I wrote a blog post over on the 360Differece.com website about my evolution with estimating and technology in the mid-1980s and 1990s that I thought I should share it here too.
My interest in estimating actually developed long before I ever started my own building and remodeling business. Back when I was in college studying Theatre Design & Technology I used to carry around these small pocket sized notebooks for appointments,…and well,… for taking notes. I was always something of a compulsive notetaker and just the act of taking notes, writing something down, helped me remember it without the notebook. I once read some science about just how that works but I guess I must not have wrttten anything down about it because I can no longer recall what it was.
But what I did do was whenever I started a task or project I would write down a description of what I working on, when I started it, and when I completed it. I timed all sorts of things, how long it took me to walk to school (up a hill) and compared it to how long it took me to walk home (down a big hill). How long did it take me to set up a lighing pipe with instruments and cable, and how long did it take me to build a standard 4 x 8 platform, how long did it take me to fabricate a 3′ x 12′ Hollywood Style Wall Flat, etc,
When they came out with spiral bound notebooks of 3 x 5 cards sometime in the early 1980s I was in heaven.
What I gained from this was both the specifics on items we commonly built plus a perspective, a way of looking at things in terms of how much effort went in to the task.
The Mid 1980s
In those days back in the mid 80s when my carpentry working partner and I were talking about leaving the company we were with to go off on our own he gave me some sage advice, or pershaps I should say he insited on me getting a handle on how to running and remodeling business becuase running or getting involved in the business end just wasn’t his thing. He instructed me to get the two books by Walt Stoeppelwerth, Professional Remodeling Management and Porfessional Cost Estimating and subscribe to Remodeling Magazine and New England Builder (now known as Jouranal of Light Construction).
Professional Remodeling Management: Proven Methods For Success In The Remodeling, Renovation And Rehabilitation Industry
by Walter W Stoeppelwerth | Jan 1, 1985
I don’t know what the price for my copy was back in 1985 or 86 when I got mine but Amazon sells a used copy today for $125.49. Don’t waste your money. The numbers in the book are out of date and the markup method described in the book, a Volume Based Markup which is based on what you estimate your total sales volume will be is also behind the times and not as robust or accurate as a Capacity/Activity Based Markup. A good book to help you get started in the building & remodeling business today in my estimation would be David Gerstel’s Running a Successful Construction Company.
While this book was a big help for me in understanding running a remodeling company was more than just cutting wood and banging nails. There were chapters on:
- The New Numbers Game (Cost, Overhead, and Markup)
- Customer Relations
- Compnay Policies and Procedures
- Computers in Remodeling
- Steps to Success
But the big takeaway I got in reading this book and atteneding a couple of seminars taught by the author Stoeppelwerth was from the first chapter on The New Numbers Game where I learned I needed to markup my costs to cover the costs of running my business us the formula:
(Labor Cost + SubContracting Costs + Material Cost) x Markup = Selling Price
I would only a few years later learn of One of the Potential Problems in Using a Traditional Volume Based Markup and after learning about the PROOF Capacity/Activity Based method (see below) change to the more robust bullet proof method.
by Walter W Stoeppelwerth | Jan 1, 1981
Amazon says you can buy a used copy of this book $24.00 + $3.99 shipping and if you are an estimating wonk that might be worth it but the numbers in the book are antique and out of date. But the thinking process remains the same today.And some of the basic content of the book are now published as articles on the HomeTechOnline website under Articles. So again my recommendation is save your money in regard to this one too.
One of the big takaways from the book that stuck with me over the years was the folly and inaccurate of the “Guesstimate” Method of estimating also known as WAG or wild-ass guess or a “SWAG” which is supposed to mean a scientific wild-ass guess when there is nothing scientific about it. In fact modern behaviorial economic theroy has taught us just how tainted and unrelaiable our intutions are and how they’re influecned by our cognitive biases.
Another takeaway was how uneconomical in terms of the time it took to accomplish the “stick estimate” where you are counting every piece of material and determining how much labor it will take to place all the materials you counted out.
