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Watch People in Other Industries React Hilariously to Being Asked for Free Spec Work | Adweek

Whether to Charge for Estimates is often a touchy subject amongst contractors and while I am firmly in the “It Depends” camp for reasoning discussed elsewhere I think here is a lot of evidence for the charge case.

Watch People in Other Industries React Hilariously to Being Asked for Free Spec Work

People in other industries don’t provide their would-be clients with “spec work” for free. That would be asinine. So, why do advertising agencies continue to do it? It’s not a new question. (This Adweek story from August was just the latest assessment of a practice that goes back decades.)

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Want Higher Profit Margins? Check Your Schedule | Builder Magazine

Lots of good stuff in here, especially the integration of purchasing and estimating via a purchase order system (which I will add also helps make the estimating system self-maintaining).

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Why Square Foot Pricing is a Flawed Pricing Model

New Jersey based remodeler, Neil Parsons, of Design Build Pros  is a remodeler who I think has done a good job of figuring out how to really talk to homeowners in an engaging way . And it looks to me like he does a good job of using social media tools like FaceBook, Twitter LinkedIn, Pinterest,  Google+, YouTube and Houzz too.  He’s written a good blog post for his remodeling company’s website site explaining to homeowners and prospective clients why Square Foot Pricing is a flawed pricing model.

Square Foot Pricing for Home Remodeling | Design Build Pros

I just wish a lot more contractors understood this too (see my article The Hidden Dangers of Square Foot Estimating)

 

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More About QuickEye, The Plan Take Off Tool for “The Rest of Us”

My friends over at QuickEye, the new Plan Take-off tool for the Macintosh (and yes it works on Windows too but we’re all Mac Users here right?), have put together a bunch of videos to better aquaint building and remodeling company owners and/or lead estimators who are invested in the bottom line performance of the company with the features and advantages of their toolset.

As the owner of a construction company:
What’s your biggest concern?

Printing Costs
QuickEye

Now that as MacUsers we finally have Plan Take-off tool I’d be really interested in hearing what you all think.

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QuickEye: A Plan Take Off Tool for “The Rest of Us”

Up until now Mac Users who wanted a take-off tool to work with drawings from plan rooms or work with drawing that came from anywhere for that matter found themselves left out in the cold and they had to devote a machine (virtual or otherwise) to run the Windows OS with one of Windows based Take Off tools.

Well now there’s QuickEye and while it does bring a rich set of take-off features to the Mac platform its’ also for Windows users too.

QuickEye

They say on thier website:

"With only one to three hours invested in learning and setup, you will gain one to two hours each day in productivity."

It took me a lot less than that. They have a regulary updated schedule of Go To Meeting based taining classes that you can just call them about and speak to one of the trainers .

If you’re ready to go and want to get started right away visit their Account Setup & Purchase License page to get yourself started.

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More On Using Canned Data

I’ve also written a little bit about the problem with canned estimating data before (On Using “Canned” Estimating Data) but while working with some contractor clients these past few weeks on both developing their own customized data and importing some data from some of the data books that are out there I picked up on some other intrinsic problems with pricing manuals and data books that I haven’t heard anyone really call attention to before.

Case One:

In considering the cost of installing field tile I noticed that for installing the exact same size 4-1/4” x 4-1/4” field tile that two different books from two different publishers one had a Labor Hour figure for that same task that was 41% higher than the other.

So which one is right?

To tell you the truth,…they both are. It really all depends upon how the estimator interprets the data and which one most accurately depicts the way your company performs the task described.

As I written here before:

A contractor estimator needs to look at the “canned” book figures for labor hours as starting benchmarks, they are not absolutes. The labor hour units are standard as to “generally speaking” but individual as to interpretation. They are based on valid statistical samples that those publishers have researched but we don’t know the exact criteria they had in mind so they are subject to interpretation, in fact your interpretation. Use those data book labor figures with your own interpretation of their meaning. If it “sounds right” then go ahead and use it and monitor the results to see how accurate your judgment and interpretation actually turned out to be.

