Construction Estimating Guide: Definitions, Tips & Free Template

ProjectManager

Construction projects can be very complex. You need money to buy materials, create blueprints, secure permits, rent equipment, pay for your crew and more. All these things cost money and take time. This is why you need to do thorough construction estimating to make sure you don’t miss anything.

How can you make sure that the money you ask for at the beginning of the project will be enough to see you through the end? It requires a construction estimate to ensure the most accurate findings.

ProjectManager's Gantt chart
ProjectManager’s Gantt charts are ideal for construction estimating. Learn more.

What Is Construction Estimating?

Construction estimating is the process of assessing all the costs of a construction project. These costs include direct costs, indirect costs, overhead costs and a profit margin for the general contractor. The purpose of construction estimating is to create a construction estimate, a document that’s used by general contractors when bidding for construction projects.

What Is a Construction Estimate?

A construction estimate is used to forecast how much it will cost to build the structure in your project plan. Understandably, this is one of the most important steps taken at the early stages of any construction project management process.

A successful construction estimate begins in the bid estimation phase of a project. All construction-related documents, historical data and other known costs are used as a starting point for coming up with an accurate forecast.

The accuracy of the construction estimate will impact the profit margin for the contractor who is leading the build; therefore, thorough construction estimation is vital to the viability of any construction business. It also makes contractors more competitive when trying to win new business for their organization.

Construction Estimate Example

When you’re making a construction estimate, it’s good to have a construction estimate template, such as ProjectManager’s free construction estimate template seen below. The use of a template streamlines your construction estimating process, saves you time and gets you down right away to the more important work at hand.

ProjectManager's free construction estimate template
ProjectManager’s free construction estimate template for Excel.

Key Components of a Construction Estimate

Most construction estimates are done by the project estimator, but they can also be created by the project manager, another manager or someone else on the project. It all depends on the size of the project and the makeup of the organization.

Whoever works on the construction estimate will look at the construction plan and many other construction documents to determine what the overall cost of the build will be. Each person and organization might have a different method for making this forecast, but most will include these key components:

  • Direct Costs: This is money spent on construction activities, such as materials, labor and equipment.
  • Indirect Costs: These are costs not directly allocated for construction activities, such as quality control, security, utilities, admin, legal fees, permits, etc.
  • Labor Hours: The rate you pay your team, which inclused a basic wage and an estimate for the cost of each task. Include taxes and potential overtime.
  • Subcontractor Costs: Estimate the cost of work that will be contracted out to subcontractors, including labor, materials and equipment.

Construction Estimating Levels

The American Society of Professional Estimators has identified a five-tier system that is used for classifying construction estimates. The levels become more detailed as you move through them, which makes the estimation more reliable.

  1. Level 1 – Order of Magnitude: This is the rough estimation formed at the very beginning of the project and is based on experience and historic data.
  2. Level 2 – Intermediate or Schematic: The estimate takes into consideration the schematic design once it has been created.
  3. Level 3 – Preliminary or Design Development: Estimates are further refined during the design phase of the project and the accuracy is good enough for the basis of a budget.
  4. Level 4 – Substantive or Construction Document: Once the construction drawings and specifications have been done, the estimate can use this to hone its findings.
  5. Level 5 – Definitive or Bid: Now, with all costs known, this is your most accurate and reliable figure and can be used to create bids and cost baselines.

When to Use a Construction Estimate

A construction estimate is used throughout the early stages of a project and can be sketched out when the project is just an idea, using the experience of the project manager and their knowledge of the costs associated with similar projects. Then, as the construction planning progresses, there are opportunities to draw more accurate estimates from the data accumulating around resources, scheduling, etc.

While plans are always going to change to some degree over the course of a project, the heavy lifting of your budget is done by the time bids open. You might amend some costs, or find that scheduling or other delays will add to the budget, but the construction estimate process is done once all the documentation for your project is complete and you have a full view of what everything should cost.

Best Practices for Construction Estimating

Getting an accurate construction estimate goes a long way to drive success in your construction. While it’s impossible to always be right to the penny, there are things you can do to make your financial forecast more on target.