But the big takeaway was the reasoning for adopting a Unit Cost Estimating system.
by W P Jackson
I think it is perhaps unfortunate that the one review for this 1984 book was written by someone in 2013. It is time this was one of the only books available on construction estimating for small contractor and was a great tool at the time. Browsing through my 34 year old copy I think the thinking about cost records is still right on today but the tools we have today, digital spreadsheets and databases, are radically improved over what we had back then.
The price tag on my old book reads $15.75 while Amazon sells it new today for $11.95 and you can get it used for $6.51 + $3.99 shipping.
$149 per book
“Thousands of line item to choose from, pre-priced for your local area.”
The first thing I found “Thousands of line items” wasn’t enough or specific enough for the kind of work we did and “pre-priced for your local area” wasn’t exactly how we found the pricing to be in our real world sitituation.
But I often say the purpose of a good estimate is “to be mostly correct instead of absolutley wrong” and using the data from the HomeTech book was close enough that we didn’t loose our shirt or price ourselves out of the job and we then corrected the numbers in the book to fit what we found in our real world application was.
I would cut the spine off of these Estimator books and the using a three hole punch set them up in a looseleaf notebook so the pages would lie flat and allow me to pencil in my notes and changes and modification to the numbers I wanted to make.
As for just how accurate using HomeTech book data or any other “Canned Data” for that matter is as I have written elsewhere before:
A contractor estimator needs to look at the “canned” book figures for labor hours as starting benchmarks, they are not absolutes (materials & subcontracting costs too). 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.
For more on Using Canned Data I written On Using “Canned” Estimating Data – Paradigm Projects and More On Using Canned Data – Paradigm Projects
That first project we ever got asked to give and estimate on, a small two story addition, I would have been swamped and totally overwhelmed builing all my own estimating data from scratch. It would have taken me as long to build an accurate estimate as it would for us to build the shell for that addition. While there were items from the data book that were way off for us we ended up with an estimate that was “mostly correct instead of absolutley wrong“.
What I don’t like about the HomeTech data book then and now is:
- They don’t give you the LaborHrs involved for the task item they are describing which means you have to reverse engineer thier suggested Labor Cost for the task and divide it by thier suggested Labor Cost Rate for that trade. I can even remeber speaking to Walt Stoeppelwerth himself on the phone about that and he gave me some convoluted reasoning for not providing it that never made any logical sense to me so I have forgotten just what his reasoning was.
- All the data is printed in a paperback book form. It’s not available in an Excel spreadsheet or even a PDF where you can easily copy the data and insert it in a spreadsheet or Word type document.
But again the important thing to remember I found when using the data from that book or RemodelMAX data (they no onger publish data) or Craftman’s Books, or R.S. Means for that matter was you need to look at what it gives you and THINK “does this sound correct and then modify and revise it to make it your own.
Specifications/Requisitions Form 131 Suite
To organize and track my estimating process I used this system of forms I bought from HomeTech too.
The Cover Sheet is just that, a cover sheet which you can enter some general information about the project such as the Client Name, Address, & Phone, Permit No., Building Inspector Name, Plans By, Estimator’s Name, Job Super’s Name, Date Started and Date Completed.
What I remember liking backing then was the section with a list for items or tasks we were “Waiting For”
The Cover Sheet was actually printed on a 17″ wide sheet of heavy stock paper folded over with the Summary Sheet on the back and when you opened it up in your looseleaf notebook you could pack the inside with Specifications/Requisitions Form 131 Sheets for each phase, task group, or sub-project that made up the whole project.
Specifications/Requisitions Form 131 Sheets There was a spot on the top of the sheet for the Specification(s) for that particular phase or task group. Then there was a list for the Materials you expected the project to use and another list below it for the Labor or Subcontracting you expected for that phase.
On the back side of these 131 Sheets we would fill with all sorts or notes like on what sheet(s) in the plans you might find the details for the described phase and other odds and ends.