Also in talking with my client(s) about those figures for laying tile it was my considered opinion that laying tile that makes up an edge where you have to cut the tile is perhaps twice as labor intensive as the general field so to really develop a good pricing system for tiling you need a SF Labor Hour figure for the main body tile and a LF Labor Hour figure for the edges.

While I think any tile installer will tell you it is more expensive to lay tile on the diagonal than in a square grid pattern it is really only the perimeter edge work which is more labor intensive and therefore more expensive than the field where you are essentially laying full square tiles just like you do in a basic square grid installation.

I have yet to see a data book that mentions that or gives a special labor rate for that consideration.

What is essentially that same thinking then again also applies to other task such as installing trim for instance. If you strictly use a LF (Linear Foot) Labor Hour figure for installing trim when you get to that quirky 14′ x 16′ library that instead of just having 6 corners requiring miters or copes instead has 36 that price per LF wont work. You need to have a Labor Hour per joint figure for work that exceeds a typical amount of cuts in a space.

Case Two

Lets say that a hypothetical Kitchen and Bath Contractor is perfectly happy with one of those tile installation figures for the work his or her own employees do. The labor cost plus the material cost figure regardless of which markup method you use, Capacity Based or Volume Based, gets marked up to give you a price for that task.

The next thing the estimator does is look for the task of installing the sink, toilet and shower and again a markup is applied to that to give you a Price for that group of tasks.

The problem is that the "Price" that comes out of that book or software with the markup applied is really the "Price" a plumber should charge for that work. The "Price" the book is telling you to charge your customer is actually more realistically the "Price" you are going to pay your plumber for the work. That book "Price" is actually really your "Cost." If you use that figure to charge your client you wont make a dime on that subcontracted work even though you thought an appropriate markup was applied to it.

And Case Three

After correcting and adjusting some imported data for roofing for that subcontracted work markup problem I just mentioned I noticed that the base costs for some of the material budget costs seemed off to me.

Checking the figures that that particular book was giving I made some calls and compared them to some real material cost figures from actual real suppliers.

The cost they had designated in that particular book and data set I was working with for Laminated Lifetime Shingles was 211% higher that what the local cost actually is and the cost for the "economy" alternative 3-Tab 25 Year Shingles was 35% lower than what the local cost for those shingles are. You therefore might overprice yourself out of the better LifeTime shingle job or lose money providing the economy alternative if you trusted the book data.

Again I think this all goes back to what I said earlier.

…Use those data book labor figures with your own interpretation of their meaning. If it “sounds right” then go ahead and use it and monitor the results to see how accurate your judgment and interpretation actually turned out to be.

Actually come to think of it. I wouldn’t wait for the results to come in to see how accurate your judgment and interpretation is. I would check the figures before ever using them in an estimate.

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On Using “Canned” Estimating Data

“Canned” Estimating Data is the phrase I use (and I’m sure many other professionals do to) to describe using estimating data that comes from an estimating data books such as companies like R.S. Means, Craftman’s, BNI, or RemodelMax produce although it can also mean the data that comes with a new estimating program.

As helpful as using that data can be to get yourself started there are some real intrinsic problems that come along with using that data as it comes right out of the can so to speak.

All the way back in 2001 in a discussion on the Uniformat & Masterformat classification systems in the JLC Online Forums years ago Jim Erwin the developer of the now defunct Synapse Software Buildworks once wrote regarding the use of “canned estimating data”:

Re: Uniformat & Masterformat systems IMHO, doing detailed item estimating for residential using national costbook prices is like using a community toothbrush. If someone is going to the time and effort of detailed item based estimating, they should only be doing it with their own regular items and the current prices that they pay. If they don’t want to make that effort, then they should be doing unit cost estimating with composite line items and historical data. Considering the narrow margins, high cost of delivering a finished product, and the risks of running a business, just “winging it” is a formula for disaster. Estimating is not a total solution. Defined work processes, effective controls, professional customer relations, and a method of measuring and comparing performance all have to be a part of a successful plan for profit.

