impossible, and projects can fail for unforeseen reasons. But a skilled estimator will account for as many factors as necessary - including such things as market conditions - to create an accurate estimate.

The accuracy of a cost estimate relies on a number of things: the quality of the project plan; the level to which the estimator defines a project; the experience and skill of the estimator; the accuracy of cost information; and the quality of any tools and procedures the estimator uses.

Depending on the type and size of a project, as well as the industry, cost estimation may fall to one individual or a team, and estimators may hold a number of different positions. For some construction projects, contractors and subcontractors prepare the cost estimates, though this is not regarded as best practice. At other times, the construction salesperson will be responsible for creating an estimate. Architectural firms may have in-house estimators, typically people who take on the estimator's function in addition to their primary role. Increasingly, however, qualified independent estimators handle estimates against which one verifies the contractor's estimates.

For contractors, good cost estimates win jobs. Customers usually select the lowest bid that meets the standards and specifications they set. In a competitive bidding situation, the time and effort you spend preparing the estimate are a cost of doing business and an investment in winning the job. If urgency is a factor for a project, the speed at which you prepare a bid can also be a differentiator.

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Overview of the Construction Estimation Process

Understanding cost estimation requires you to have a basic grasp of the construction process. (If you're interested in learning more about the construction process, Pearson's Building Construction: Principles, Materials, and Systems is an excellent resource.) Here are the nine basic phases of a building project:

1. Commissioning a Project: Commissioning is essentially a verification process that ensures a builder designs, constructs, and delivers a project according to the owner's requirements. It begins early in the construction process and can last until up to a year of occupancy or use. A commissioning provider carries out commissioning, usually a firm with experience in commissioning buildings that serve particular functions.

2. Determining Requirements: The first real step in constructing a project is a pre-design phase or planning phase. The pre-design phase involves defining a project's requirements: what its function(s) will be, how much it should cost, where it will be located, and any legal requirements it must comply with.

3. Forming a Design Team: The project owner contracts with an architect who will then select other specialized consultants to form a design team. Complex projects and projects which require meeting specific design requirements - such as acoustics or housing hazardous materials - will have more specialized consultants on board to ensure the design meets requirements. The architect is generally responsible for overseeing and coordinating the design process, though for some projects (such as industrial construction), an engineer may be one of the people overseeing design.

4. Designing the Structure: This step deals with the architect creating a series of designs. The architect works first with the owner to decide on the broad strokes of the design and then increasingly closely with the other members of the design team to flesh out the structure's design in accordance with requirements. Designing thus progresses from a schematic design phase, when the architect presents a high-level design to the owner for approval, to a design development phase, when the architect works with the design consultants to decide on specifics of the construction design. The last step is the construction documents phase, i.e., creating construction drawings and specifications from which the contractor will build. The specifications, which various participants in the construction process read, appear in a standard format called the MasterFormat, which the Construction Specifications Institute developed. Estimators produce and revise cost estimates for the project as the architect fleshes out the design.

5. Bidding Based on the Scope of Work: Once the construction documents are finalized, they are released to contractors who wish to bid on the project. Along with these bidding documents, they include instructions on how to submit bids, a sample of the contract agreement, and financial and technical requirements for contractors. These documents, which effectively define the scope of the work, are the basis on which contractors prepare their estimates. For more on how to develop a statement of work, consult this guide. To ensure fair bidding, all contractors receive the same information, and the project owner usually selects the lowest qualified bidder. This bid tabulation template can help you compile your estimate.

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Download Abstract of Bids Template

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6. Signing the Contract: Once the contractor has been selected, they execute a set of contract documents with the owner. The contract documents encompass the bidding documents, which now function as a legal contract between owner and contractor. Contracts can follow a number ofmodels, depending on how complete the construction design is and how the owner and contractor bear risks. One of the basic models is a lump sum (also called a stipulated sum or turnkey) contract, which involves the contractor bidding a fixed sum for the total project and agreeing upon it when the project's design is virtually complete. A unit price contract allows for more flexibility in design by having the owner pay the contractor per number of units they build. A cost-plus contract, signed when the design is incomplete, has the owner pay for all costs plus a predetermined fee for the contractor. A variation of this is cost plus a fee with a guaranteed maximum.

7. Construction: During the construction phase, the contractor oversees building in accordance with the construction documents. A general contractor will hire specialized subcontractors for different sets of construction tasks, such as plumbing or foundation work. Throughout the construction process, the contractor engages in careful cost control, comparing actual expenditure with forecasted expenditure at multiple points in the construction process. Cost control ensures that the contractor is actually able to turn a profit. This budget template can help you compare actual costs to estimated costs.

Download Construction Budget Template

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8. Close-Out: When the builder comes close to finishing a structure, the contractor requests the architect perform a substantial completion inspection in which the architect verifies the near-complete status of the project. At this stage, the contractor provides the architect with a document called the punch list, which lists any incomplete work or needed corrections. After the architect inspects the structure, they will add any additional incomplete items to the punch list.

Consult these templates for a project close-out checklist and punch-list template.

Download Construction Punch List Template

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Download Project Closeout Checklist Template

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This template will help you keep track of contractor progress payments.
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Download Contractor Progress Payment Template

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9. Completion: After the contractor completes all the incomplete work detailed on the punch list, the architect performs a final inspection. If the contractor has completed the structure according to construction drawings and specifications, the architect will issue a certificate of final completion, and the contractor is entitled to receive the full payment.

An alternative method of project delivery is the design-build process, which integrates building design and building construction. Instead of contracting first with a design team and then with a contractor, the owner contracts with a design-build firm, which handles both functions. The main strength of this approach is greater alignment and coordination between design and construction and a reduction of construction missteps. Accountability rests with a single party, which owners may appreciate. It can also save time and increase efficiency, and design-build processes are likely to be significantly cheaper than conventional design-bid-construct processes like the one detailed above.

The Main Types of Construction Cost Estimates

Since a cost estimate can only be accurate with a well-defined project plan, it's standard practice to create multiple estimates during the pre-design and design phases. These become more accurate as the project's level of definition increases. The American Society of Professional Estimators classifies estimates according to a five-level system that becomes increasingly more detailed and reliable. (Construction cost estimating has a lot in common with cost estimating for other types of projects, and you can read more about key concepts and tips in this article.)

Level 1: Order of Magnitude Estimate: Made when project design has not yet gotten under way, you only use an order of magnitude estimate to determine the overall feasibility of a construction.

Level 2: Schematic Design Estimate: An estimate produced in line with schematic design

Level 3: Design Development Estimate: An estimate made during the design development phase

Level 4: Construction Document Estimate: An estimate based on the construction drawings and specifications

Level 5: Bid Estimate: An estimate prepared by the contractor, based on construction documents. The bid estimate is the basis of the bid price offered to the customer.

A simpler system of classifying estimates features just three primary categories: design estimates, bid estimates, and control estimates. These category names reflect the way in which you use the estimates.

Design Estimates: These estimates, prepared during a project's pre-design and design phases, start with an order of magnitude estimate, or screening estimate, which determines which construction methods and types are most feasible. Next comes the preliminary estimate, or conceptual estimate, which you base on the schematic design. Then comes the detailed estimate, or definitive estimate, which you base on design development. The last of the design estimates is the engineer's estimate, which you base on the construction documents. A simple template can help give an initial assessment of costs involved in a project.
‌Download Constructor Estimator Template

Bid Estimates: Contractors prepare bid estimates when bidding to construct the project. Contractors will draw from a number of data points to prepare their estimates, including direct costs, supervision costs, subcontractor quotes, and quantity take-offs. (We'll look at these in more detail shortly.)

Control Estimates: Prepared after one signs a contractor agreement and before construction gets under way, the control estimate functions as a baseline by which you assess and control actual construction costs. The control estimate also allows contractors to plan ahead to meet upcoming costs and determine the project's cost to completion.

