Develop Accurate Estimates

by lbanyay@solagroup.com

Perhaps one of the biggest processes to streamline in a company is estimating. Understanding how much a project will cost and what you need to add to costs to make a profit —then communicating that to customers — is vital. You don’t want to have high slippage or grippage. 

Dan Weidmann, CR, president of Roswell, Ga.-based Weidmann Remodeling, says accuracy is the biggest hiccup in estimating. This includes numbers for cost of material and cost of labor. “In addition to plans, we do a very detailed scope of work that breaks out all of the project elements item by item,” he explains. 

“For most of our projects and trades we have unit pricing,” Weidmann continues. “For example, we know what our electrician charges us per unit, per switch or per light fixture. We build estimates using unit pricing. Where we do not have that information we bring in trades to quote the job. Because we have a very detailed scope of work, they also know what we are asking them to price.”

Even the most carefully considered estimates need some wiggle room. “In the process we know we will miss some things or we’ll have inaccurate information on pricing,” Weidmann says. “So we build in a contingency, which is a percentage of the nonallowance items. The goal is to have slippage or grippage of no more than 1 to 2 percent throughout the course of a year.”

Constant vigilance in assessing the individual costs that go into an estimate is necessary. Quarterly or every six months, Weidmann’s team evaluates areas where estimating was off and modifies them as needed. Weidmann provides sheetrock as a material cost example. “If we estimated $50,000 of sheetrock in all jobs combined throughout that period and we spent $49,000 or $51,000, we’re pretty close,” he says. “But if we budgeted to spend $50,000 and actually spent $70,000, we have a problem and we go back to try to assess what the problem is.

“Are we underestimating the quantity? In the sheetrock example, it turned out we were pricing the original work correctly, but we were going back and doing additional work to complete the project for many jobs. So we add a fudge factor into it. We were off by 10 percent so we added 10 percent to our pricing then. What we find is over time we correct problems in one area and problems creep up in another area.”

Whereas builders can tell customers to the penny what it will cost to build a home, remodelers have unique situations in each job, thereby making it impossible to provide that to-the-penny estimate. Surprises always arise. “That’s where the detailed scope of work is so important,” Weidmann explains. “We draft a scope of work that describes what we will do and what we will not do. Then we can go back, walk the job and see if there is anything we missed.”

Detailing what you will not do during a job helps manage expectations on both sides. If a project encroaches into a room and affects one wall, the contractor might plan to paint only the affected wall whereas the homeowner might assume the contractor will paint the entire room. “Unless you have a written scope of work, you might end up painting the whole room because they expected it or you might have a homeowner disappointed you’re painting only one wall,” he says. “The estimate is of what we think we’re doing. We just have to ensure that is what the client thinks we’re doing too.”

In the ongoing debate amongst remodelers of whether you should charge for estimates or not, Weidmann argues for charging. “If a homeowner was paying an architect to develop a design, the architect is paid. If they were paying a designer to assist in selecting materials, the designer is paid. But if they bring in a contractor, they’re expecting the contractor to provide his expertise for free,” Weidmann explains. “Our expertise has no value. Why does that change when you get into construction? It needs to change. If people are going to run a professional business, they need to act like professionals and professionals charge for their time and expertise.”

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