Estimating in Construction – Part IV (Concepts, Tenets, and Principles)
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
Well developed, accurate and timely estimates are the best tool ensuring profitability in the construction industry. No other internal control mechanism is as valuable to the contractor as the estimate. Good estimating systems in construction provide the management team with the necessary confidence to make long-term decisions benefiting all parties involved with the company. Customers receive a higher quality structure with less warranty requirements, employees get a sense of security with their tenure, and vendors/subcontractors acquire desirable relationships with their contractor assuring delivery of best practices for their respective trades. Simply put, good estimates deliver profits to the contractor.
The idea behind estimating is to provide as accurate as possible a hard cost of construction dollar value for a project. This is the primary concept behind estimating. But estimating does much more than provide an accurate cost value, it also provides a basis to evaluate construction performance and market changes. These concepts are explained in the first section below. Even with these core concepts, there are certain universally accepted rules that can’t be broken; referred to as tenets. Estimating has certain tenets that must be followed or the outcomes will cause repercussions for the contractor; specifically financial failure. With knowledge of the concepts and tenets, contractors incorporate certain principles to improve the accuracy of the estimates. Often these principles are industry driven and not universal as tenets are with estimating. The end result is a reliable and trustworthy set of values resulting in a standard to compare operational and financial performance against once the project is completed.
This lesson covers concepts, tenets and principles of