And back in 2004 my friend Bob Kovacs in another JLC Online Forums discussion comparing two other estimating products Xactimate & HomeTech again got to the subject of using canned data.

RE: What are the Top Estimating Software Packages? …On top of Joe’s comments regarding output, I’d also be concerned with input. In other words, where is the data coming from that’s in the program? Most of the guys I know who use Xactimate and/or Hometech use the data that comes with the program, which scares the life out of me. They’re playing with the law of averages, hoping that their actual costs are lower than the programmed cost more often than they’re higher.

Given that, if you plan to insert your actual costs into the program, have you considered the time you’ll need to invest in setting all of that up and maintaining it? It’ll kinda negate the “advantage” of being able to download quarterly updates from Xactimate. Is the time needed to do that offset by the bells and whistles you see in using Xactimate over your current spreadsheet?

To which Joe Stoddard then also commented:

RE: What are the Top Estimating Software Packages? …I totally agree Bob – my belief is that everyone would be better helped if these packages shipped with a *blank* database, but that’s what sunk Quantum Leap. Everyone wants a magic button that gets them out of taking off a plan and calculating costs. One of my biggest challenges as a consultant is trying to get client expectations in order.

1) Just because there’s a cost next to an item, does not mean it’s YOUR cost – even if you subscribe to the “city update” or “local cost modification service” They’re a guess, not a fact.

2) Just because you can import a budget does NOT mean you don’t need to check it, add/subtract as necessary.

3) Just because there’s a suggested manhour count does not mean that’s your productivity, and it should not be the basis of your actual construction schedule. Xactimate does not have a separate “subcontractor” category (you simply set up items as lump sum, or hourly with no labor burden) – so therefore you have to assign/check durations when stuff imports over in to Project. I had a client who actually thought they could base their final construction schedule on the estimate without checking it or tweaking.

Worse, I actually had a client importing stock budgets from Xactimate into their accounting system, not checking them or tweaking, and then complaining bitterly about the estimating software because their job costing was all out of whack.

[…]

While I very much feel the same way as Jim Erwin, Bob, and Joe we do provide a starter set of data with our 360 Difference program that is based on all the data I have collected from various sources and modified over the years the keyword there being “MODIFIED.”

I think the data in the database books are a good place to start in that they provide both a framework to look at and organize your costs and they provide a starting point off of which you can begin to set up your own numbers. And by starting point let me further clarify that to say they should be used as a starting point for the labor hours assigned to a line item task. The actual cost for the labor and the cost for the materials really do have to be your very own numbers.

My own reasoning for that thinking is as follows. First of all if an estimate line item cost is based on three criteria; the labor hours the task takes times the labor cost plus the of materials by relying on your own numbers rather than the “canned” data for those costs you’ve just reduced your potential for error by 66% and your actual costs for labor and your costs for materials are relatively easy to pin down.

Labor cost can be pinned down and defined with tools like our own Capacity Based Markup Workbook or Diane Gilson’s Employee Cost & Pricing Analyzer™(eCPA) or just purchasing Ellen Rohr’s book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love and following the procedures in it with a pad, pencil and calculator.

As for material costs building a materials list of just what is needed is probably the very first thing we ever did the first time we ever did any project and while it is still possible to make errors it is a relatively simple objective task.

It’s estimating the labor hours that a task will take where the real difficulty of estimating comes into play because estimating that time contains so much subjective analysis and judgment.

A contractor estimator needs to look at the “canned” book figures for labor hours as starting benchmarks, they are not absolutes. The labor hour units are standard as to “generally speaking” but individual as to interpretation. They are based on valid statistical samples that those publishers have researched but we don’t know the exact criteria they had in mind so they are subject to interpretation, in fact your interpretation. Use those data book labor figures with your own interpretation of their meaning. If it “sounds right” then go ahead and use it an monitor the results to see how accurate your judgment and interpretation actually turned out to be.