A Construction Cost Estimates Perspective on Building Systems

Creating a cost estimate for a project as complicated as a building calls for a systematic way of enumerating costs. To simplify the process, cost estimators may use the Uniformat system of viewing a building as a set of seven functional divisions. These are:

Substructure

Shell

Interiors

Services

Equipment and furnishings

Special construction

Building site work

The RSMeans Square Foot Costs Book, which compiles building cost data according to these divisions, is a widely used resource for developing cost estimates based on costs per square foot.

Contractors who are bidding for a job will create a document called the bill of quantities, which is an itemized list of the work and materials required for a construction project. This is a crucial step in determining the cost of the work before bidding. Creating a bill of quantities is a four-step process that used to be done painstakingly by hand on paper and is now usually done with spreadsheets or specialized software.

1. Taking-Off Quantities: Working from the construction documents, a quantity surveyor will measure the tasks and items of work in a project. This requires scaling dimensions from drawings. One will record these in standard units such as area, volume, or length. For example, you can quantify excavation in cubic meters and steel supports in linear feet. It's important to follow one of the standard methodologies, such as the New Rules of Measurement. The surveyor will list the number of each item in the project.

2. Squaring: Next, the quantity surveyor multiplies the dimensions of the component into square area and multiplies this by the number of times this work item occurs in the construction, thus getting the total dimensions, length, volume, and area as applicable.

3. Abstracting: Abstracting is the collecting and ordering of the squared dimensions. Similar tasks and components are grouped together. Once you have taken off and squared all items and have obtained total dimensions, they must be merged. You make deductions for any voids or openings in the building, such as stairs.

4. Billing: This last step simply involves presenting item descriptions and quantities in a structured format, the bill of quantities. You usually present these in a hierarchy for group, subgroup, and work section. (Examples include substructure, earthwork, and site clearance.)

The Elements of a Construction Cost Estimate

So what information do estimators use to create an estimate? The following are key terms and concepts, but be aware that there's a large degree of overlap between some of them.

Quantity Take-Off: Developed during the pre-construction phase, a quantity take-off measures the materials and labor needed to complete a project.

Labor Hour: The labor hour, or man hour, is a unit of work that measures the output of one person working for one hour.

Labor Rate: The labor rate is the amount per hour one pays to skilled craftsmen. This includes not just the basic hourly rate and benefits, but the added costs of overtime and payroll burdens, such as worker compensation and unemployment insurance. This template will help you keep track of wages and labor hours.

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Material Prices: Since the cost of materials is prone to fluctuation based on market conditions and such factors as seasonal variations, cost estimators may look at historical cost data and the various phases of the buying cycle when calculating expected material prices.

Equipment Costs: Equipment costs refer primarily to the cost of running, and possibly renting, heavy machinery, such as cement mixers and cranes. It's important to note that the equipment in use influences how quickly you can complete the project, so the use of equipment actually impacts many costs outside of those directly associated with running the equipment.

Subcontractor Quotes: Most contractors will hire multiple specialist subcontractors to complete parts of the construction. You add these subcontractors' quotes to the contractor's total estimate. (It can be helpful to use a tracker to collect all the subcontractor documentation in one place.

Subcontractor Documentation Tracker

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Indirect Costs: Indirect costs are expenses not directly associated with construction work, like administrative costs, transport costs, smaller types of equipment, temporary structures, design fees, legal fees, permits, and any number of other costs, depending on the particular project.

Profits: Of course, in order to make a profit, the contractor adds a margin on to the cost of completing the work. Subcontractors do the same when preparing their own quotes.

Contingencies: Since even the most accurate estimate is likely to be affected by unforeseeable factors, such as materials wastage, an estimate will usually have a predetermined sum of money built in to account for such added costs.

Escalation: Escalation refers to the natural inflation of costs over time, and it's especially vital to take into account for long-running projects. Some projects have escalation clauses that address how to handle this inflation.

Bonds: An owner will usually require a contractor to arrange for the issuance of a performance bond in favor of the project owner. The bond functions as a kind of guarantee of delivery. Should the contractor fail to complete the project according to the terms of the contract, the owner is entitled to compensation for monetary losses up to the amount covered by the performance bond.

Capital Costs: Capital costs are simply the costs associated with establishing a facility. These include the following: the cost of acquiring land; the cost of conducting feasibility studies and the pre-design phase; paying the architect, engineer, and specialist members of the design team; the total cost of construction, which covers not just materials, equipment, and labor, but also administrative, permitting, and supervision costs, as well as any insurance fees or taxes; the cost of any temporary equipment or structures that are not part of the final construction; the cost of hiring a commissioner; and the cost of inspecting the structure when it's near completion.

Operations and Maintenance Costs: More a concern for the owner than the contractor, one accounts for operations and maintenance costs during the design phase. Making choices that lower the total lifetime cost of a building may result in higher construction costs. Operating costs include land rent, the salaries of permanent operations staff, maintenance costs, renovation expenses (as needed), utilities, and insurance.

Variances: Owners will often allocate construction budgets that are larger than cost estimates because even good, thorough cost estimates have a tendency to underestimate actual construction costs. This can happen for a number of reasons. For example, wage increases, which can be difficult to forecast, will make construction costs rise. Seasonal or natural events, such as heavy rainfall, may call for action to protect construction or restore the construction site. Large projects in urban areas may face regulatory or legal issues, such as a demand for additional permitting. And lastly, owners who begin construction without finalizing the project's design will over-budget to account for design changes and the inevitable cost increases that result from throwing a project off schedule.

Influences on Construction Costs

Naturally, the costs we've detailed in the previous section are anything but consistent from project to project. In fact, so many factors can influence these costs, that cost estimators recognize that every project is unique.

One of the primary factors that influences cost is the building site. Waterlogged soils, previous construction, geological formations and the nature of the rock, native animal species, and the presence of historical or natural heritage sites are just a few of the things that can affect materials and labor requirements, delay the issuance of permits, and increase the time needed to complete the project. Similarly, the location of the construction site relative to economic centers can also be significant. Contractors may have to transport workers and materials for a long distance if the site is remote. In a bustling urban area, the wages may be higher. Furthermore, regulatory requirements may be stricter, and hence more expensive to fulfill or comply with, at some construction sites than at others. Lastly, certain construction sites require the completion of feasibility or impact studies, which are likely to prove expensive.

Time-related aspects can also affect costs significantly. Chief among these is the project schedule, as a compressed, labor-intensive schedule will incur higher costs and rush charges. Shorter projects, especially those with significant penalties for the contractor's failure to complete the project on time, are also likely to have more expensive insurance. Also, with a project that you expect to take years to complete, you will almost certainly have to consider fluctuating market conditions and inflation. Finally, owners inviting bids may notice seasonal variations in bid amounts, since contractors are busier at some times of the year than at others.

The size and complexity of the project are other major influences on cost estimates. Larger, more prestigious projects may attract more reputable contractors, or there may simply be few firms capable of handling the project. Either of these scenarios can escalate project costs.

The quality of plans and specifications are also vital factors, as is the contractor's relationship with the project engineer. Construction documents that hint at imprecision will almost certainly result in higher bids from contractors who want to err on the side of safety. On the other hand, the project engineer's reputation can swing costs the other way, since contractors will know that plans drawn by a reputable engineer are less likely to result in efficiency losses.

Some other factors that affect the project cost include whether a government or quasi-governmental agency commissions or funds the project, a circumstance which may require additional paperwork and reporting. Some large projects require the completion of a value-engineering review before bidding commences. Value engineering, which examines the function-to-cost ratio of a project, aims at making the design as cost efficient as possible.

Finally, all cost estimates add at least a tenth, and sometimes closer to a fifth, of the construction total to account for contingencies. Contingencies are allowances held in reserve for unexpected costs.

Using Historical Data in Construction Cost Estimates

When preparing a cost estimate, an estimator usually relies, at least to some extent, on historical data. Though no two projects are exactly alike, using comparable historical cost and estimate data can be an excellent way to validate estimates.

Historical data comes from a number of sources, including catalogs of vendor data, databases, periodicals, commercial references, and digests of actual project costs. Contractors may also look at successful past bids, assuming these proved accurate. Regardless of what data you use, it's critical to have reliable data, so experienced estimators recommend using a trusted industry standard source.