The Summary Sheet was just that. A Summary of all the information from the individual Specifications Requisitions 131 Sheets. On opening the Cover Sheet to view the Specifications Requisitions 131 Sheets you would see the Summary since it was printed on the back of the Cover Sheet.
The PROOF Manual
Sometime in the mid-1980s I signed up for a one day seminar being sponsored by New England Builder Magazine (now JLC) and taught by the late management consultant Irv Chasen and his firm Profit Research On Operating Factors aka PROOF. What I learned that day changed everything and saved my skin as a contractor.
by Irv Chasen
Sadly no longer available anywhere but back in 2004 I modeled the The Capacity Based Markup Workbook after the paper spreadsheets in the book and there is a good list of the reading material on the method outlined in the book here: Capacity Based Markup Articles & Learning Materials
The markup methodolgy Irv Chasen taught which came to be known amongst the contractors who learned the method from him as the “PROOF” method was a form of Capacity Based Markup/Activity Base Pricing where the sales price for a product or service was based on the real cost of the service and the amount of overhead resources producing that product or service actually consumed and used this formula for calculating a selling price for the project or task.
(Estimated # of Billable Hrs x Loaded Labor Rate) + (SubContractor Costs x NetProfit_Markup) + (Material Costs xNetProfit_Markup) = Selling Price
…where the Loaded Labor Rate covers the Labor Burden and Company Overhead & Profit that employee generates per hour (also sometimes called the Overhead and Profit per Hour (OPPH) method)
In 1974 Construction Dimensions (a publication of the AWCI, The Association of the Wall and Ceiling Industry) published an article by Chasen entitled: Overhead: Recovering the Obvious in which a markup method where overhead recovery was accomplished as a function of labor was outlined and explains why that markup method became known to many contractors as the PROOF method.
The “PROOF” Program has long stressed the importance of recovering overhead and operating cost as a function of labor. Some contractors find this principle difficult to accept. However, there are many advantages to relating to overhead as a function of labor.
Many contractors do not have an accurate system for relating to overhead cost at all. The ones that do normally relate to overhead as a relation to labor and material combined or volume. Other large contractors are not interested in a “labor only” system and prefer a “sliding” or “dual” overhead system. For a moment we would like you, the reader, to put aside all other preferred systems so we can scientifically review some of the advantages of overhead recovery as a function of labor.
There is more reading on Capacity/Activity Based Markup that can be found on this website over here Capacity Based Markup Articles & Learning Materials.
All This Record Keeping And Data Entry Was Done By Hand, Meaning Just A Good Pencil An Eraser, And A Texas Instrument Calculator (With A Tape) Until…
Yeah, this was all done manually by hand, no computer, no Excel spreadsheets. It wasn’t until December of 1991 I got my first Macintosh. I bought Microsoft Office and a construction estimating program by Turtle Creek Software called MacNail which was based on MS Excel.
I ventured into using MacNail in place of my old pencil and forms based system but I didn’t really like the data in MacNail and not wanting to have to rewrite all of it estimating line items it used I continued on estimating as I had for years now. Plus there was something else I couldn’t easily do in MacNail and that was “free form” estimating from scratch for the theatrical projects we built. I came from the theatre where I designed and built and provided lighting for theatre dance and video production and none of the items I needed to estimate could be found in MacNail, the HomeTech Estimator, or any other construction estimating data sources such as R.S. Means either.
At the very least my use of the HomeTech 131 Spec/Req Sheets allowed me to build estimates for theatrical projects “free form”. What did get out exploring MacNail was it taught me the power of Excel and what could be done with it and how to “hack“. And I took the meaning of “hack” and “hacking” to mean going into software and making changes and modifications to it to make it work to suit your own purposes.
