Accurate estimating is crucial for the success of any construction project. Yet, even experienced contractors can make mistakes that lead to cost overruns and delays.
Understanding these common errors can help you avoid them and keep your projects on budget and on schedule.
One of the most frequent mistakes is underestimating material allowances. For instance, a contractor might provide a low initial estimate with a list of material allowances, only to find that the actual costs far exceed these allowances. This discrepancy can significantly impact the project’s budget, leading to financial strain either on the contractor or the project owner.
Example: A contractor estimates $10,000 for flooring based on a mid-range option, but the client selects a high-end material that costs $20,000. The project now faces a $10,000 overrun just for flooring.
Assumptions about what is included in the bid can lead to major issues. Contractors or subcontractors might assume that certain items are covered under the proposed bid when they are not. This can result in unexpected costs and disputes later in the project.
Example: Assuming that the bid includes a high-efficiency HVAC system when it actually covers only a standard system. The client then faces additional costs for the upgrade.
Items that are inadvertently left out of the estimate can also cause significant problems. These omissions often include both hard costs (like materials and labor) and soft costs (such as fees and permits).
Example: Forgetting to include permit fees in the initial estimate can lead to unplanned expenses that disrupt the project’s financial planning.
Using new building techniques or materials can introduce a learning curve that affects both time and cost estimates. Even with extra time allowances, the final time taken might exceed initial projections.
Example: Implementing a new eco-friendly building material that takes longer to install than traditional materials, leading to increased labor costs and extended project timelines.
Fluctuations in labor and material costs between the time of the estimate and the actual project can also lead to budget overruns.
Example: A sudden increase in steel prices due to market changes can escalate the overall cost of a project, impacting profitability.
Vague or incomplete plans can lead to misinterpretations of what is included in the bid, resulting in additional costs and change orders.
Example: Incomplete architectural drawings that leave out specific details, leading to costly changes and revisions during construction.
Without a clear maximum price, cost-plus bids can easily exceed the estimated budget, leaving final costs unknown until project completion.
Example: A cost-plus contract for a custom home build that lacks a guaranteed maximum price can lead to unchecked spending and financial surprises.
Unforeseen conditions at the job site, such as hidden wood rot, water damage, or insect infestations, can emerge during construction, necessitating additional work and costs.
Example: Discovering significant termite damage during a renovation that requires extensive repairs not accounted for in the original estimate.
Errors made during construction must often be rectified, sometimes requiring work to be redone, which can double the expected cost for that portion of the project.
Example: Incorrectly installed plumbing that needs to be redone can lead to paying twice for labor and materials.
Clients might decide to upgrade materials or change design elements mid-project, leading to increased costs and delays.
Example: An owner choosing to upgrade to custom windows or move walls after installation can significantly increase project costs and extend timelines.
Avoiding these common estimating errors requires thorough planning, clear communication, and meticulous attention to detail. By recognizing and addressing these potential pitfalls, construction business owners can better manage their projects, reduce unexpected costs, and improve overall profitability.
To learn more about how Beyond Books Solutions can help you with construction accounting or to schedule a call, get in touch here.
