Introduction to estimating in construction industry
“Accurately forecasting the scope, cost, and duration of future projects is vital to the survival of any business in our industry” (Polcari, 2008). Estimators develop the information that enables the business owners or managers to decide on the feasibility of the project. The role of estimators in the construction industry includes compiling and analyzing data on various cost items like labor, location, project duration, machinery and equipments. Realistic cost estimation is crucial in effective managerial decision making, budgeting and supervising control across all departments. This results in increased profitability and efficient handling of resources.
Benefits of estimating
The process of estimating provides a realistic cost prediction at various stages of operation taking the “form of base estimates, plus allowances for uncertainties and specific contingencies as required” (Smith, 1995). A good estimating strategy enables the management to recover costs in a timely and well planned manner. It also facilitates the management and contractors to realize the areas that are more capital-intensive well in advance. This allows better planning and resource allocation strategies. It helps the owner or manager to take sound financial decisions.
Estimating techniques used through the years
A vital factor in estimating methods is its reliability and accuracy. The process of estimating in the construction industry has been refined over the years to provide more accurate results. The estimating techniques used over the past few years require collecting of current data and speculating changes in rates during the project duration. This data is then correlated to provide a realistic trend in estimated cost projection over the next few months. The contractors essentially relied on data from similar projects and estimated on the basis of size, capacity or output of the current project.
Nigel Smith in his book Project Cost Estimating (1995) provides various methods used in estimating process. One of them involved “Global estimating technique” that “relies on the existence of data for similar projects assessed purely on a single characteristic such as size, capacity or output.” Another technique is called the “Factorial” method in which all the key elements are identified and accounted for while “all other works are calculated as factors of these components.” Labor-intensive projects use the “Man-hours” estimating technique where the total man hours is estimated and correlated to the plant and material costs. “Unit-rate” estimating technique is “based on the traditional bill of quantities approach where the quantities of work are defined and measured in accordance with a standard method of measurement.” Yet another estimating technique known as “Operational” identifies the various elements that are required to complete the work and provides an estimate on the labor, plant, materials and overhead costs.
Any one estimating technique or strategy is not appropriate for all types of projects or situations. Most successful organizations re-design their estimating strategies on an annual basis to make the most out of the evolving conditions.
Challenges facing the estimating techniques
The estimating process provides an insight into the major areas of concern and expense during the phase of project rollout. Huge amounts of investment are required while designing and developing the project and the contractor needs to ensure that the resources at hand do not go waste. Speculative risks are an integral part of the construction industry but efforts are made to minimize these risks to maximize profits. One of the major hitches facing the estimating process is its capacity to insure the risks through data accuracy and realistic projections. The longer duration projects suffer from availability of accurate data.
The construction industry in present economic conditions faces severe challenges in the form of rapidly changing market forces that drive the economic indicators. Moreover, global market influences have added to the volatility of the market conditions. Operating in such a market is difficult for any contractor today and this is reflected in changing business strategy and adopting innovative methods to respond to fluctuating trends.
The estimating process has witnessed rapid changes in the past few years and has evolved in light of its significance to the company management and policy decisions. While in the past construction companies had one person responsible for estimating costs, the growing relevance of realistic projections triggered the need for a separate department dedicated to providing estimates. However, there was still room for manual error and omission that could affect the project viability in the long run. These were some of the major challenges faced by estimators.
Technology has been a great enabler of change in almost all kinds of business and industries. Manual processes and operations have given way to automated and mechanized versions that ensure speed, accuracy and reliability. The prime advantage of the extensive use of technology at work is the minimizing of human error factor. Estimators now have a range of software applications and models to choose from owing to the increasing use of computerized technology in most businesses. These software applications have made estimating process an easy and less cumbersome task for the estimators. Laura Nadel Eisen of Polcari Design Group observes “the days of waiting in line to view hard copy blueprints are becoming ancient history for estimators as online plan rooms replace the brick and mortar plan rooms of the past.”
The construction industry has been a little slow in adopting the innovative solutions offered in the market owing to lack of adequate skills in computers and training facilities. Contractors and estimating departments in the organizations lacked the skills to operate these tools and hence there was reluctance in the management to adopt these technologies. As Brent Ropelato, a General Contractor claims “experienced general contractors who were around long before computers became a part of day to day life may not have the technical computer background to operate construction estimating software.”
A significant cause for the hesitancy in adopting the software models is that “cost estimating has been around as long as the commercial construction industry and getting estimators to change the way they do their jobs is difficult” (RiverGuide Inc., 2006). Moreover, the management was not assured that these applications could actually make life easier for them. It also meant additional expense in training the existing personnel or hiring new people to operate these tools.
