How does a Construction Estimating department become more competitive?

by Perry on December 3, 2010

A construction estimating department CAN become so much more competitive, only if the circle of construction life is tracked. From our perspective, the circle of estimating life tracks the estimated cost and then compares it to the actual cost as determined from the construction accounting department. That type of construction cost analysis helps any contractor become so much more competitive in a variety of ways.

For instance, any contractor must look at their hit ratio on win or lose of bids or quotes.  If a contractor has a 50% successful bid hit ratio, the first question must be asked, “Are you making money with such a HIGH hit ratio or losing for example 15% profit? Likewise, if you are making money at the bids you are winning, then the question begs to be asked, “What is your hit ratio or is it for example as little as 3% ?” Those two comments are probably the most important question for ANY type contractor in any trade or specialty.

Ironically, one of the most important beneficiaries of accounting Job Cost analysis would actually be the construction estimating department. For example, the construction estimating determines that a slab on grade should COST $25,000 for all the material, labor, equipment &/or subcontract. Project Management schedules, performs, or buys out all the parts for the slab on grade. Invoices and or payroll are received (or labor performed) and paid for. So then a
budget to actual job cost report is created and the variance is discussed by all the departments, but most importantly the construction estimating department. The main focus of cost analysis comparison is: did the actual cost exceed/or cost less than the estimated cost. Whatever the answer is, the construction ESTIMATING department must make the appropriate adjustment (if any) for future estimates. The comparison can also be a cost per unit of measure like square foot instead of a lump sum cost comparison.  Over time, system historical costs will probably guide you well. So in this slab example, the system estimated cost of all the parts comes to say $3.00 SF, BUT the construction accounting department may report that the actual cost was $3.25/SF, or maybe $2.85/SF for example. That type of reporting is ESSENTIAL on becoming much more competitive while improving profitability and / or the success of your bid hit ratios. That is an area of construction operations management that is often sadly overlooked.

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