I believe it was sometime in or after the spring and summer of 1992 that I built Excel Spreadsheets to replicate the HomeTech 131 Spec/Req I was used to using. The way I did things back then was I created a folder for each project to keep together all the individual spreadsheets I used to put a project together. In that folder I had a Excel file that was my Cover Sheet which contained all the meta information for the project and a contact list. I had a Summary Sheet which I used to total all the data for the phases (or task groups) that made up the project and each phase had it’s own 131 Spec/Req Sheet which was linked to the Summary Sheet. I built my system with standalone 131 Spec/Req Sheets and not with a lot of individual tabs representing each phase both because for smaller projects I wouldn’t have a Summary Sheet displaying a lot of zero for phases or workgroups not being used for that particular project and it also made it easy form me to duplicate the 131 Spec/Req Sheet from one project and then modify and use it in another project.
Where I did use tabbed sheets in an Excel Workbook was in building my own master cost book that held HomeTech, R.S. Means, Craftsman Books, or MacNail Unit Costs that I had modified to make them describe and fit how we did things in my company and how long we found those tasks on average took.
And Then In The Early 1990s Along Came FileMaker…
I don’t recall the name of the program anymore but I bought a Macintosh application for making forms and used it to makes some forms I used in the business at the time. More importantly that program became discontinued and when it did they offered an upgrade to a program called FileMaker Pro 2 and I began to explore using it (and another Macintosh database program I bought, ProVUE’s Panorama). These database programs were great for building lists of stuff. I love lists. Still do. And they were great for searching through the data they contained and sorting and organizing it. Yeah,… I could do that in Excel but not with the speed and ease of a database program.
Then in December of 1995 FileMaker upgraded thier program from FileMaker Pro 2 to FileMaker Pro 3 and introduced what for me was a earthshaking change. The program now worked with a relational database structure. What that meant was when I was working in my file called Estimates I could enter “Client #33” into the Client field in the program and it would then automatically populate the Client Name, Client Address, Client Phone, etc. fields in the Estimate with information from my Client Contacts file. I could enter the ID# for a particular building Material in my Materials database and it would automatically enter the Material Description, Material Cost, Prefered Material Supplier, Sale Tax for that Material into my Estimate. Likewise I could do the same with Labor. I could enter “Carpenter A” into a field and it would enter what it Cost to have a “Carpenter A” perform that task. And I also then kept a database of Tasks with how much time those Tasks too per Unit and I could look and use that data too. This was all very similar to Excel’s LOOKUP function but a whole lot faster and easier to use and perhaps even more importantly, easier to setup and maintain programatically.
I was off to the races with FileMaker Pro as my horse.
1999 and FileMaker 5…
In September of 1999 FileMaker released FileMaker 5 and I purchased the Developer Edition which had a Script Debugger which allowed me to run scripts one step at a time and see what was happening in slow motion and identify problems and mistakes in my programing. The Developer Edition also had another feature that allowed me to build standalone verisions of the program that had a built-in FileMaker engine. I then gave away copies of a version of the program I created called The Simple Estimate Worksheet to my subcontractors. That way many of them who still were “Legal Pad Estimating” with a pencil and a calculator could start to learn computerized estimating and perhaps more importantly, at least to me, they could provide me with thier quotes for projects I could easily import into my “Master System” to use in our project estimates within a few minutes of getting the data rather than having to transcribe thier data from a fax. It was right around that time that I unplugged my fax modem and started to tell everyone “Our fax machine is down. Can you email me your quote?”
The other big plus we got out of our subs using The Simple Estimate Worksheet it brought them into the Unit Cost Estimating world. Most, a super majority of our subs were in the EyeBall Guesstimate camp and a few were doing Stick Estimates. I thought if you brought a sub into a job through a door on the north side of the house he would give you one estimate and if you brought him in a day later through a door on the south side of the house he would give you another quote for the same project but it would be $5,o00 different. Getting them to use the software put them on the road to consistent pricing we could count on.
With the 21st Century thing really started to accelerate with the FileMaker application in terms of the structure and features it offered me as a programmer and while it still at it core a simple easy program for a regualar Joe or Jane to use and create tools with it now has incredible power and sophitication that even really heavy duty programer apprectiate and I’ll write about that in another post soon enough.