That said, you'll have to adjust almost all standardized cost data to local economies, and there's likely to be a considerable degree of cost fluctuation even between cities in the same region or country. You'll have to adjust most costs for inflation, depending on how old the data is.

Labor costs are especially variable. Based on the demand for labor, the required level of skill, and the condition of the construction site, which in turn hinge on such factors as the time of year, economic and market conditions, and the location of the construction site, an estimator will usually have to adjust historical labor data when creating a new estimate.

For contractors with successfully completed projects under their belts, comparing their actual cost data to their cost data reference can help gauge the accuracy of the data reference. For example, a contractor who notices that their actual materials costs are consistently five percent lower than those quoted in the data reference will likely adjust materials costs in future estimates so that they're about five percent lower than those quoted in the data reference.

Nevertheless, good cost estimators will tend toward caution since cost estimates generally underestimate the actual cost of construction. Even with contingencies built into the estimate, factors such as design changes and unforeseeable economic conditions can quickly increase costs. Try these templates for keeping track of change orders.

Download Change Order Request Summary

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Download Change Order Log

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It's worth remembering that both the contractor and the owner bear substantial risks when constructing large projects. Contractors don't just stand to have their profit margins cut and their reputations hit. Many end up declaring bankruptcy when it simply becomes too expensive to complete a project. And while owners shield themselves somewhat from financial losses through performance bonds and similar protections, the failure to complete a project on time may result in financial damage due to lost potential profits or an inability to pursue a strategic plan. Furthermore, those who don't complete government projects successfully are likely to hurt the reputation of political leaders who backed them.

The Effects of Scale on Construction Cost Estimates

Cost estimators keep one important phenomenon in mind when estimating quantities: costs are not always directly proportional to the size of a facility or the number of units one's building. If plotted on a graph, this phenomenon, known as an economy or diseconomy of scale depending on which way the cost varies, would appear as a non-linear relationship between facility size and costs.

If the average cost per unit falls as the number of units increases, we have an economy of scale. If the average cost rises as the number of units increases, we have a diseconomy of scale.

The cost exponent is an indicator of whether a scale economy or diseconomy exists. For a discussion of how to calculate cost exponents in construction, consult Project Management for Construction. If the exponent is greater than zero but less than one, an economy of scale exists. If it is greater than one, a diseconomy of scale exists. If it is equal to one, the cost-capacity relationship is unaffected by scale.

You can determine cost exponents using historical data from construction projects of the same type. Once calculated, you can use cost exponents to adjust future cost estimates depending on the scale of a project.

The Major Approaches to Construction Cost Estimation

Cost estimators rely on a number of estimation techniques, which vary in speed and potential accuracy. The major approaches to cost estimating include:

Production Function: A production function relates the amount built (the output) to factors such as materials and labor (the input). So if you want to achieve a certain level of output (number of square feet built), you look for the optimal input (labor hours per square foot). Production functions can be quite accurate for forecasting input-output relationships for projects of a particular type, and there is extensive data to draw from for certain project types, like schools and hospitals, for example.

Stick Estimating: Highly accurate, but incredibly time consuming, stick estimating is the practice of determining total costs by listing, in order, the costs for every single component of a job. The sheer amount of time it takes to produce a stick estimate invites errors due to loss of concentration or carelessness.

Empirical Cost Inference: This statistical method uses regression analyses to relate the cost of construction to a model of predictors. The accuracy of this method depends on the quality of the predictive model, so it calls for a good degree of familiarity with individual predictors of total construction costs and a knowledge of statistical methods.

Unit Cost Estimating: Unit cost estimating simply associates unit costs with each assembly involved in a construction process. It's fairly quick and accurate, especially if one has used the assemblies previously, and there is evidence to justify the unit costs for each assembly.

Allocation of Joint Costs: You allocate costs that are difficult to assign to individual project elements by using different mathematical formulas. For example, you can prorate field supervision proportionally to tasks based on their share of the total basic costs.

The Construction Cost Estimator's Job

Of course, the cost estimator is central to the cost estimation process. Typically a professional who is familiar with both design and construction and skilled at navigating the myriad costs associated with construction projects, the cost estimator must have both skill and training.

The U.S. Department of Labor's Bureau of Labor Statistics says there were 213,500 cost estimators in the country in 2014, with employment opportunities expected to grow by nine percent over the next decade. A plurality of these estimators work in the construction industry.

Essential skills for cost estimators include the ability to work quickly with numbers, an in-depth knowledge of construction, and familiarity with construction documents. On large projects, multiple specialist cost estimators may be responsible for estimating different aspects of the project, so a specialization or first-hand experience in constructing certain types of structures can also be valuable.

Although tertiary education is typically a requirement for cost estimators, first-hand experience with construction and a knowledge of the contracting landscape are perhaps more essential skills. Some estimators are individuals who have risen through the ranks as construction workers. These experienced construction professionals also know how to negotiate with subcontractors and may be better able to appreciate the factors that impact estimated amounts.

But as construction has gotten more specialized, professionally trained cost estimators are increasingly common. A number of qualifications in cost estimation are available, including the International Cost Estimating and Analysis Association's Certified Cost Estimator/Analyst program,the American Society of Professional Estimators' Certified Professional Estimator certification, and the American Association of Cost Engineers' certifications for cost consultants, cost engineers, and cost technicians. Most certification programs require continuing education and recertification.

Dedication to continued learning is necessary for all cost estimators, whether certified or not. It's key to keep abreast of the construction industry and also to be able to learn and implement evolving cost estimation methods and software, which we'll talk about shortly.

In addition, cost estimators must be highly organized and highly attentive to detail. They should know how to communicate cost information with accuracy and integrity. Moreover, given the competitive nature of the construction industry, they must maintain confidentiality when communicating with stakeholders and commit themselves ethically to delivering accurate estimates despite possible pressures to engage in corner-cutting and expediency.

Best Practices in Construction Cost Estimating and What Not to Do

Today, software applications make cost estimation easier, but the cost estimator's role remains as crucial as ever. Some best practices can lead to more accurate estimates and more successful bids.

The cost estimator must follow industry norms and standards for measurement units. He must also consistently fill out costing-related documents, such as quantity surveys, and follow cost-recording procedures in a way that makes their work verifiable and easy to handoff to another cost estimator if necessary. The best way to do this is in a recognized construction classification system, such as the UniFormat.

Identifying indirect costs is another key part of the cost estimator's job, and it's to some extent a skill developed through experience. The estimator examines contractual terms to see which of them may impact indirect costs. They're also responsible for calculating indirect costs and for coming up with a way to record these. Determining the level of effort - project work that cannot be traced to specific components of a work breakdown structure - is also a skill that takes some developing. Estimating the labor hours necessary for completing project tasks affects the size of the workforce, workers' wages, and insurance.

The estimator is responsible for evaluating subcontractors' bids, particularly taking into account the subcontractors' performance on past projects. They will review construction drawings for constructability and accuracy in representing the project scope. They will assess how the client's schedule requirements impact the performance of the project. Their job may involve analyzing completed estimates for accuracy.

The cost estimator also helps track costs in the field so as to allow the comparison of actual costs with cost estimates. The idea is to see which areas of the estimate were accurate, which weren't, and why. They're also responsible for determining the impact of change orders, so contractors and clients can determine if these are feasible. A skilled estimator will provide as much detail as possible on the impact of change orders.
‌ Download Project Change Order Request Form
Ultimately, the cost estimator may have to exercise specialized skills, such as value engineering, which usually refers to increasing the function-to-cost ratio. Value engineering is usually a separate study, and it's critical to structure an estimate so you can swap out costs and assess the effect of value engineering. If you don't allocate costs to construction divisions in a format that's easy to understand, gauging the impact of value engineering can become much more difficult.