1. Know Your Customer’s Expectations

The first thing in construction estimating is to make sure you’re on the same page as the customer. That means to have them approve of the construction plan, but also ensure they are fully aware of what those plans are and how the construction phase will be when finished. You don’t want any unrealistic expectations or misunderstandings that lead to added expenses at the end of your project.

2. Use the Unit Cost Method

There are many ways to conduct your construction estimate. Stick estimates list every part of the job, including materials, labor and permits. It’s very time-consuming. But there are other construction estimating techniques that don’t take as much time and are just as accurate, such as the unit cost method. That lists everything you need for the job, with a unit price for each and adds together those figures.

3. Get Expert Advice

Another thing to do is seek out those who understand aspects of the construction better than you do. There are probably aspects of the build that you’re an expert on and can very accurately estimate costs for, but other parts of the construction might be beyond your ken. Don’t be afraid to ask for help.

4. Don’t Underestimate Labor Costs

Labor costs are where estimates can be run off track. There’s more to labor costs than hourly rates. You have to think of your crew as more than just numbers and statistics. While the cost per hour might be set, how much work an experienced team member can do compared to someone new to the job needs to be factored in as well. Before estimating labor costs, you should use a work breakdown structure to identify all the work activities that make up your construction project for more accurate construction estimating.

5. Consult With Suppliers

Relationships count, too. You want to have good communication between yourself and your suppliers, as they are vital for construction estimating. As you’re starting to figure out your budget, getting in touch with your suppliers can provide you with some valuable intel, such as if prices on materials will likely rise. Think of your suppliers like the experts on the construction site—only suppliers can assist in reigning in the cost of your resources.

Using construction project management software can streamline the process of estimating and managing your project. There are tools that let you estimate and track costs as you execute your project.

Construction Project Management Templates

ProjectManager has dozens of free project management templates. Download our free templates below to speed up your construction estimating process. Our templates can be easily imported, exported and shared with your team in real-time.

WBS Template

A work breakdown structure (WBS) is an essential construction project management tool because it allows you to identify and prioritize every task in your construction plan by breaking down the construction project timeline into manageable pieces of work. Once you know every activity that needs to be performed, you can assign them to team members and estimate the construction costs associated with each.

Project Budget Template

Once you’re done with construction estimating, you can create a project budget. A project budget is critical for the success of any construction project, as it defines the financial resources that will be available during the execution. As a construction project manager, you must monitor all your construction costs, to make sure you’re not overspending and our free project budget template is the perfect tool for that.

Construction Schedule Template

Construction scheduling goes hand-in-hand with construction estimating. The construction industry is labor-intensive, which means there’s a lot of costs associated with your construction crew. That’s why it’s important to create a realistic construction schedule that allocates the right amount of time to each construction activity, so that you don’t underestimate labor costs.

How ProjectManager Helps with Construction Estimating

Use ProjectManager’s Gantt charts, task lists and calendars to help you organize data to create your construction estimates. Then, once you have an accurate estimate and your budget is set, you need to plan, schedule, monitor and track your performance to make sure you keep to that budget. ProjectManager is award-winning software that manages your resources and reports on your progress to avoid overspending.

Robust Gantt Charts for Planning

Create a schedule on our online Gantt chart, link dependent tasks to avoid bottlenecks, set milestones to capture important dates and then set a baseline. This allows you to compare your planned budget with what you’re actually spending as you execute the plan. You’ll know if you’re spending too much and can make adjustments before it’s too late.

ProjectManager's Gantt chart

In-Depth Dashboards to Track Progress

Our tool allows you to track the costs related to your labor and equipment. You can get visibility into how much is being spent with a real-time dashboard that tracks costs in an easy-to-read chart. The cloud-based software gets real-time data and automatically calculates the costs to keep you from going over budget.

ProjectManager's dashboard with closeup on cost metric

Manage Your Team’s Resources

Your resources need to be managed to make sure everyone is working as productively as possible. Our resource management tools let you balance the workload of your crew to make sure that tasks are evenly distributed, which boosts productivity. Also, easily see their availability, skill sets and cost to make better assignments.

ProjectManager's workload chart

ProjectManager is a cloud-based construction project management software that organizes teams, tasks and projects to help you bring them in on time and within budget. Our multiple project views allow you to work how you want when planning, monitoring or reporting on your project. See how it can manage your budget by taking this free 30-day trial today.

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