One of the neat features I have programmed into the estimating module of our CBDetailApproved_thm360 Difference system is as you review and approve the starter database items or any “canned” database items in your unitcost costbook in the detail view for an individual line item you have a checkbox you can check off to indicate that the data components in that line item that you have “approved” and the software also gives you a visual cue or warning to let you know what data hasn’t yet been accepted and “approved” as your own company’s data.

Once you check off the Labor Materials External Sub Contractor or Equipment components as approved (You can lick on the thumbnail image on the left to see a screenshot of a line item detail and the thumbnail below to see a screenshot of the list of costbook items in that sub-category) the field containing the total for that particular component changes from pale orange to white and that pale orange flagging color is user modifiable too if you want to lets say change it to pale yellow or red.

CostBookApproved_thmThe estimator can then quickly see if the data they are using in an estimate have been used before and has been modified or approved for their own company’s use and they can even review the date it was reviewed and approved too to make sure it is up to date and current.

I always cringe a little when we get a new user who has just bought my program that tells me they want to use it to produce and estimate they want to get out to a client next week! Geesh! That’s really not the right way to work with any new estimating program.

To really use any estimating program correctly and accurately you need to do your homework and spend some time setting it up correctly (and we’re very happy to work with and help our clients do just that from training then on how to do it themselves to working as their virtual assistants, like someone in their office, performing the set up process for them).

Our goal with 360 Difference Estimating is to give our users the tools , training and help our users need build a library of estimating data that is truly theirs.

While this may take some time and effort in the beginning it pays off in the long run due to both the accuracy of the costbook line items they’ve built and they no longer have to put their faith in money into purchasing cost books year to year with quarterly updates.

Click Here To Download a Demo of the 360 Difference Estimating 4

Other articles discussing the inherent problems in using “Canned” Estimating Data:

 

Journal of Light Construction February 2004
Business: Using Cost Books for Estimating
Using cost books for estimating

by Bob Kovacs

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360 Difference Estimating 4.0 is finally here

360 Difference Estimating 4.0 for Macintosh, Windows and iPad* is finally here….well almost…

This is the public beta were releasing and we have a special offer to any new users who join us while were still in the beta test period this December. Purchase 360 Difference Estimating for the the discounted price of $265.00 ($100 off the regular price of $365) and we’ll give you the "Sales" interface module when it’s ready so you can estimate projects from your iPad* (*360 Difference requires FileMaker Go to run on a iPad) and the other 360 Difference 4.0 Modules too as they roll off the assembly line.

Click Here To Download a Demo of the 360 Difference Estimating 4.0 preview

For a limited time we’ll also enroll you in the beta test release programs for our other 360 Difference Modules that you see on our start-up screenshot below as we bring them up-to-date.

If you don’t already own a license of FileMaker Pro 11( you can try out a demo of FileMaker Pro 11 too by clicking here: FilemakerTrial.com) the Runtime versions of our programs have there own a built-in FileMaker engine and run with the only restriction being that the program wont produce PDF documents from within the application.

Any questions? Feel free to give me a call at 914-301-5838 and if your a Macintosh user using Tiger 10.5 or later I’ll be very happy to give you a live online demostration of the programs capabilites using the Share a-Screen capabilties in Apple iChatAV. Again, any questions about Share-a-Screen just call me and I’ll talk you through it too.

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The True Cost of Overtime, It’s Not What Most Contractors Think It Is.

Lets say an employer pays a carpenter a wage of $25 per hour. And then lets say he burdened rate (wage+Variable Overhead cost) brings the cost of that carpenter to $31.25. The contractor (using a Capacity Based Markup) then marks up that cost 2.12 (the median markup rate for contractors using a Capacity Based Markup) to cover his or her Fixed Overhead costs to come up with a billing rate of $66.25 per hour.