Common Pitfalls for Construction Cost Estimators

Experienced cost estimators say you can often avoid common pitfalls by consistently following standard procedures. One common source of problems is the failure to read the project documents carefully, which frequently leads to a poor understanding of the project scope and certain associated costs. Others include forgetting to incorporate costs or entering costs incorrectly. These issues can be compounded by neglecting to thoroughly check the completed estimate.

Other oversights include the failure to visit the site and the inability to fully understand the site conditions. As we talked about earlier, a site's natural conditions and location can impact costs in a number of ways, and a cost estimator will develop an eye for spotting and asking about these. This makes site visits imperative.

Finally, some cost estimators who draw from cost data repositories will fail to adjust costs based on local conditions or will make arbitrary adjustments without considering prior experience or quantitative comparisons. Either of these can throw estimates off and make it more difficult for another cost estimator to verify an estimate.

Cost Estimating Applications and Software

Estimating applications make cost estimates faster and easier to produce, which is crucial in a construction market that's immensely competitive. They're also more accurate than human estimators working on their own, as long as you use up-to-date cost data. Estimation software has become a must-have for anyone generating complex construction cost estimates.

Free cost estimating software is available, but it has limited functionality, and it's not really suitable for anything but smaller projects. For-purchase software, which can be pricey, is a much better option for anyone dealing with complex projects because of the functionality and features it can offer. Here are a few of the benefits of for-purchase software:

Cost-Related Inputs and Processes: Estimating software can offer access to cost databases, calculate taxes and the costs of labor and materials, allow estimators to adjust prices to local contexts, feature standard-size room lists, as well as item or activity lists, and integrate with accounting software. Some offer worksheets for specific trades and calculators for standard costs.

Generating Estimates: Estimating software can perform measurements and take-offs, count objects, allow estimators to mark up construction drawings, and generate bills of quantities.

Documentation: Estimating software offers templates for proposals and cover letters, generates proposals and cost reports, and maintains records of past projects.

Other Features: Some software offers support for macros, online collaboration, and the ability to integrate with computer-aided design files.

New Aspects of Construction Cost Estimating

Construction cost estimating continues to evolve as design, building methods, and materials change. Some trends that impact cost estimating today include:

Building Information Modeling (BIM): A building information model is a digital model of a structure and all its characteristics and dimensions. From the design to the construction, commissioning, and maintenance of a building, all participants can use the model. As such, there's an increasing demand for cost estimating to become an aspect of BIM, though this opinion has not been without challenges. The main criticism of cost estimating in BIM is that cost estimators, with some justification, have less confidence in the level of detail of BIM designs. That lack of specificity can lead to substantial inefficiencies and reworking of estimates.

Sustainability and LEED Certification: Currently something of a hot topic in construction, LEED certification is a point system for rating buildings based on their environmental performance. The role of an estimator in projects seeking to obtain LEED certification involves both calculating the cost of scoring LEED points and communicating these to clients. These include not just direct costs (using environmentally friendly materials, for example), but also increased administrative costs for ensuring compliance with the LEED standards. Therefore, estimators in LEED projects should be involved during the construction design phase, so they can contribute information about costs associated with specific LEED points.

Lean Construction and Cost Control: Lean construction, a fairly new approach, draws from the principles of lean management, which is the systematic effort to reduce waste without affecting productivity. Studies indicate that applying lean principles in construction projects results in significant cost savings. As such, an understanding of lean principles is a good asset for cost engineers who apply principles of value engineering to construction projects.

Further Resources for Learning about Construction Cost Estimating

The following are additional resources concerning construction cost estimating:

Smartsheet Helps You Manage Cost Estimates and Construction Projects with One Tool

No matter the size or type of construction project, cost estimating is only one piece of the puzzle. With multiple stakeholders, hundreds (if not thousands!) of details, and tons of documentation, construction projects can be complex and difficult to manage. Especially when just one missed detail can result in huge costs due to rework or delays. That's why you need a tool that can help manage all the parts of the project, including cost estimating. One such tool is Smartsheet, a work management and automation platform that enables enterprises and teams to work better. Many of the world's largest construction companies rely on Smartsheet to stay productive, communicate across teams, and document every step of the project.

Improve organization, planning, and document management with automated Gantt charts and critical path, simple file attachments, and alerts and reminders. With a central repository of key project details, your team can access and make updates from anywhere, in real time. Share your project plan with internal and external stakeholders to keep everyone one the same page. And, use the mobile app to capture site conditions and submit updates right from the field. Smartsheet also provides a range of smart views - Grid, Calendar, Gantt, Dashboards, and Card - so, whether you are a field engineer or construction manager, Smartsheet works the way you want.

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Construction Cost Estimating: The Basics and Beyond

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Construction cost estimating is the process of forecasting the cost of building a physical structure. Of course, builders and clients both worry about the financial impact of cost overruns and failing to complete a project. That's why they devote time and effort to estimating how much a project will cost before deciding to move forward with it.

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Things to know about construction estimating

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Things to know about construction estimating

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The responsibility for compiling accurate estimates for a construction company normally falls onto the shoulders of the salesperson.

Some construction-related companies hire estimators to create the estimates for the salespeople who do the selling. I personally believe this is a duplication of effort and it's higher risk. If possible, these two positions should be combined. If the salesperson also creates the estimate, they will be involved with the entire process, both the estimate and writing the contract. That will result in fewer errors not only on the estimate sheet but also during the negotiating process, on the contract, and during the job. However, regardless of who does it, they need to know how to estimate a construction project quickly and more accurately.

We are not going to "teach" construction estimating in this article, you won't learn how to estimate a job in a short article. We have a class that teaches estimating. What we are going to do in this article is cover some estimating issues. Handling these issues properly can get you back in front of the customer quicker with more accurate construction estimates. That leads to a better presentation and more sales.

Construction Estimating Starts With Accurate Plans

Any estimator must know how to read plans. And they must have a good set of plans to work from.

Without a clear set of plans, it is virtually impossible to know if the customer's idea of what they want done matches your understanding of what they want done. It is almost guaranteed that your concept of the job will differ from the customer's without a good set of plans.

I was recently called as an expert witness to sort out a job gone bad. On my first visit to the jobsite, I asked to see the plans. "We don't have any plans," I was told by the owner, "we have conceptual drawings." I asked if I could see them and was told the contractor had the drawings. I asked if there was another set. The owner told me the contractor had the only set.

I asked how they could possibly hope for a job to be built with only one set of sketches, and those only conceptual. "The concept was on paper," the owner said. "There is no way he (the contractor) could not know what we wanted."

I bit my tongue, almost in two. The term "dream world" came to mind. Conceptual drawings are rough ideas only and hardly constitute a set of plans from which accurate construction estimates can be derived. (And yes, the owner did take low bid on the job.)

You should not attempt any kind of a construction estimate without a set of accurate plans. Tell your prospective customer that unless and until they authorize you or someone else to do a set of plans that will pass the plan review at the local building department, the most you will give them is a very rough approximate for their job.

Stick Estimating

One of the biggest time-wasters is estimating by the old stick estimating method. For those new to the business, stick estimates involve a number of steps:

1. List all the various parts of the job.

2. List all the hours that it will take someone to complete each portion.

3. List all the materials that will be used on each part of the job.

4. List each sub-contractor that you will need.

5. List all the other items you will have to purchase or rent to get the job completed, such as permits, rentals, port-a-potties, etc.

6. Go back through your lists and put a cost on each item.

7. Last, have a knowledgeable second party double-check your lists and your math (this step is the one few estimators bother to do).

These steps, properly followed, will result in an accurate job cost. Apply your markup, and you have a price. Unfortunately, because it is so time consuming, it is seldom done with care and the result is often a sales price that is inadequate to cover the cost of the job let alone the overhead and any profit required by the company.

Another major flaw with stick estimating is that it requires separate material and labor takeoffs (lists) before you can do the math. In reality, you don't need a material takeoff until you sell the job. Compiling one before you write a contract is a waste of time.

Unit Cost Estimating

Estimating should be done by unit cost only. It is much faster (as much as two times) than stick estimating, just as accurate, and gets you back in front of the customer sooner. You can't take three or four weeks with your quotation. You need to be back in front of your customers with a quote in 3-5 days, at most 7-10 days. Larger jobs (+$100,000) may take a day or two longer because you need to get quotes from your subs, but no longer than that.

