Put 100 general contractors in a room and ask how many have had to produce feasibility budgets in the absence of detailed plans, and at least 98 percent of the hands go up. Because project owners never forget initial numbers from conceptual or feasibility estimates, accuracy is key.
Here’s the challenge: Early-phase estimates are considered some of the most complex and risky aspects of the estimating process—and creating them is part art, part science. Further, there’s a tremendous investment in time and resources required because estimators are essentially asked to recreate the wheel for each new project estimate.
Making matters worse, it’s not uncommon for contractors of all sizes to have rooms full of filing cabinets of past estimates, project budgets and actual project costs, collecting cobwebs because they’re difficult to access and repurpose in a timely and efficient way.
Thankfully, attitudes around project estimating are shifting as leading general contractors look for ways to produce accurate, early-phase cost models and detailed estimates to reduce risk and improve profitability. General contractors are taking steps to improve their cost estimating process by leveraging their most valuable intellectual property: historical data. By leveraging cost histories, estimating teams can zero in on accurate estimates, gain confidence and demonstrate expertise with owners, as well as capitalize on future opportunities.
A key to leveraging historical cost data effectively is a closed-loop estimation process. Closed-loop estimating gives estimators the opportunity to see how their estimate stacked up to the project’s actual costs, allowing for not only systemic improvement in the speed and accuracy of the estimate at every stage of the project, but also for a solid foundation for continual improvement, preservation and strategic use of estimating expertise within the organization.
Here’s what it looks like: A feasibility budget is developed that is based on actual costs from past projects with similar attributes. This conceptual estimate contains the target budgets that can be referenced at every phase of the estimating process. The completed detailed estimate then becomes the basis for the budgets that are going to be used to manage the project in the construction phase.
When the project is complete, the actual costs feed the historical cost database, so that those actuals can be used to develop a feasibility budget for a future opportunity. This continuous feedback loop improves the estimating process by removing the traditional barriers that prevent estimators from taking advantage of lessons learned in the field.
It’s not as overwhelming as it sounds. Consider the following strategies for implementing a closed-loop estimating system.
Clean Up the Coding/Naming Structure
A standardized cost coding structure around how project costs are categorized will result in alignment from one project to the next. And, by storing all information with the same codes (e.g., plumbing, HVAC, electrical, earthworks, exterior improvements, utilities, etc.), data can be analyzed and compared to formulate more accurate estimates on future projects.
If past project costs lack consistency from one job to the next, start by cleaning up five to 10 projects from each market segment. By ensuring consistency in cost coding and naming going forward, the estimating team will have a solid foundation for the historical record and, over time, the data will continue to improve.
Attach Specific Attributes to Projects
In addition to creating standardized cost codes, it’s important to assign a certain number of attributes to each building type. This will help the database of past projects become instantly searchable. These project attributes are the key to quickly locating projects that are similar in scope to the opportunity that is currently at hand. This will help estimators find the right mix of projects for the development of a new conceptual estimate.
Let Technology Do the Work
The value of cost history analytics speaks for itself. These vital records are the foundation of timely, accurate conceptual or feasibility estimates for current and future projects. Cost history data—one of the best tools for contractors and estimators—should never be left to gather dust in a filing cabinet.
Powerful, integrated cost planning and estimating applications available today enable closed-loop estimating. Contractors should look for a cost history analytics solution that supports the archiving of project estimates, plus as-built costs on projects.
Make sure the solution allows the pricing stored for past projects to be normalized for inflation and regional price differences. This apples-to apples project cost comparison is invaluable.
Look Beyond the Estimate to Potential Risks and Cost Impacts
With a closed-loop estimating process, general contractors can respond with accurate feasibility budgets based on credible facts, which builds confidence in the relationship with the project owner from the get-go. Project owners are going to be much more comfortable with a conceptual estimate based on real historical records, compared to a number provided by a competitor.
Alan Watt, director of preconstruction technology for DPR Construction, recalls a recent example where a historical cost analysis software played an important role in winning the work for site development on a large data center project.
“Using historical cost analysis software gave us an advantage early in the planning process by changing the focus of the conversation with the owner away from simply driving to line items of an estimate and instead allows us to provide more valuable feedback on the challenges and opportunities for cost impacts on their project,” Watt says. “Through the closed-loop estimating process, we’re leveraging the combined knowledge, skills and talent of the entire DPR team—past, present and future—by providing a platform that builds efficiencies into our practices and makes better use of our proprietary knowledge and collective intelligence to deliver better services to our customers.”
Contractors that take two weeks to create a feasibility budget because the estimating team can’t access valuable historical data, or that don’t learn from closed-loop processes, will find it hard to compete.
On the other hand, general contractors that extend estimating best practices through training and historical cost analysis are equipped to thrive—sharpening their competitive edge, winning more business and delivering high-quality projects that keep their customers coming back.