If that employee works 40 hrs in a week those 40 hours have contributed $1400 towards the company’s overhead costs that week which is the allotment you would expect that employee’s work to do during that week ($66.25 per hr Billing Rate – $31.25 per hr. Burdened Rate = $35.00 per hr. Fixed Overhead Costs, $35.00 per hr. Fixed Overhead Costs x 40 hrs = $1400). So if all the employees work 40 hrs., during a week all the Fixed Overhead Costs, have been covered for that week.

Therefore if the company’s overhead costs for the week are all paid for at the end of a 40 hour week if that employee then works putting in 8 more hours of overtime since his or her associated Overhead Cost for the week have already been covered then in theory if the contractor continues to bill for the overtime at the regular rate he or she has earned an extra surplus of $280 for that time. That’s obviously not the end of it there though in that the contractor by law has to pay the employee time and a half for that overtime so that works out to the $25 per hr. regular wage x 1.5 which comes to $37.50 x 8 hrs = $300. (While W.C. is based on payroll it is based on regular time and not the time and a half wage so it doesn’t figure in to the equation).

So if a contractor (with these wage and markup figures) has an employee work 8 hours of overtime it only costs that contractor $20 ($300 – $280 = $20) which is for all intents and purposes a wash ($20 / 8 hrs = $2.50 per hr.) .

If a contractor charges the client time and a half for that time for that premium time ($66.25 x 1.5 = $99.38) the contractor then makes a surplus of $245 for that extra eight hour day. (Or the contractor figures overtime hours into the original estimate.)

I’ll never argue that the contractor shouldn’t get that extra $245. Far from it in fact. The contractor has delivered a premium value added service in having that employee work overtime to speed up the delivery of the project so they’ve earn that premium.

All the way back in the February 2007 issue of Professional Remodeler Alan Hanbury wrote in his column Myths, Mistakes and Misinformationwrote about a bunch of interesting things but one thing in particular caught my attention at that time:

Myth No. 2: I will lose money if my crew works overtime.

What a pile of sheep dip that is! We have 800 billable hours and do $1.6 million in annual volume, which means that for every hour we work, we produce $200 of billable sales. That sale has a 40 percent margin attached to it, which means that after paying labor, burden, materials and subs we create $80 gross profit. Every hour that we incur overtime costs us only about 6 percent more than regular hours because most of our worker’s benefits (workers comp, health insurances, vacation and holidays) are not applied to overtime premiums. With a $40-an-hour cost of labor on regular hours and $42.40-an-hour on overtime, we lose $2.40-an-hour on jobs for those few overtime hours. We created $80, and we lost $2.40 of it for overtime hours. It is not much of a sacrifice to get a job done quicker, on schedule and have a better paid and more beholden workforce.

No, you are not going to lose any money by letting your workers work a few hours of unscheduled overtime here and there.

(And even if the OT actually cost the contractor money. Even if it ended up costing 20$ per day per person for OT. How often have in our careers managing projects have we heard ourselves say “What I would give for just one more day”? Is getting back a day in the schedule worth an extra $20 bucks to you?)

BUT there is a potential downside to all this.

I know of a couple, nah I should say several, contractors who see the hard financial advantage they get from having their workers work overtime and they then exploit it by expecting and or requiring their workers to work lets say 48-54 or even 60 hour weeks during the summer season.

While those contractors are thinking they’re earning more profits with those OT hours because they’ve already covered their Overhead with the regular time hours from those employees they are failing to recognize that with more and more scheduled overtime worker productivity starts to drop off further and further.

You’ll notice that I couched what I wrote saying: letting them work those few unscheduled overtime hours works out in you favor financially, the keyword being “unscheduled.” A few hours of OT here and there are probably going to work out in your favor financially but anything regularly scheduled or of any kind of sustained duration is going to hurt you more in lost productivity than the gains you get in the financial math.