So How Did All These Books and Tools Help Me Estimate? What did I Learn?
#1 Take Notes. Record and take notes about what you do. Keep a notebook, write in a Journal, keep Daily Job Reports, or detailed Timecards but make a habit of recording and tracking what you and your personnel are doing. Make it part of your company culture too.
Taking notes and recording what you are doing either in an app or journal or even a notebook not only for some reason helps you own brain remember events it also something that can be very useful when there is a dispute or difference of opinion on what happened and who said what who ever has the most thorough and complete data usually wins.
Develop your observation skills. Look at everything you do whether it’s putting together breakfast or walking into town with your dog and try to understand how the same task done over and over every day can vary in how long they take.
Develop your own library of Unit Costs for the work your company performs on projects. Don’t take short cuts like trying to develop a comprehensive Square Foot Price that covers everything. There is no logical reason to think it will work.
You will get builders and house flippers that will ask you what do you charge per Square Foot to do the interior finish on a home. Resit at all costs giving them a SF answer and reiterate to them that there are too many varialbes to consider to use a general Square Foot Price. Even if the work you do is normally or predominantly done by the Square Foot such as roofing, flooring, or siding resist giving them a SF price and say there are too many variables or detail items that done by the Linear Foot (LF) or by the piece (Ea.) to be covered accurately by a Square Foot Price such as flashing, vents, door saddles, corner boards, window flashing etc.
Using “Canned Data” from Estimating Data Sources is okay to use to give you a head start or template for developing your own customized data.
You don’t have the time to do all the things necessary to run a building and/or remodeling company and develop a complete and thorough set of estimating data from scratch. Use the “canned data” as a starting place or template for the things your company does. The idea is to be mostly correct rather than absolutely wrong.
Now here is an important thing to be cognizant of when using data book productivity data:
The book figures are benchmarks, not absolutes, but they are based on valid statistical samples that those publishers have researched. A contractor-estimator should use those data book labor figures to their own interpretation of their meaning. The units are standard as to “generally speaking” but individual as to interpretation.
We’ll what’s that mean? That means you need to determine when and where those Labor Hour figures work and when and where they don’t. For instance that example I gave above for when the crown needs to be installed 16′ up in the air. Or perhaps the 12′ x 14′ room doesn’t just have four corners. Let’s say it has 26 like my office where the crown jogs around several bookcases. Then you might want to add another line item that is a surcharge of .233 Labor Hours (14 minutes) per corner.
Learn the difference between Common Cause Variation and Special Cause Variation and learn how to recognize how and when the affect your estimating data.
When I started using all these tools, these sheets (both the paper files in the mid-80 and the Excel based versions I created in 1990s I started to see that Estimating wasn’t perfect and not precise. While it was relatively easy to nail down the Material costs for a task or project with precision hitting the Labor number precisely wasn’t easy at all. If a “canned data” Line Item tells me that: “Install solid or architectural pre-hung interior door” takes .85o Labor Hours (51 minutes) that means on average,… ON AVERAGE !, that kind of installation will take you 51 minutes (.85o LHrs.) for each door. Thats an average time for the average task which takes into consideration getting your tools out, moving the door into place, hanging the door, cleaning up the broken off shims, chatting to another carpenter or the GC on the job for a minute, etc., and then moving on to the next door. Make sense?
Some doors will take 46 minutes (.767 LHrs.) and some will take 62 minutes (1.033) but if you install 12 doors and average out the time it takes you to install those doors is 10 hours and 12 minute ( or 10.2 LHrs.) that will average out .850 Lhrs…maybe… but not always. Confusing?
The problem is the sample size of 12 doors is too small to accurately reflect a real accurate average. Any task we do is subject to Common Cause Variation. Sometimes you are slower than average (the installation of 12 doors took 10.9 hours) and sometimes you are faster than average (the installation of 12 doors took 9.9 hours). Sure a 100 door sample will give you a better more accurate average time but we can’t always wait till we get a sample that size.
