Estimating

E537: Buying A Job To Win A Client

Dropping prices to win over a new client can be a good strategy.

 

  1. Buying a job is a common strategy
    1. We target a client and give them a low price in order to start a relationship
    2. We get in with them in hopes of future work at our normal pricing
    3. Does it really work?
  2. My successes and failures
    1. A developer – we did a job at their typical pricing in hopes of showing them they should pay us more – it worked
    2. An industrial plant – took a low price job in order to get in and later found that everything was based on lowest price regardless of value provided
    3. A city – took a project to get in and put the wrong team in place, didn’t provide value – never got shortlisted again
  3. This strategy can work but takes some careful research and understanding
    1. Know the customer – are they right for you?
    2. Know the projects – does value matter over price?
    3. Make sure you have value to add – if not they will never pay more for your services on the next project
      1. This is the key part – you must be bale to prove the values you offer in order to get the pricing you want in the future

E522: Estimating The Contract

Review your contracts carefully during the estimating process.

 

  1. Contracts are the basis of all projects
    1. Contracts = risks / deliverables = cost
    2. Contracts can be simple or complex
    3. Review the clauses and account for them in your estimates
  2. Risks & deliverables cost money
    1. Depending on the risk / deliverable the value will fluctuate
      1. You can break them into Actual and Potential
    2. Actual: reporting, scheduling, manpower, supervision, security, etc.
    3. Potential: Acceleration, change order mark-ups, delays, hold harmless, etc.
    4. Account for them in the estimate
  3. Review and add to your estimate
    1. Treat like a contingency – have adds/deducts
    2. Review each clause to determine what time / effort is required
    3. What are the possibilities on the project

E512: Estimating Contingencies

Build a solid safety net into your estimates with contingencies.

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  1. Contingency = money added to an estimate to cover a potential risk
    1. We often see allowances in contracts – contingencies are a little different
      1. They cover potential risks that may or may not occur like unsuitable materials
    2. I put them in all my estimates
    3. It’s a great way to create solid estimating data and cover potential risks
  2. Make them part of your sound estimating practices
    1. How do you cover the potential risks encountered when working in a new area?
      1. I used to adjust my actual estimate – maybe add some time to the crew to cover potential costs
      2. That doesn’t produce a good solid estimate or good historical data
    2. Price each job properly based on the project itself and not the incidental risks
    3. Cover the incidental risks using contingencies
  3. Make them a standard item in your estimates
    1. Price your projects as you should
    2. Add your standard markups
    3. Add contingencies – there are many things that you might add them for like:
      1. Travel / New Owner / Hard Owner / A/E Team / Weather / Location / Inspectors / etc.

E497: Managing Estimating Documents

Protect your estimate with good document tracking.

 

  1. During the estimating process we often have changes and alternates – make sure you keep track
    1. It’s important to know what was priced in the estimate
    2. Track all changes and alternates
    3. Come to a starting point for construction
  2. Track and update documents throughout estimating
    1. Create a log of all bid documents
    2. Update the log and the drawings with all changes and alternates
    3. Make sure you distribute any changes to all subcontractors / suppliers
  3. Do a final review and reconciliation
    1. Before signing the contract review and reconcile the log
    2. Be sure to reference your log in the contract
    3. Create a “construction” set of drawings that matches your estimate

E472: Material Pricing Strategies

Create a strategy for material pricing during the estimating process.

 

  1. How do you handle material pricing for estimates?
    1. Use historical numbers from your database?
    2. Get pricing from suppliers? Some items? All items?
    3. Do you work with select suppliers or the market?
  2. Establish best practices for your organization
    1. Determine the strategy that works for you
    2. You should always price major supplies
    3. Check the market to stay competitive
    4. Let suppliers know what you expect and get the right pricing
  3. Consider negotiating some strategic relationships
    1. This can be beneficial depending on the quantities you buy
    2. Select some key suppliers and negotiate some annual programs
    3. Keep tabs on the industry to keep you relationship in check

E462: Good Project Planning Starts In Estimating

A solid project planning process starts with the estimating team.

 

  1. Start developing project plans during the estimating process
    1. Estimating plans the entire project while developing the pricing
    2. They already determine key aspects like manpower, resources, productivity – start writing it down
    3. If they don’t develop a plan they can miss something
  2. Get operations involved as well
    1. When estimating a project get input from the operations side
    2. They should review the estimating project plan
    3. Any input helps build a better estimate
  3. Create the project plan in stages
    1. I realize that this requires some effort but it creates better estimates – bid less and bid better
    2. To conserve efforts, develop the plan in 2 stages
      1. First stage is a high-level overview creating during estimating
      2. Second stage is after you win the job – a more detailed plan
    3. The estimating team should start the formal project plan and turn over to operations
      1. Have a debriefing meeting to discuss the plan

E447: Know When To Adjust Your Margins

Use your key metrics for making proper adjustments to your margins.

Had some technical difficulties uploading the Coachcast. You can listen here.

 

This week I will be talking about the key metrics discussed in Monday’s Coachcast and how we use them in different aspects of our business. Today we are talking about how to use those metrics in our sales, marketing and estimating efforts.

 

  1. 3 key metrics relate to the sales, marketing and estimating efforts
    1. Projected billings – we need to know how much we want to bill to know how much work we need
    2. Backlog – we need to know how much work we have to know how to adjust the bidding
    3. Sales cycle – knowing how long lets us plan the bidding process and adjust the margins
  2. Don’t stop the efforts
    1. Too many people stop selling when they have enough work – don’t stop, just adjust
    2. Keep the sales process live at all times, just be more selective
    3. We want to keep bidding projects, just make adjustments to cover any added burden
  3. Make adjustments based on your key metrics
    1. Adjust your profit margins, add loan costs, include overtime if necessary
      1. Make sure you cover the added cost of overtime on other projects too
    2. Knowing the metrics will allow you to know when you can be more selective
    3. You may win more work but at higher margins that cover the added cost
    4. The reverse is also true – these metrics will let you know when it’s time to get competitive

E432: Establish A Solid Estimating Process

The estimating process can make or break our business so be sure to start with sound practices.

 

  1. There are many ways to estimate and the right one is the one that works for you
    1. Estimating ranges from Wild Ass Guesses to counting screws
    2. Companies use unit pricing, crew based estimates, and other ways
    3. All come down to determining the cost of work plus overhead and profit
  2. We want to establish systems to generate good estimates – what is a good estimate
    1. One that wins the job
    2. Identifies the costs with reasonable certainty
    3. Doesn’t take too long to complete
    4. Follows a repeatable system
  3. Setting up a good system takes
    1. Historical data and good job costing for comparison
    2. A method for determining costs that works for your company
    3. An outlined process on how to handle the estimating
      1. Take-offs – how detailed, what to take-off, etc.
      2. Sub-bids and vendor quotes
      3. Contract review and overhead
    4. A review process once complete