Estimating: The professional way
A qualified, experienced estimator can help an electrical contractor to stay in business and make a profit. You can quote Brian Seymour on that.
Registered electrical contractors often ask about the value of an estimator.
They are usually thinking of employing their first full-time person in that role.
Up to this point the owner/manager or the supervisor has performed the estimating tasks, but if the business is to expand then it requires someone dedicated to the task.
The old ‘price per point’ or ‘price per square metre’ has no place in tendering a serious bid for a project.
Businesses considering a full-time estimator need to be aware of the qualities estimators need and what they are expected to do. This is central to achieving quality service at a reasonable price.
As one of this country’s leading electrical contractors has said: “Why would you be concerned about paying top dollar for a competent estimator … an inexperienced cowboy could cost you your business.”
Estimating personnel should be selected for their practical background and personal qualities.
The estimator needs to be a self-starter with good planning skills and able to make assessments regarding budgets and workforce capacity.
People with trade backgrounds in project management and speciality supervision are often suited to become competent estimators. They must be able to confer with suppliers, architects, developers, builders and sub-contractors.
Duties and responsibilities
Many contractor personnel think estimators are purely ‘count and measure’ clerks.
However, the duties and responsibilities of estimators are many and varied, and it is their task to ensure that all material and associated labour is included in the final price.
Further tasks include:
- sourcing suitable tender documents;
- assessing client needs;
- taking off (count and measure) total materials, labour and special services;
- obtaining the most economical prices for materials and equipment from suppliers;
- applying the company’s labour units to the installation;
- gathering quotes from sub-contractors;
- assessing risk levels;
- ascertaining expected profit margins;
- accounting for preliminaries such as site facilities, transport, site storage, equipment hire, walking time, site allowances, accommodation, etc;
- ensuring the workforce has the capacity to complete the project within the time frame;
- preparing and submitting the final tender;
- following up tender results;
- completing a post-tender analysis for research; and
- if successful, monitoring the stages progressively to ensure the project stays in line with the estimate.
Of the above, the take-off is the easiest part of the job (although it is the most time consuming). Any competent tradie should be able to accomplish it.
Materials pricing is reasonably straightforward when using reliable suppliers. Calling quotations for light fittings, sub-contracting and special equipment is fairly routine.
The labour aspect is the most difficult to predict due to the many factors that can affect the installation. These include:
- type of building
- site access
- lifting facilities, material handling
- building schedule
- completeness of documentation
- distance from site shed (or truck) to the workface
- height, depth, confined space, heat, cold
- stacked trades.
A labour unit manual is an invaluable tool for assessing labour in a variety of situations.
The manual’s data indicates the average time (in staff/hours) it takes for the average worker to install a unit of material under average conditions.
The first distinction an estimator must realise is that a labour unit is not absolute: it is a benchmark, a starting point.
There are basically two ways of determining expected labour hours and related costs: personal work experience or an industry researched labour unit manual.
The labour unit, whether from a manual or calculated by the estimator, is a cost/data figure, indicating the cost (in hours) for installing a given item of material or performing a given labour operation.
Experience is the greatest resource in understanding the conditions that affect labour cost. Regardless of the size or scope of the installation or service, a successful tender depends on the estimator’s knowledge of the company’s cost factors gathered from its history.
The estimating department
Whether the department consists of one person or several, it needs to be organised and take into consideration the company’s range of work.
Does it operate in a specialised sector or is it diversified? The more specialised the work, the more that current and previous cost experience will apply. This increases the prospect of accurately estimating new business.
As the estimating department increases in size, specialists develop in various functions to handle sections of the estimate.
There is no hard and fast rule for setting up the estimating department – it’s a case of horses for courses, and some people are just better at some functions.
A senior estimator who can recognise various skills will have an efficient estimating team.
However, establishing standard procedures to guide the whole team will save time and money through even greater efficiency, and the senior estimator will spend less time overseeing the day-to-day running of the department.
Having conducted contractor training programs for more than 20 years, I am still amazed by trainees who don’t understand the cost of electrical contracting.
It’s no surprise that 55% of new contracting businesses fail within the first 18 months..
Many new contractors, when determining their charge-out rate, believe that 20% above their wages when working for a boss will see them right.
It comes as a shock to learn about the ‘loaded on-site rate’, which is generally 62% above their pay slip figure.
The loaded rate includes the often hidden costs paid by a company on behalf its workers, such as travel time, fares, superannuation, annual leave loading, long service leave, payroll tax and workers’ compensation.
This loaded rate pays only the cost of putting someone on site. There are also business overheads, including motor vehicles, telephone, insurance, advertising, stationery, computers, depreciation and fees – just to name the basics.
Then there has to be a profit margin if the contractors want to stay in business.
The new contractor calculating a charge-out rate may need professional help to assess the cost of overheads and determine a profit margin to arrive at a realistic figure.
The calculation needs a formula similar to this:
Expected wage + 62% (loaded wage add-ons) + overhead + profit = charge-out rate
However this rate is based on 1,621 chargeable hours per annum (38-hour week less holidays, etc). It is not much of a problem to work that number of hours per year, but the charge-out rate needs to be calculated on what is achievable.
For instance, if the new contractor can achieve only 1200 chargeable hours, then the rate needs to be increased by 35% to maintain the expected return.
The education of estimators never ends – they must school themselves to meet new problems and explore new methods.
Whether the business specialises in industrial, commercial or residential projects, new materials, equipment and methods emerge as technology improves and customer requirements change.
New contractors are able to draw on a multitude of accountants, lawyers and bookkeepers to assist in unfamiliar areas of the business, but there will be a distinct lack of assistance from such professionals when it comes to estimating.
It is therefore advisable to enrol in an estimating course.
The estimator is constantly investigating opportunities to offer alternatives and so increase the chances of winning a tender. This comes with experience and, as some unknown sage said, experience is a wonderful teacher.