Unit costing follows the following steps:

1. Compile all the line items (assemblies) for that job.

2. Attach a unit cost to each line item (assembly).

3. Total your numbers and have them checked by a second party that knows what they are doing.

Apply your markup, and you have a price. Then get back to your customer with your quotation and move on with the sale.

Construction Estimating Books

There are a number of estimating books available with unit prices. Care must be taken, because many of these books are regional in nature (although they may claim they work everywhere). Their method of constructing a given project may be entirely different than the way you build your jobs. An example is the use of steel I-beams in the eastern United States. In the west we use glu-lam wood beams.

Pricing in many of the books is local, maybe regional. Several companies that publish construction estimating books will send a "modification factor" quarterly to correct their prices for your local area. Look at their book, count the number of items in the book, and multiply that by the number of towns in the United States. Tell me, how many people making phone calls to suppliers and subcontractors are needed to gather all those prices every quarter to keep everyone's price book up to date? In my opinion, you are getting the publisher's best guess on many of the prices. That's not a great way to cost your construction project.

If you decide to use one of these books, here is a quick trick to keep your book accurate for your area. When a job is complete, take the invoices and time accumulations from that job and compare them to the prices in your book. If the book price is higher, keep it. If the invoice price is higher, line through the book price and write in the job or invoice price. In 90 days, your book will be as accurate as it is ever going to be, but you need to do this on a regular basis.

I have used books from Craftsman Book Company for years and have always had good results.

Computerized Estimating Systems

In my 40-plus years in construction, one of the best improvements to estimating is the development of construction estimating software programs. The individual who insists on doing estimates longhand is open to errors. Doing estimates by hand is slow, out of date, inefficient and an irresponsible use of time. If I were the company owner or sales manager, I would not hire an individual for a sales and estimating position unless they were competent on a construction estimating software program or willing to learn and use one.

Regardless of the kind of work you do, today's customers want a quote in a timely manner. You can no longer take 10, 15 or 20 days to put an estimate together. The nice folks will go to another contractor to have the job done. Today's culture is "No, not tomorrow, I want it today!" Like it or not, that is the culture we operate in. If you want their business, comply with their time schedule.

If you are not up to speed on some type of computerized estimating system, it is time to change.

This article is an excerpt from Michael's book, Profitable Sales, A Contractor's Guide.

Receive our white paper, "Estimating Profitably: Ten Tips to Improve Your Estimating Skills"

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The responsibility for compiling accurate estimates for a construction company normally falls onto the shoulders of the salesperson. Some construction-related companies hire estimators to create the estimates for the salespeople who do the selling. I personally believe this is a duplication of effort and it's higher risk.

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Construction estimating is an important step in every construction project. In order to accurately gauge the cost of a construction project, general contractors or builders must create detailed cost estimates, schedules, and construction plans. Luckily, there are many fantastic software solutions designed for these exact purposes. This guide will cover the software products that contractors can use to make quick and accurate cost estimates for their construction projects. It begins with a look at the construction estimating and bidding process and then dives into the technology construction professionals can use to improve it. If you know the details about construction estimating, and only want to review the top products, here's a list of our top recommended estimating software:

Stack

ProEst

Clear Estimates

Learn More

Understanding Construction Estimating for GC's & Builders

Construction estimating is part of the bid process, during which contractors and builders submit proposals, or bids, to project owners, offering to provide services or supplies for a construction project. These bids summarize the costs that the contractor expects to pay for the development of the structure or infrastructure. Typically, for large construction projects, companies and governments accept bids from many different contractors and then decide which contractor will perform the project.

The process begins with the owner, or project sponsor, creating bid documents, which are collectively referred to as a bid package. This bid package summarizes key details about the project in order to give contractors all of the information they need to make accurate estimates and produce a proposed schedule and budget for the project. The documents generally include project blueprints, location / schedule constraints, insurance requirements, and other information.

For privately owned projects, this bid package may be shared with any number of contractors, few or many, depending on the owner and his or her prior relationships with contractors / builders. For public projects, which are sponsored by local or federal government agencies, the bidding process has specific requirements. Public projects must be publicly advertised in advance and bid documents must be made available so that any qualified contractor may submit a bid before the bid date. Once a contractor or supplier downloads the bid documents, they can begin the takeoff and estimating process and begin creating their bid.

What Is Construction Estimating?

Construction estimating, also called construction cost estimating or simply estimating, is the process of identifying the approximate, yet detailed, costs associated with a construction project. For small projects, an experienced contractor can come up with a quick estimate in his or her head. For large projects that require detailed bids, the process requires much more due diligence to achieve an accurate cost estimate.

To create these estimates, the contractors and their subcontractors must determine the quantities and cost of all of the materials, equipment, and labor, for their work, which usually begins with generating a takeoff list using information found in the bid package. Takeoff (also construction take off or take-off) refers to the quantities and amount of labor required to complete a construction project. Gathering this information uses a process in which estimators use project blueprints to determine the amounts and types of each material and the labor necessary for each section of the project they are responsible for. (Quantities of each material are "taken off" of the blueprints). The takeoff list is then used to create the cost estimate and the project bid.

Looking for Takeoff Software?

Square Takeoff Planswift Stack

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Understanding Construction Estimating Software

To save time and money, contractors, builders, and anyone who frequently makes cost estimates for projects or bids on construction contracts can use technology to manage the estimating and bidding process. This portion of the guide will provide an overview of this software and how it can be used in the bidding, estimating, and takeoff processes.

What Is Construction Estimating Software?

Construction estimating software is cloud or desktop technology designed to streamline and improve the process of creating cost, material, and labor estimates for construction projects. Construction estimating software is available in many varieties, ranging from simple spreadsheet templates to online collaborative software with many features that optimize much more than the estimating process. Contractors should also consider that some software is also designed with specific subcontractor trades in mind, including capabilities that are specific to electricians or HVAC contractors, for example. Other products may be designed for general contractors or with no specific trade in mind.

Construction Estimating vs. Takeoff vs. Bidding Software

As we covered above, the bidding, estimating, and takeoff processes are all very closely related and intertwined. Recall: contractors and subcontractors use project blueprints and bid documents to perform takeoff and then use that information to create construction cost estimates. These estimates are then used to create project bids, or work proposals.

Many products that are branded as "Estimating Software" focus specifically on estimating, but it's also common for software products to span takeoff, estimating, bidding, or any combination of the three, all within one platform. Most often, however, these products are separate tools, offered by different companies. Buyers can easily be confused because some companies advertise "Estimating Software" and some "Bidding Software" - with product descriptions that appear to address the same needs when the tools are often different.

To add clarity to what software developers usually mean when they use these terms, we'll define the most common phrases estimating software providers use to brand themselves, and what set of features these terms usually imply. Typically, software providers will brand themselves in the following terms:

Bidding software: typically focuses on the creation of project bids / proposals, subcontractor and project scheduling, client management, and bid analysis / reporting

Takeoff software: actually specializes in pulling information off of digital blueprints and spec-sheets, and uses this information to ultimately generate the cost estimates

Estimating tools: help estimators (usually contractors and subcontractors) create the line-by-line cost and quantity estimates for materials and supplies. Typically, these tools include cost summary templates, preconfigured formulas and calculations, and regional part / material cost databases. Sometimes estimating software can refer to products that cover all aspects of bidding, takeoff, and estimating.

Bid management software: this sounds very similar to bidding software; however, it actually refers to a set of tools for contractors to manage their subcontractor bids. Sometimes these tools will let contractors generate their bid proposals (which is the purpose of bidding software), but that is not the focus of these tools.

Which type of tool fits your business needs depends on how you manage the bid process and whether certain elements of the process need specific improvement.