So let’s say I used that “canned data” book value of .850 LHrs. per door and for that job that had a 12 door installation and it took your people 12 hours and 50 minutes to do the installation. That’s 1.069 or 1 Hr and 4 minutes per door. That’s enough of a difference that you may want to think about changing the LHr per door value. Maybe…
Maybe? What’s that mean? Maybe your personnel does take a longer time to install a “Install solid or architectural pre-hung interior door” or maybe your people ran into a problem that slowed them down on the installation of several of those doors. Talk to your people and ask them how the door installation went and find out if there were any hitches or problems. If they tell you that they had to fix the rough opening for six of the doors because they were the wrong size and out of plumb that is what is called Special Cause Variation. The .850 LHrs. per door may have been accurate and the reason the installation ran so far over the estimate was due to Special Causes.
Use the Standard Unit Cost for everything you can and when something varies from the typical or normal case estimate what makes that particular line item different and breakout your Estimate For The Difference, The Variation, As It’s Own Estimate Line Item.
That way you can #1 see how accurately you estimated the difference and #2 you have created a new line item you can use in the future when that difference come up again. i.e. you now have a new Estimate Line Item in your own company’s Unit Cost Book that reads:
ADD: For .233 Labor Hours (14 minutes) LHrs. for each extra cut beyond typical.
As I alluded to above learn to estimate what the Special Causes are that affect your Standard Unit Cost items
As a side note… that is one half or the reason behind why I named my software 360 Difference. Learn to estimate what makes Standard Unit Cost item different and detail that in your estimate as its own separate line item so you can track how accurate it is.
Consider not only the cubic foot, cubic yard, lineal foot, square foot, pound or ton but all of the complicating conditions encountered in putting the materials in place.
That’s The Golden Rule of Construction Cost Estimating, as quoted from Richardson Engineering Services General Construction Estimating Standards. Those “complicating conditions” include the cost of the actual labor to install and place the material or materials, the cost of the materials plus any costs for taxes, delivery, and storage , the equipment costs, and a proportional amount of dollars to recover the company Overhead during the time consumed white the material was being put in place. And that is the 360° view you need to consider and then you estimate what makes the cost item different in a specific and particular situation.
Estimate for risk on a line item or task group level.
Estimation of a reserve requirement or cost buffer for a state-of-the-art or new unfamiliar task is going to be different than the more typical and conventional construction or remodeling tasks so the reserve or buffer should be specific to it and not the whole project.
Use modern tools for organizing your data and keep your skills with those tools up-to-date.
Don’t be a luddite or technophobe, If you really just don’t have the initiative to learn how to effectively use tools like Excel and word processing apps hire someone who does either to teach you do it for you and make sure at the very very least you understand what they are doing.
Write out the Specification/Description for the task the first time you use a Unit Cost Record.
Remember if you have an organized system you will only write it once that very first time and you will be reusing it over and over again in the years to come. Its easy to think “I can’t write Specification/Descriptions for all those task” when you look at the mountain of tasks when you get started but on as soon as you get one or two estimates under your belt you will discover you already have prewritten Specs for most of the work you are doing on a project. This is the 80:20 Rule of distribution, the Pareto principle in action. When you look at 8000 items in your whole Unit Cost Database you will soon discover you only do maybe at best 20% of those tasks and you do them almost all the time with every project.
Writing specifications is not the unsurmountable mountain you may think it is.
Learn about Capacity/Activity Based Markup using it to recover your Overhead Costs & NetProfit and why it is more robust and bulletproof than a Volume Based Markup.
The Capacity/Activity Based Markup method delivers more consitent profittable outcomes across a wider range of project mixes and project types. (Comparing Markup Methodologies In Real Some World Pricing Scenarios – Paradigm Projects)
If your subcontractors are lousy or inconsistent estimators help them learn how to properly do the task. It will help improve you company’s estimates and your bottom line.
Helping educate all your project stakeholders learn to estimate and price thier projects with modern technology and techniques leads to better outcomes with clients and provide your company with more consistent and logical pricing to work with.