Quoting from one of the studies I have on my desk:

…In the first few weeks of scheduled overtime, total productivity per worker is normally greater than in a 40-hour week, but not as much more as the number of additional work hours. After seven to nine consecutive 50- or 60-hour weeks, productivity is likely to be no more than that attainable by the same work force in a 40-hour week. Productivity will continue to diminish as the overtime schedule continues. After another eight weeks or so of scheduled overtime, the substandard productivity of later weeks can be expected to cancel out the costly gains in total weekly production realized in early weeks of the overtime schedule, so that total work accomplished during the entire period over which weekly overtime was worked will be no greater, or possibly even less, than the work accomplished if the regular schedule had been used.

In the end my own considered (and researched) opinion is don’t worry when your employees work a few hours of OT here and there but don’t make it common practice or intentionally schedule overtime work. A couple of companies I work with while allowing their workers to work OT have work rules in place that limit the number of OT hours they can work in a given monthly or quarterly time period.

But the math involved is often not at all what most contractors think it is.

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Estimating Book Recommendations

I’m often asked for recommendations regarding books on estimating techniques, not the data mind you, but the techniques and methods of estimating.

Unfortunately there aren’t a whole lot of books out there to choose from but still there are some good ones that are well worth the time.

Defensive EstimatingOn the top of the list I like Defensive Estimating: Protecting Your Profits by William Asdal, CGR. It’s not about how to estimate a kitchen, a deck or some other project in the literal sense in terms of what items to include and look for but is instead a book about the “big picture” of estimating and is about approaching estimating with a particular type of viewpoint and that is one of “protecting your company’s profit” which is very different than an estimating mind set that many contractors dangerously adopt which is “estimating to get the job”.

The lesson of Chapter 2 Establish the Company Profit Number Based on Your Income Needs which again so many contractors fail to do is alone worth the price of the whole book.

Chapter 6 Using Retail Pricing at Every Line brings up a point I’ve often talked about when considering ‘risk’ in building and remodeling projects which is to ‘Put the Risk into the Line Item and Not the Bottom Line‘ , in other words ‘Nullify the Risk at First Entry‘ so that it can be specifically dealt with based on the risk of the task the line item describes.

And he concludes the book with chapters that give some great example of contract and specification language that can be used by builders and remodeler’s to defend their profits.

I highly recommend this book. I thought it was interesting though in reading the editors description of the book they say “Asdal takes the magic and science of estimating and turns it into an art.” whereas I would say “Asdal takes the mystic and mystery of estimating and turns it into practical science”. I think a problem many contractors have is they view estimating as some kind of mystical purely intuitive art and therefore never really develop the repeatable scientific methodologies (systems) for approaching it and it becomes a mess.

EstimatingBuildingCostsDelPicoAs for the nails, screws, nuts and bolts of producing an estimate and to what to actually look for in estimating particular projects and trades I think Estimating Building Costs by Wayne J. DelPico and Estimating for the General Contractor Estimating for ContractorsCookby Paul J. Cook are pretty good for that. You will get things from them such as how to calculate liner measure, are and volume
and then what to look for as you produce cost estimates in the individual trade areas.Where they are lacking is in connecting the COST of production to the PRICE you need to charge to run a business.

Estimating Building Costs Estimating for the General Contractor

Two other books I think that are very helpful and good resources to have in the ‘nuts and bolts of producing an estimate’ category come from R.S means and are entitled: Kitchen & Bath Project Costs: Planning & Estimating Successful Projects and Home Addition & Renovation Project Costs: Planning & Estimating Successful Projects . And like the two books I just mentioned these two book don’t do a good job of connecting the COST of production to the PRICE you need to charge for your services and are in fact terrible in that regard. Under no conditions should you use these books to actually price a project out. Instead use the line items lists and the project commentary on what to look for as basic templates of what you will need to estimate. Then substitute your own labor, material, and subcontracting costs and markup structure for what they give you.

Given this list people often ask ‘Well, what about Jay Christofferson’s Estimating With Microsoft Excel and while I have read it and keep a copy of it for reference it’s more about using Microsoft Excel to build a software tool than how to actually “estimate” anything so that’s why I don’t include it on this list of ‘Estimating Book Recommendations’.

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