Whenever you hear frustration with a project exceeding the budget, inevitably a bad estimate is always given as one of the primary reasons. The next rationalization typically made is that good estimating teams are hard to find. As a construction professional with over 30 years of experience from both the contractor and owner representation sides of the industry, I do not subscribe to either of these theories. I have been fortunate to work with some exceptional estimators throughout my career; and unfortunately, have also been brought in to assess many budget challenged projects.
So why do bad estimates happen to good people with the best of intentions? Communication! Communication has everything to do with the success of a project and it starts with the estimate. Misinterpretation of the estimate is the single largest error I have encountered when coming in to assist and/or evaluate budget challenged projects. This is not saying it is the only error, but a very common error that is encountered more than most realize.
Exactly what does “Communication of the Estimate” mean? It begins with an Estimate Format that is easy to read for the end users. The format should be developed so that the appropriate parties requiring the estimate information have access to required information in an easy to read format broken down or allocated to meet their needs.
A key component to accompany the estimate is the “Basis of Estimate” that clearly details the information contained in the estimate. At a minimum, the “Basis of Estimate” should include:
- Scope Summary
- Assumptions, Clarifications, Inclusions, and Exclusions
- Allowances (and a description of exactly what is included in the allowance)
- Schedule or time frame that the estimate is based upon
- Document Log of information provided for the estimate
Visuals and/or descriptions to show the level of quality or the basis of cost also provide great value in communicating the basis of the estimate. Incorporating tangible metrics to show what has been anticipated (i.e. Assume 5#/sf of misc. metals or 60% of exterior skin is curtain wall) in the estimate ensures that all project stakeholders have an understanding of what has been included.
A well-formatted estimate and a thorough “Basis of Estimate” is a good start to the communication process. Unfortunately, not everyone requiring the information to make well-informed financial decisions will understand the estimate.
The most challenging part of “Communication of the Estimate” is ensuring that everyone utilizing the information is fully aware of the information you have presented. This requires the team to present the information in a clear, concise manner that the audience can readily understand. Construction Teams, Designers, Owner Representatives, and Financiers all have a different lingo and level of understanding as well as serving different needs with the information provided by an estimate. Our industry and estimating challenge is ensuring everyone understands what the numbers represent.
An example of a potential misunderstanding that is frequently encountered involves allowances. When the estimating team is told to include an allowance, there is the potential for misinterpretation of what that value is to include.
A small-scale example is when the documentation states to include a $1000 allowance for light fixture “A”. How can this value be interpreted?
- Include $1000 each to furnish and install (tax included) light fixture “A”
- Include $1000 each (not including install, tax or delivery) for a material cost for light fixture “A”
- Include $1000 total for light fixture “A” (not each)
There are countless interpretations for this simple allowance. This example is from a project’s 100% Construction Documents that when project was ready to bid had not determined what they wanted for Fixture A. Think about the assumptions that can be easily misinterpreted at schematic design, program, etc. The percentage of exterior skin components could easily be misinterpreted. These are items which need to be clearly communicated, assessed and finalized so that all project stakeholders understand the overall estimate and make well-informed decisions.
The only way to avoid misinterpretations is to make sure all parties are clear with what is included and not included in the estimate. This requires not only clear documentation but clear, transparent and honest communication. Too often there are misinterpretations that are not corrected for fear the messenger will be shot. As project leaders, everyone needs to ensure decisions made on our projects are based on well-informed accurate information. We cannot kick the can or put our head in the sand when the cost estimate does not meet the financial goals desired.
In summary, “Communication” is key in every successful construction project, and this is especially true when discussing the project budget and estimate. For a Cost Estimate, as project leaders we must ensure all stakeholders utilizing our estimates are clear in what the estimate is stating, what it is based on, what is included, and what is not included. Misinterpretation is often the case when you hear the frustration “We had a bad estimate!”