Why Small-Firm Architects Should Master Cost Estimating
It is easily achievable and it enhances your reputation
An Example
I once had the chance to work for a county government. They had no money. Every nickel of tax income was allocated. However, the head commissioner was a genius at finding money. Sometimes it was a grant. Sometimes is was a ‘rainy day fund’ that came to light. He made it very clear to me with every new project that it was not acceptable to go over budget because there simply wasn’t any more money.
If I wasn’t up to the task of managing the project budget, it would have been a ‘one and done’ situation. As it was, we did a project a year for the head commissioner while he was in office.
How did I develop the estimating skill to always keep the head commissioner out of trouble (and myself)? Easy, and you can do it, too.
You are about to find out everything you need to know to be a skillful construction cost estimator.
Being over budget is easy to avoid
Size, breakdown, research, bracketing, contingency are the five issues that every cost estimate depends on. You can master these five issues in the time it takes you to read the linked article. There is a little bit more to it than that, but we are talking about a very short learning curve to get to top notch status. But why should you?
MONEY IS ALWAYS CRITICAL
No matter how much money your client has, they will not like the nasty surprise of having to spend more than you said it would cost.
If you are wildly off, and it is almost a law of nature that you will be over budget, then the project may be cancelled. Will you get paid?
Maybe cancelling isn’t possible. The project fills a real need. Redesign is called for. Will you get paid?
Even if you are working for someone who truly has unlimited resources, they would rather say that you are a genius when it comes to cost estimating rather than admit that they hired an idiot who missed the mark. Your performance reflects on them.
BEING OVER BUDGET IS EMBARRASSING
It is awkward for you.
How will your client take the news?
At the very least your relationship with your client is strained.
It is awkward for them.
How will their boss/board/banker take the news?
At the very least if creates some extra work/meetings/calculations - because of you.
ESTIMATING IS SIMPLE - HERE’S THE KEY
Are you ready to hear the secret to cost estimating? …lots of line items.
That’s it.
Lot’s of line items.
The more line items you have, the more accurate your estimate will be. This rule of thumb predicts that the worst way to estimate costs is Cost Per Square Foot For Your Building Type. One line item. I estimate that your chance of being within 10% is … 10%.
Being accurate is not the whole secret, but it is the important bit. The other issues that will make your accuracy stand out are Contingency, Comprehensiveness, and Expectations.
Always Use A Contingency
No matter how many line items you have, weird stuff can happen. Your defense is to include a contingency for these unknowns and weirdness. There are two approaches that I have used. Make the contingency a line item so it is obvious. At least half your clients will immediately subtract it from the bottom line.
My preferred method is to make it a line item that shows the percentage contingency that is included. Then each line item is increased by this percentage. Your spreadsheet is a bit more complicated, but the contingency is not such an easy target for those clients that like to make things political.
The size of the contingency matters. I use up to 25% when the estimate is based on no drawings. By the time you get finished with construction documents, you might be down to 5% or less.
Be Comprehensive
My experience is that most clients are novices at design and construction and have no idea what is involved. This is your opportunity to demonstrate your expertise by being comprehensive in your cost estimating by including everything - construction costs, design costs, and project costs. This link will explain how to be comprehensive in more detail.
Set Expectations
A major component of cost estimating is setting expectations. Even the experienced client can benefit from clearly set expectations. For various reasons your client may resist having every single cost delineated on a spreadsheet. This resistance without a reasonable explanation may be a warning sign that the finances that everything depends upon may not be up to the challenge. Being too pollyannish can hurt someone. You when the project is cancelled or scaled back. The client can get hurt too by spending money on a lost cause.
When you do an accurate estimate, you are creating a view into a future reality. If the cost is too high, the proper response is to reduce the scope of the project. I like to resolve this as early as possible, say Pre-Design.
Mastering Cost Estimating
There is no magic involved, just follow my path. Avoid embarrassment. Bask in the glow of the professional’s expertise. Remember. Use lots of line items. Use a contingency. Be comprehensive. Set Expectations.
Architects are often portrayed as irresponsible when it comes to cost; developing a process for estimating construction cost sets you apart from the crowd. Since it is easy, in no time at all you will be an expert at estimating construction costs.
On your next estimate, start building your reputation for knowing how to manage costs.