How to Estimate a Construction Project

Budget overruns in construction are practically a guarantee these days. Construction projects are complex operations, and people have a tendency to be overly optimistic about their success. Add to that the fact that clients love making changes on the fly, and it's easy to understand why keeping a project on budget is next to impossible in this industry.

But it doesn’t have to be that way. It is possible to keep your costs under control, and therefore protect your profit margins.

When you’re talking about cost control in construction, you’re talking about getting an estimate done right at the start -- not managing finances midway through, which is a recipe for disaster. By becoming an excellent construction cost estimator, you will avoid those budget overruns that cost your business.

Construction estimates also make construction project management easier, because you can be confident that the tasks you are executing have been laid out in the budget and will get the project closer to completion without jeopardizing the bottom line. Here’s what you need to know about estimates, and how to do one correctly for your next project.

Overview: What is a construction estimate?

A construction estimate is a document that lays out, in detail, all of the costs involved in a construction project. A good construction cost estimate will provide both the construction manager and the client with an idea of the cost of the project so there are no surprises when the project is completed. As a result, this is one of the most important parts of the construction project, because a badly-done estimate will result in budget overruns and possibly even delays, leading to evaporating profits and unhappy clients. Therefore, construction managers should devote significant time and energy at the outset of the project to properly flesh out all of the costs associated with a project.

4 construction elements to factor into your estimating

When it comes time to create your construction estimate, generally all costs fall into four main categories.

1. Materials

Every construction project requires materials, so compile a detailed list of every type of material associated with each phase of the project, as well as the quantity of the materials needed and the expected price of those materials at the time you purchase them. The last item, the price, is the most difficult to predict due to fluctuations in cost that are outside your control. To be safe, budget for higher-than-normal prices to ensure an accurate quote.

2. Labor

Labor will eat up a large chunk of your budget, so any mistake in this category will cause a major miscalculation in terms of the overall cost. Provide a detailed breakdown of the man-hours expected for each phase of the project, and include some wiggle room in the construction workflow in case overtime or extra emergency workers are necessary due to change orders or unforeseen challenges. Don't forget to factor in subcontractors as well.

3. Equipment

Equipment may take up a significant portion of your budget, or it may be relatively minor. If you already own all the equipment you need and just need to carve out some space in the budget for fuel and maintenance costs, your expenses in this category will be relatively minor. But jobs that require renting or buying new equipment will result in significant expenditures, and that should be noted in the final project cost. You should also include costs for wear and tear -- even though it may not cost you money out of pocket in this project, by including it in the estimate for construction, you will set aside money for the purchase of new equipment down the road.

4. Overhead

A construction project will feature lots of miscellaneous overhead costs, from your own salary as a construction manager to temporary on-site facilities to permitting and fees. It's sometimes tough to remember all of these items, so consult with past projects to see where you spent your money, and discuss this category with your crew so they can identify other expenses you may have forgotten.

How to create a successful construction estimate

Once you have all of this information, you’re ready to build your construction estimate. This is a relatively simple process involving five basic steps.

1. Create a timeline

Using the project scope to determine what needs to get done and when, draw up a construction schedule or construction timeline that breaks down the project into multiple bite-sized phases.

2. Perform a quantity takeoff

List all of the materials costs for each phase, and then provide a total estimate. The estimate should identify all materials needed for the project, as well as the expected prices.

3. Estimate labor

Compile all labor hours for each phase as well as the labor rates, taking into account possible overtime as well as subcontractor quotes. Add all of these together from all of the phases to get a final project labor estimate.

4. Use a template

Add up these estimates from each of the phases and plug it into a construction estimate template. You can find many construction estimating templates online -- choose one that fits your business.

5. Add equipment and overhead for the final estimate

Add estimated total equipment and overhead costs for the project by factoring in fuel, maintenance, facilities, and other miscellaneous costs, and combine that with the labor and materials costs to get your final estimate.

4 tips and tricks for creating a construction estimate

The process sounds simple, but is it? Not exactly. Even the most seasoned professionals struggle with construction estimates. Here are four tips and tricks that will help you get it right the first time.

1. Give yourself wiggle room

Avoid being overly optimistic when you create an estimate -- pessimism is your friend here. While a client may balk at a higher price tag for the project, it will be worth it in the end when you don't have to frustrate your client by telling them you've gone over budget. Even better, you may come in under budget and really be in your client's good graces. This alone may ensure future work with this client, and at the very least leads to a good reputation for your firm.

2. Talk it over with your team

Big decisions like this should not be made in a vacuum. Involve everyone on your team in the estimating process, because they're likely to spot at least a few expenses you've forgotten. When estimating, you want to get every last expense included to prevent unwelcome surprises at the end of the project -- or, worse, right in the middle of it.

3. Consult past projects

Do you wonder if your budget is truly comprehensive? A good way to know for sure is to take a look at the final expense lists for past projects. These are records of what you actually spent money on as well as how much you ended up paying. This will help you come up with estimates that better reflect reality rather than what you hope you can accomplish.

4. Consider hiring a professional

If you just can't get your estimates right, it may be time to hire a professional to take a look at your estimates and spot problems. Consultants are expensive, but if they can get your estimates right, they'll save you an enormous amount money in the long run.

Try out new software for your next estimate

Construction management software typically has construction estimating tools that will make it easier to come up with accurate estimates -- and you can even find construction estimating software specifically devoted to this task. These tools will guide you through the construction planning and scheduling process and generally make it easier, which will encourage you to spend more time with an estimate rather than rushing through it because it’s an unpleasant task you just want to get done. Software also often includes construction management and analytics tools, so you can use data to come up with insights, and budgeting tools will keep an accurate record of past project expenses that will inform future estimates.