Online vs. Desktop Estimating Software

Estimating software companies can give customers access to their technology in one of two ways-either by (1) installing the software on computers or servers that the buyer owns, or (2) providing access to the tool online, via web browsers and mobile devices. The installed products are often referred to as on-premise. These tools are either downloaded on each computer that will use the product or installed on company servers that distribute the program to employees. Many companies these days, however, are starting to offer software that is accessible online with web browsers. These products may sometimes be called cloud or web-based.

There are many benefits to choosing an online estimating software, particularly for convenience of access. Software that is served to users online can be accessed on any device with an internet connection. Some advanced products will even allow offline access via local applications, which sync data when an internet connection is available. Unless your business has a reason to choose an on-premise estimating solution, we prefer tools that are accessible online because of the convenience they provide. Rather than needing to be at your office or on a device with a connection to your company servers, you can connect via any device with a web connection.

Online products are also more easily updated than on-premise products. In fact, online products are automatically updated for every user whenever the estimating software developer updates their product. One inconvenience of using an on-premise estimating tool is that it will usually have to be manually updated either by re-downloading or by a technical representative of the company who produced it. In most cases, it also means an additional annual fee to continue receiving updates from the provider.

Even though online estimating software provides many conveniences, users should consider both and pay more attention to the specific features that the products provide than the way they are deployed. If your business has specific security needs, an on-premise product could be right for you.

Features & Functionality

The power of an estimating software lies in the features that improve the estimating, takeoff, and bidding processes for users. Not all users need a software loaded with features, but rather just want a product that helps tackle a few specific challenges. Knowing which features will have the biggest impact for your business, and which you don't need, can help narrow the options and likely save money on the product. This section reviews the most important features that contractors should consider when choosing between estimating software companies. Different software companies will package and design these features differently, so buyers should ask company representatives about the details when certain features are critical.

Digital Takeoff Features

Above, we detailed the different steps of the bidding process: takeoff, estimating, and bidding. Here, we cover some of the features that software can offer to improve the takeoff process for contractors and subcontractors. Often, digital takeoff capabilities are sold in separate software packages from the estimating tools because they are advanced capabilities that not everybody needs. As such, these features can also add a significant amount of cost to the software. These features all focus on improving the efficiency involved with digital takeoff:

Counts, lengths, areas, volumes - The core technology of takeoff tools is to use digital copies of project blueprints to pull material, quantity, and part requirements in a list. If the tool offers takeoff at all, this capability will surely be included.

Collaborative takeoff - This feature is a major benefit of cloud-based takeoff products. Cloud based tools and any that have collaborative features should allow users to share notes and even takeoff from the same set of plans simultaneously.

RFI creation - If a contractor has questions about the plans or identifies an error an RFI is used. To generate an accurate estimate, these issues need to be resolved. Some tools allow users to generate a request for information (RFI) in the platform without breaking their workflow.

Assemblies - If a contractor frequently builds the same assembly of parts in different projects, the ability to store these assemblies within the takeoff tool can be a huge time-saver. Without saved assemblies, users must repetitively takeoff every appearance assembly from prints part by part. Some products allow users to store assemblies for use in any plan they review in the software.

Construction Estimating Features

Once takeoff has been performed, the next step is to use that data to create cost estimates for materials, supplies, and labor for the project. The following list briefly covers the features that help contractors and subcontractors more efficiently create project estimates:

Pre-built estimate templates - This feature is one of the staples of an estimating software. Virtually every estimating tool will have some template with which to display cost estimates. More powerful tools will come with multiple templates.

Supplier pricing database - Some software companies provide an up-to-date database of materials and supply pricing from local distributors, which can be combined with quantity estimates to easily, or even automatically calculate costs. This feature is a huge time-saver, and is usually worth the money because of the time-savings it provides. ElectricSmarts NetPricer is an industry standard supplier pricing database that many popular estimating software companies connect with, including ConEst, ProEst, and Vision InfoSoft.

Takeoff software integration - If your business uses takeoff software, then it's ideal, if not critical, that your estimating solution connects directly or can easily pull data from it. If not, your employees may be stuck inputting the data manually that your takeoff solution helped to automatically generate. Often, you can buy a takeoff package from the same provider, and takeoff data can flow directly into estimates with no user effort.

Assembly / item details - Many estimating tools will let users store specific information about common assemblies or components of the project. The information can include cost and quantity of materials as well as the associated labor costs and time. For example, a residential interior wall uses a predictable quantity of nails, wood, drywall, and other components based on the area of the wall. Having this information stored as an assembly means that each nail won't need to be accounted for every time this assembly is referenced. Often the software will come with a number of pre-built assemblies, but this information is usually customizable for users to match their own needs.

Multi-item update - Often, prices, materials, and suppliers can change, requiring updates across many locations within the estimate. Luckily, some estimating tools will let you quickly apply the same update to several places in the estimate documents simultaneously.

Formulas - Most products will include a predefined list of calculations for things like area, volume, and curved distances. Many will also let the user update or add their own formulas.

Bidding Features

Once an estimate is complete, it's time to create the bid, or the proposal, which will at least include the cost estimates and projected schedule for completion. Putting together and submitting a bid is a different process from estimating, and thus, software companies have added features to help manage the intricacies of bidding. Here is a list of some of the most common features software makers provide to optimize the bid management process.

Proposal generator - Typically a bidding or bid management tool will help the contractor by providing templates or automatically generating proposals based of the data and information that is input to the program. This can save a lot of time and help contractors design slick proposals without much effort.

Subcontractor portal - A subcontractor portal provides an easy way for a contractor to share bid documents and key project information with their subcontractors and accept their bids.

Bid comparison - When subcontractors use the subcontractor portal to submit their bids, the contractor can review their bids within the platform and compare them more effectively using various comparison tools to highlight the strengths and weaknesses of each bid.

Project calendar / scheduling - Bidding tools will usually make project scheduling much easier by providing a single location for contractors and subcontractors to schedule the individual steps that will make up the project. Scheduling with many subcontractors can be messy, if not a nightmare, so a scheduling tool and calendar can make a huge difference in scheduling efficiency.

Contact management - Contractors who submit many bids to different owners and work with many suppliers may find a contact management system integrated within their bidding software quite handy. The contact management tools within some bidding suites are advanced enough to serve as a CRM (customer relationship management) system for a small to mid-sized contractor.

What-if analysis - After submitting a bid, contractors are often hit with requests to change costs, materials, or other details of their bid. Bidding software often provides tools to easily update bids and track historical changes.

Additional Features

Aside from specific takeoff, estimating, bidding, and unique trade-specific features, wise buyers should search for tools that play nicely with their existing technologies. Many companies integrate nicely with Microsoft Excel. But if your company is tied to a project management, accounting, or field service software, it's worth asking the software provider if they have integrations with any estimating or bidding tools. Some tools will also go above-and-beyond in their reporting and analysis tools. Companies who provide this type of analytic review of your estimating and bid data can add a tremendous amount of insight and help to create meaningful changes in the way you manage your business. So the reporting and analysis features of your top estimating and bidding options are worth a careful review.

Specialty Trades

Cost estimating, takeoff, and bidding are necessary in most of the specialty trades of subcontractors, such as electrical work, plumbing, and HVAC. Many software providers make solutions that are specific to the different specialties of subcontractors. These software solutions may include trade-specific cost databases and other useful features unique to each area. The following list shows what to look for in specialized estimating, takeoff, and bidding solutions if you are a contractor in one of the these areas:

Estimating Software for Electrical Contractors

Electricians must use estimating tools to gather lengths for conduits, wiring, and cables, as well as the number of switches and receptacles in order to determine the costs and to estimate labor. But electricians should also look for tools that include formulas for electricians, which calculate voltage drops, electrical loads, fault currents, and counts for conduit, boxes, and wiring. Electrical estimating tools might also include certain tools that monitor project plans to make sure they're meeting national requirements.

We recommend the following estimating software for electrical contractors:

HVAC

Heating, ventilation, and air condition (HVAC) contractors use this software to generate lists of materials for HVAC assembly and calculate costs. HVAC contractors should seek products that provide formulas that assist in calculating the heating and cooling needs of each room in the project plans.