The advantages of using software applications in estimating
Use of software applications in estimating process can add plenty of value to the management. A well established system can enable faster processing, accurate delivery of information and data ensuring efficient management actions and decisions. The software applications used in this process help in standardizing the process of estimation reducing error rates and promoting effective business decisions. They also allow users from various locations to collaborate online and discuss the various focal points of the estimation process. It allows applications to utilize latest price data from the Internet and predict future trends based on assumptions for longer time duration.
Many companies use applications like Microsoft Excel to meet their estimating requirements, however, the wide range of online software applications available in the market has addressed the changing market needs for managers today. The construction industry is witnessing rapid adoption of innovative technology to promote their businesses. The on-line plan rooms allow general contractors, business owners and architects to post project specifications online to enable contractors to view details and bid on these projects. This has improved the reach and access to a large number of contractors who can bid on the projects. This kind of system allows the companies to have private plan rooms that will attract bidding from a selected list of contractors only. The online plan rooms have reduced the cost of printing blue prints and posting or couriering them to the clients. “Today, the online plan room is rapidly emerging as a preferred way to promote projects, share plans, and send invitations to bid. Many general contractors are dramatically reducing their printing costs by distributing plans electronically rather than sending printed paper copies” (RiverGuide Inc., 2006).
The software application have the advantage of integrating with material pricing databases online that ensures higher degree of accuracy and reliability to the estimating process. A few years back, the pricing database was compiled into compact discs or CDs and delivered to the construction companies. Now the Internet has updated information and listings that make it more convenient in terms of accessibility and use. Moreover, the automated online process has rendered additional value to the estimators who do not need to hunt for projects to estimate. All they need to do is sit in front of their computer and click on a button to receive a list of projects available. The location and drawing of the project is also available on the Internet that removes the necessity to drive down to the location.
A crucial benefit of online applications is the instant transmission of messages and the chance to collaborate with interested parties from their own desktops. Emails, chats and conferencing facilities have widened the scope of applications allowing instant access and delivery of messages.
Yet another important dimension to adopting technology is the increase in competitive environment for both contractors and owners. Widespread accessibility has allowed more estimators to bid on projects and this has created the need to keep their costs low and also promote efficient practices such as keeping their information database updated.
Future trends in estimating
The estimating technique has evolved from using tools like paper, pencil, and experience to sophisticated technology applications that delivers results more rapidly and accurately than before. The offline software application models have given way to online technology that facilitates collaborative discussions, and instant responses to queries. However, increasing advances in technology has now enabled the construction of three-dimensional drawings that help in more realistic visualizing. Virtual environments created can simulate the actual location and end result in design process.
George Hague, the Founder and CEO of ConEst Software Systems claim “In the past, contractors looked at their bottom line, saw a profit and assumed they were doing everything right. Now we want to refine that process and determine what we can do even better.” Digital imaging with virtual plan rooms that facilitate collaborative estimating with number of estimators from different locations working on the same project, reviewing and revising their drawing and bidding from the comforts of their offices have redefined the way estimating techniques have evolved in the past few years. And technology innovation has made it possible to look forward to even bigger changes.
References:
Hague, George. (November 2007). Emerging technology shapes the future of estimating software. Accessed on 8th December 2008 from http://www.aspenational.org/PDFs/ETNovember2007.pdf
Kooi, Charles Vander. (April 2005). The importance of having an estimating strategy. Accessed on 8th December 2008 from http://www.aspenational.org/PDFs/ET-Apr2005.pdf
Eisen, Laura Nadel. (February 2008). Online plan rooms are changing the face of estimating. Accessed on 8th December 2008 from http://www.aspenational.org/PDFs/February%202008%20ET.pdf
Polcari, Krista L. (February 2008). Do you have what it takes to become an industry leader? Accessed on 8th December 2008 from http://www.aspenational.org/PDFs/February%202008%20ET.pdf
RiverGuide Inc. (October 2006). Preconstruction management software trends and strategy. Accessed on 8th December 2008 from http://www.fiatech.org/pdfs/research/preconmanagementriverguide.pdf
Smith, Nigel J. (1995). Project cost estimating. Published by Thomas Telford. Pages 5-10.
Ropelato, Brent. Is construction estimation software worth the price? Accessed on 8th December 2008 from http://commercial-estimating-software-review.toptenreviews.com/is-construction-estimating-software-worth-the-price.html
