Estimating for Design-Build

by Kacey Larsen
NARI recertification credits

Here at NARI, we are often asked if we have classes to teach estimating. As of yet, NARI has not conducted a class or webinar on this process. It seems that every remodeling company has its own unique way to do estimating. That said, I think those who routinely produce accurate estimates use a set of processes that are common across these companies.

Producing an accurate and sellable estimate starts with the client interview.  Understanding what the client wants to accomplish with a remodeling project and what they expect the project to cost sets the foundation. It could be said that sales, design and estimating are three functions that are married to each other. From experience, the salesperson should be able to provide a “ballpark” value of the project to the client. In some cases, this estimate may exceed what the client was expecting the project to cost; at which point, the salesperson could offer a financing option or reduce the cost of the project in some way. Again, this is a “ballpark” value, and its accuracy depends on the experience of the salesperson and the assessment of the property’s existing conditions.

Those involved in the estimating process must receive constant feedback about how their projects perform financially—not only how the project made or lost money, but which areas were on target and which were not. In addition, they must receive updated cost data from suppliers, vendors and the trade contractor they use on their projects. Missing a price increase of critical products—like lumber, drywall or plywood— may mean the difference of a project making profit or not. In addition, understanding the labor rates of the company and whom will be assigned to a specific job may impact the estimate as well. 

In order for a designer to meet the client’s expectations and the company’s required profit margin, they must have a detailed understanding of the cost for each of the chosen design options. For example in a kitchen, cabinets typically drive the cost of the project. The designer will need to understand the price points for each line of cabinets in order to select the option that will work best within the client’s budget. The designer also needs to grasp the impact on the budget when making major plumbing or electrical modifications.

Not only must they know the company’s labor and trade contractor rates, the designer should also have full comprehension of the existing structure and any limitations it may pose. Some questions that might need to be asked are: Is the electrical supply adequate to support this and any future remodels? If moving plumbing lines, is the space above a basement crawlspace or on a slab? If walls need to be moved, are they load bearing? Do they have electrical, plumbing or HVAC within them? Each of these conditions, if undiagnosed, will lead to a change order, delay of the project, and potential loss of profit.

I have talked about the remodeler’s or designer’s experience being an important component of the estimating equation. What does that mean? Surely, as you look at the project specification, kitchen layout or an addition, you may think to yourself, “The last time we did a project like this it cost about $X.” This would be valid if you reviewed the profit that was made on the project, and it met your project goal; however, if the project did not meet the target profit goal, did you learn why not? How can you make this project meet the goal? This level of project analysis is critical for future success of the designer/estimator.   

Translate Design Into Numbers

The design process is likely an iterative one with each design presented to the client for review, comment and follow-up changes. At this point, most of the project cost should be identified, and it is time to document the estimate and build a formal proposal for the client. There are a number of methods available to the remodeler at this point. Your CAD program may output a takeoff sheet with cost estimates that might be useful. [I say might because if the cost data within the software package is not current, the output will be of little use.] Some remodelers use a manual checklist that is developed from experience. Each item on the plan is put on the checklist and a cost associated with it. This checklist could be pen and paper or in a spreadsheet format. Ultimately, the method selection is based on the comfort level of the remodeler doing the estimate. The most important thing is that everything is accounted for.

Once you have your checklist complete, you have an option of putting your cost-estimated data into your accounting software. This would allow for real-time job costing. By that, all your expected costs are in the system and as the real costs are entered, you can compare your estimates to actual costs and identify any variances. You can then determine why and how to adjust so it does not occur on your next project.

I have described a manual method of estimating a project from a very high level. With our dependence on computers, smartphones and tablets today, there are many software packages that can assist a remodeler in creating estimates. They can prove to be useful if you remember two key points: They are only as good as the cost data you put in. And they are simply a tool, and a tool is only as good as the person using it.

Creating an estimate that meets your client’s expectations and allows your company to make the profit it deserves requires attention to inputs from various sources. Your success is based on having the most complete data set possible. QR

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