Plumbing

Estimating for plumbing installation, requires contractors to know takeoff counts for fixtures and fittings, as well as the linear measurements of CPVC, drainage, and supply piping. Estimating software for plumbers should include pricing databases for plumbing parts and predefined plumbing assemblies.

Landscaping

Landscaping contractors must measure square footage, volumes, and linear dimensions and volume / area dimensions for sod, mulch, gravel, and other products. Three-dimension takeoff formulas or features should help contractors who frequently work on landscaping projects.

Construction Estimating Software Cost

Construction estimating software is typically a very affordable piece of technology, especially compared to enterprise software solutions. These tools save significant time compared to manual methods of calculating and totalling costs of construction. Often, the pricing model will vary between software providers, but the cost is usually dependent on three key things:

Number of users - most companies typically charge a specified cost and multiply it by the number of users that will be sharing access to the product.

Features included - Typically many of the features that each company offers with their products are optional. The more features included in the deployment, the higher the cost of the tool. Not all companies have multiple versions of their product, however, so this won't always be a factor in the final cost of the software.

Online vs. desktop deployment - On-premise products are those that are installed locally on the users desktop, or on a server owned by the business buying the software. In this case, the company is usually going to be buying a deployment of the software and paying just once for lifetime ownership. Usually, this means that the up-front cost to buy the software is much higher than with that of online products, which don't require installation.

Not all software companies price their products the same, so ask before diving into a contract how the software is priced. However, these factors will usually provide a good proxy for the costs associated with using the tool.

How Much Does Construction Estimating Software Cost?

Construction estimating software can cost between $30 and $250 per month per estimator, depending on the software provider and the included features. Some free tools and templates do exist, but the majority of tools that provide major value come at a cost. While the monthly cost can be a few hundred dollars or less for online tools, desktop tools that require a one-time installation are much more expensive up front. This is because after installation, you own the product for life. Typically, these products start at around $600 and go up to over $5,000. However, if you would like to receive software updates from the developer, it will require additional fees.

Finding the Best Estimating Software for Builders & General Contractors

Construction estimating software and companies differentiate themselves on a number of factors, including their company reputation, their product's ease of use / access, the feature set, pricing, and more. Here we'll cover the details of each factor that buyers should consider when comparing construction estimating software.

Company Reputation and Customer Service

Most buyers must interact with their estimating software provider's representatives at least one time over the course of their relationship-whether at purchase, for product training, or troubleshooting issues. Sometimes, even with the best companies, things require users to interact with the company many times, maybe for extensive product training or difficult product issues. In these times, you'll be very happy you chose a company with solid customer service, which can make a hassle feel like a non-issue.

Accessibility / Deployment

When considering an estimating solution, it's worth thinking about the installation / setup process, as well as how you'll access the tool every time you use it. Some products require an onsite installation with a company rep, while others require nothing more than a simple online sign up. We prefer products with easy setup, but it is also a one-time hassle, so unless getting set up very quickly is important for your business, this shouldn't carry too much weight in the decision. Ongoing product accessibility, on the other hand, is something that users should weight very heavily. We prefer products that are accessible online, or at least available for any platform-Mac or Windows. Online estimating software products have the benefit of being accessible from any device, and they usually offer stronger collaboration capabilities as well.

Product Design / User Experience

Since you'll use the estimating tool often, if not every day, it's important to make sure that the interface suits you. Luckily, most companies offer free trials or, at least, product demos, to prospective users. Make sure you're comfortable with the workflow that the software uses and that the controls aren't too outdated. Even if you're "old-fashioned", an outdated interface isn't a very good sign for an estimating software company.

Features

When a company is in the market for a new estimating solution, it's likely that they have a few specific needs, and maybe even some particular product features in mind. First and foremost, make sure that these needs are met by the estimating software you choose. An all too common horror story is one of software buyers who choose a product only to find out it doesn't work how they thought, or that it's missing a key feature that causes problems for their workflow. Confirm that the tool meets your estimating needs before you lock into a contract with a new software provider.

Pricing

Pricing is a sticking point for many construction professionals when they compare software. Usually, if the software does as advertised, it will save the business money by making the estimating process more accurate and efficient, even if it seems expensive. Still, software should be priced right for the business, and part of making that a reality is choosing a product that fits. Avoid "enterprise" products if your business is small, and don't buy more licenses than necessary. Additional licenses can always be added later. We do consider the "bang for the buck" while reviewing products. Paying up for a full-featured product is worth it if the features fit your needs, but no one should overpay for a weak product.

Estimating Software for Mac & iPad Users

As discussed above, we prefer products that are cloud-based and accessible online via a web browser. At a minimum, we prefer software companies that offer their products on any platform-Mac or Windows. Unfortunately, some of the popular estimating software companies only offer a Windows version. That said, Mac and iPad users should look for software that is either cloud-based or offered in a Mac version. The following estimating products are available online or are Mac-compatible:

ProEst (cloud-based)

Stack (cloud-based)

Clear Estimates (cloud-based)

simPro (cloud-based)

ConEst (cloud-based)

Buildertrend (cloud-based)

The Best Construction Estimating Software

In our research, we consider the above criteria and make sure to only recommend products that are top of their class in each of these categories. Read on to see how the best estimating, takeoff, and bidding software compare in terms of functionality, pricing, customer service, and more.

References

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The Best Estimating Software for Construction in 2020

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Construction estimating is an important step in every construction project. In order to accurately gauge the cost of a construction project, general contractors or builders must create detailed cost estimates, schedules, and construction plans. Luckily, there are many fantastic software solutions designed for these exact purposes.

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Before an estimator can bid for or start a project, they need to know the types and quantities of different materials they will need to complete it. This ensures a proper estimation of the costs and requirements for the materials and will also give an indication of the labor costs involved in the installment or construction of said materials.

This process is known as takeoff - or material takeoff (MTO) - and is an essential part of the estimating process. For a small one-off job, an experienced builder should be able to estimate the materials required in his or her head. A more thorough process is necessary for major construction projects, however. It is important to approach the task in a methodical manner in order to achieve the most accurate approximation possible. As well as providing a precise estimate for yourself and your client, this will also help the job run smoother on the ground by ensuring that your workers or contractors have everything they need.

It is worth noting that, while a thorough takeoff will improve your estimate, there will be other factors to take into account. These include your office overhead costs, shifts in market prices for materials, and various other expenses.
What to count
Essentially, the takeoff should quantify all the materials needed to complete the building, structure or project. This does not include assets such as tools and equipment, which are also required to do the job but should include all the physical materials that go into the project. This could be raw materials such as concrete, timber or sand, as well as prefabricated materials; bricks, lengths of electrical cable, plumbing pipes, and light fixtures.

Looking to improve your estimating skills? Here's how to add value to your estimates with value engineering.

In addition to counting the materials, the MTO should also specify the type of material required. This could be the grade of steel or the type of electrical cable, for example.

Different contractors might have a diverse range of requirements when it comes to compiling their takeoff. A roofing specialist will use different materials than a concrete contractor, for example, but the principles of takeoff are broadly the same.
There are four key types of measurement required for the takeoff in most construction projects.
The estimator will need to count the numbers required for specific individual items. These could be anything from the number of light fixtures required for a given building to the number of studs necessary to finish the project.

Some items, such as cables and pipes, are measured primarily by length. You will also need to know other dimensions, such as diameter, but this information will be included with the type of material required. You might need to allow for extra amounts for elements such as drops for switches, receptacles, and panels when measuring electrical cable.

Some materials will require a measurement of the surface area. This could include elements such as flooring, cladding, or an estimate of the amount of paint needed for a given structure.

Measurements of volume may be needed for some materials, such as the amount of asphalt used per yard or the concrete required to lay a foundation.
There are two main types of takeoffs
Many construction design professionals still use traditional paper blueprints and plans, and it's possible to conduct an accurate takeoff from these materials.

However, it is crucial that the estimator be able to accurately read blueprints and plans for the type of work being quantified (general building plans, electrical and plumbing schematics, etc.). As well as diagrammatic representations of the dimensions of the project, these will contain various symbols and notes that may indicate the types of materials required.

