Four Common Cost-Estimation Errors that put Your Construction Business at Risk
In construction projects, often, the profitability is not determined until after the project is completed. Furthermore, profitability at the time of completion could differ significantly from what was anticipated at the time of the bid. The ideal situation is for a construction company is to be able to estimate accurately and to forecast profitability before the project starts. Otherwise, you are not only wasting money on work, but you’re also putting the business at risk.
To help you handle this process more effectively, here are four of the most common cost-estimating errors that put your business at risk, along with what to do about them:
- Transparency deficiency: The calculation should provide a high-level summary of the project, the most granular information and related costs for each line item. This way, the black-box method is eliminated, and everyone, regardless of skill level, can quickly grasp the cost-determination process. Transparency also promotes cooperation and best-practice sharing throughout the company.
- Adjustments made at the last minute: Changes made at the last minute may cause cost and estimation errors such as missing line items or formula miscalculation due to cutting and pasting. These simple mistakes have the potential to turn a successful project into a loss. Of these errors, many, if not all, can be avoided by using reliable cost estimation systems with built-in formulas.
- Underestimating the costs of subcontractors: Relying on obsolete information in respect to service, and material cost to estimate a construction project may have a significant effect on the project cost. Material costs and subcontractor services should typically be updated regularly. Having a framework that can automatically generate a request for proposals for materials and services can help mitigate these estimation challenges.
- Lack of risk estimation that is repeated: Analyze what went wrong on previous projects to assess risks and reduce confusion.
According to national industry studies, businesses can improve project execution by using software solutions and modern construction techniques. Technological advancement has reduced costs and mistakes in the industry by relying heavily on efficient scheduling, planning, and innovation.
However, the industry faces numerous challenges due to its reliance on multiple tools and frameworks that operate in a silo. The average number of toolsets used in the construction industry is eight. This includes but is not limited to:
- Excel Sheets
- Estimation Software
- Project Management Tool
- Timesheet tool
- Accounting tool
- Communication Tool
- Scheduling tools such as MS Project or Wrike
- Local Hard Drive to store documents such as estimation sheet, transmittals, and RFIs
It’s extremely difficult to find a solution that works and fits all your needs during the construction life cycle. We’ve all been in that position before. As a result, AlphaBOLD implemented the BUILDFitters framework specifically for the construction industry to eliminate the industry’s challenges and centralize all business operations with one tool.
The BUILDFitters platform was developed to assist in resolving issues related to the estimation and bidding process by offering the following features:
- Display a high-level overview of project costs for each cost class and the detailed cost for each cost code.
- The system enables companies to clone an existing estimation to track any improvements and changes made to the original estimate and monitor estimation revisions and accurate calculation of estimation line items.
- The system facilitates a prequalification tool to help in selecting and shortlisting the most appropriate vendors for the job. Based on the services required and materials needed for the project, the system automatically generates and sends a request for proposal to the selected proposed vendors.
- From Lead to Opportunity and Estimation to Bidding, Preconstruction, Contract, and Project Execution, the BUILDFitters framework stores details relevant to each stage and step of the construction life cycle. This data can be used in PowerBI reports to explain project success better and assess the lessons learned in each project based on the data provided.
- BUILDFitters is a one-stop-shop platform that enables you to automate and control business processes, store project documents, generate templates, connect with your team, track project budget, and obtain real data on timesheet and material used vs. estimated vs. On-hand and on-order, and effectively manage your project.
Conclusively, this post investigated the four most common cost-estimation errors that put businesses in the AEC space at risk. It also discussed how AlphaBOLD’s BUILDFitters solution can help overcome these cost-estimation errors and risks while helping you manage your projects better. If you would like to know more about our amazing solution, feel free to reach out to us!