Working from these plans, you can use colored pens, pencils, or markers to distinguish the different items and types of material specified. As paper blueprints can be expensive and time-consuming to produce, many estimators are adopting new technology to perform their estimates. If you're still using paper, you might be expected to use a clear plastic overlay rather than marking the blueprint directly.

You can then transfer the quantities and materials to spreadsheets or use various preprinted forms and worksheets that can help you to work out the exact material costs for each component.

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2. Digital takeoffs
While it's possible that manual takeoffs can be used to produce an accurate estimate, they can be complex and laborious. They can also throw up errors if you get a measurement, count, or calculation wrong.

Many companies are increasingly producing digital blueprints. There is also a range of takeoff software available that can be used to streamline and partially automate the takeoff process. The specifications of these software packages may vary, but all basically allow you to analyze blueprints and enter the quantities and measurements required in a digital format. Some systems are integrated into a bidding or quotation program, allowing you to combine the two processes.
Breaking down the process
The exact details can vary depending on a number of factors, including your specialization as an MEP estimator, the types of drawing used, any software you are using, and the type and scale of the job. The drawings and specifications will be slightly different, but the general techniques are the same.

Here we break down the basic manual takeoff process for the electrical components of a project.

Counting symbols will allow you to identify the number of components required to complete the job. The blueprints and drawings you are working from will use standardized symbols to represent different elements such as fixtures, switches, and convenience receptacles. You will need to familiarize yourself with these symbols and what components they denote. Other, non-standard components may be identified by a key included on or with the drawings.

Count each component type individually. Some people manually do this using a handheld tally counter that you click to add each unit. This can help ensure accuracy but can get tedious. You should also mark each symbol with a colored pen or pencil to signify that it has been counted and to avoid counting it again. As you complete the count for each component on each page, enter the quantities on a working scope sheet. After you have worked your way through every page of the blueprint, add the totals for each different component.

You will also need to measure the circuits shown in the drawings. First, check the scale used for each page that you measure. You will often find the scale dimensions listed in the title block of the drawing, but be aware that the scale can vary on different pages - check carefully for scales listed on each page.

It is also worth noting that if you are not working from original blueprints, they might have been copied at a reduced size. Confirm the scale is accurate (there may be a 1 inch or 1 cm scale marker) or contact the architects/designers if you have any doubts.

There are a number of tools you can utilize to take measurements from drawings. These include an architectural ruler, scaled measuring tapes, and mechanical and electronic measuring wheels. Rules and measuring tapes are fine for quick measurements in small dimensions, but a measuring wheel is both convenient and accurate.

You can now measure the branch circuit for each component in the drawing - remember to allow for and add in the drops at each switch. Some electronic scale wheel devices allow you to press a key to add a set distance for drops. This is fine if all the drops are standardized, but you will have to reset the constant each time if they are of different sizes.

There may be different circuits (two-, three- or four-wire) marked on the same drawing. Trace each one with a colored pen or pencil once you have finished measuring, using the same color for the same type of circuit.

You can now use your counts and measurements to produce a takeoff figure. Using trade market values (generally building in a small buffer for price fluctuations), you can provide a relatively accurate estimate of the cost of the materials involved. With the right time and motion data required, you can also gauge the scale of the job to project approximate labor and other associated costs.

These tips for understanding how to master the MTO should help you get your project off the ground. An effective estimate is vital when working on a construction project, so follow these guidelines for the most cost-effective solution when approaching your new development.

If you're interested in learning more about how to improve your estimating skills or are looking for ways to add value to your estimates, take a look at our free ebook,How to Add Value to Your Estimates with Value Engineering.

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How to Master the Takeoff In Construction Estimating

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This process is known as takeoff - or material takeoff (MTO) - and is an essential part of the estimating process. For a small one-off job, an experienced builder should be able to estimate the materials required in his or her head. A more thorough process is necessary for major construction projects, however.

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As a contractor, calculating the value of your work comes with its challenges. You have to account for labor, materials, and equipment to name a few.

Costs can become a bit more confusing when you're working with a crew or an unforeseen problem arises. Have you ever given an incorrect quote on a project? It's never fun to admit to a client when you've made a mistake that can cost them more money.

If you are looking for a simplified method to determine your construction labor cost, you're in the right place. Follow along with this article. We'll tell you about some helpful tools and formulas that will make your work life a little easier.

What's Your Base Rate?

Knowing how to develop accurate quotes for your projects will help your profit margins in the long run. You won't have to worry about upsetting your customers or even paying yourself too little.

Your base rate is the unit price that's established for labor. This is a good place to start on any project because what you spend on supplies will usually always be something different.

Think about the size of your average crew while determining your base rate. In our example, we're going to work with a crew of three.

The first employee is the lead. The second is the journeyman. And the third is an apprentice.

The rate for the three works might be:

Lead $40 per hour

Journeyman $25 per hour

Apprentice $15 per hour

These wages are standard in the industry. But, they can be adjusted if the rates are different in your area.

Following this example, your base rate is going to be $80 per hour.

Determine the Labor Burden

The labor burden is the cost of each employee outside of their hourly wage. Included in calculating the labor burden is the employees' benefits packages paid by the company.

The formula for finding each employees' labor burden is fairly simple. It uses the employees' hourly wages, the number of hours they are available to work per year, and the number of days they can be out each year. These days are for things like vacation and illnesses.

We'll use our $20 an hour employee for this example. Let's say the person can work 2,080 hours each year and they can be out for 15 days due to holidays and the sick/vacation days they are given.

Multiply the 15 days by 8 hours (or whatever a single shift is). Then subtract the total by the 2,080 hours they're able to work each year. This will give you the number of hours they are actually working annually.

The formula should look like this: 15×8= 120. 2,080-120= 1,960.

Your records should show you the yearly costs of having an employee. Such as payroll taxes, training, insurance, and other benefits.

Here are numbers we can plug in for this example:

Payroll taxes- $2,000

Insurance- $1,000

Benefits- $2,000

Supplies and other expenses- $5,000

Add these costs together and you will have a $10,000 labor burden. Do the same calculations for each employee on your crew to determine the base rate for the entire team working on the project.

Find the Labor Rate

After you've determined your team's base rate, you need to know its labor rate. The pricing of the labor rate is determined by adding the hourly rates of the employees who will be working on a single project.

That number should then get multiplied by the labor burden and markup.

Always round up to the next dollar in these scenarios. Using a nice, round number always makes it easier.

Having these calculations on hand will help you determine the labor cost for a project much quicker. You can keep examples of different combinations too. Because not every project will involve all the same crew members.

Determining the Construction Labor Cost

Now, let's see how knowing your base rates can help determine the construction labor cost.

Let's say, for instance, you have three men working on a project that will last 6 weeks. They are working 8-hour shifts, which will translate into a 40 hour work week.

Crew's hourly rate X 3 (amount of workers) X 6 (number of weeks) X 40 (hours per week) = Cost of the project.

This formula will give you the labor cost of a project for your crew. This number can be provided as a standard base prior to adding the costs of materials and other factors that are known to change on a project by project basis.

Keeping these formulas on hand won't just help you delivery estimates speedily. It will help you develop a more accurate way of scheduling and meeting your financial goals.

Is There An Easier Way?

If manually completing these and other calculations for every project isn't your idea of a good time, there are some programs available for you to use. Accounting and timekeeping software makes your job less intense when you are a contractor or own your own business.

Some of the features and bonuses include:

Less time spend on time cards

Mobile apps for all crew members

An ability to see where you're making and/or losing money

Track labor and costs according to your estimates

Optimized productivity

Timekeeping software also helps decrease human error, a benefit that's especially important if you're recently getting started in your line of work. If you're wondering if it can help you and your team, request a free demo here.

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Calculating your construction labor cost isn't something that should be taken lightly. It can either make or break your business or cause you to make an expensive mistake.

Improve your productivity and performance by following our blog. Even if you aren't ready for an automated assistant, we have some great tips and tricks to share with you.

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