Basic Principles of Estimating
Prof. Awad S. Hanna
Estimating
 A prediction of probable cost.
 Is figuring out how to put the pieces
together in the most economical
manner.
Estimating is both art and science.
Prof. Awad S. Hanna
Estimating (cont.)
 Identify and quantify the pieces-takeoff.
 Identify construction methods.
 Engineering - Will it be stable during
construction?
 Productivity
Prof. Awad S. Hanna
Bidding is NOT the same as Estimating
 Identify RISK
 How do you get paid?
Prof. Awad S. Hanna
Successful Estimating
 Contractors are not in business to win
bids.
 Contractors are in business to make
money.
 Estimating is the base of a company’s
success.
Prof. Awad S. Hanna
Estimating for Profit
 Good estimating minimizes contractor’s
risk and facilitates project management
and defines the scope of work.
 The estimate is the plan that furnishes
the field people with all the details in a
controlled and prearranged format.
Prof. Awad S. Hanna
Estimating Requires:
 Skills
 Effort
 Above all, an organized system that will
prevent errors and omissions.
Prof. Awad S. Hanna
Estimating is very expensive;
therefore, we must use out time
wisely and effectively if we are to
be successful.
Prof. Awad S. Hanna
Cost of Estimating
Chart 1
55
50
A
hours
45
40
B
35
30
25
C
20
15
10
100
200
300
400
Size of Project in Thousands of Dollars
A
B
C
Simple project
Medium complexity
Difficult project
Prof. Awad S. Hanna
500
hours
Cost of Estimating (cont.)
170
16
0
150
140
130
12
0
110
100
90
80
70
60
50
40
30
Chart 2
A
B
C
1.5
2.0
2.5
3.0
Size of Project in Millions of Dollars
A
B
C
Complex
Medium complexity
Simple
Prof. Awad S. Hanna
3.5
Profit Should Correlate to Risk
 Job Comparison
Compare two jobs of identical direct cost,
yet very diverse in overhead and risk
factor:
Job “A”
Job “B”
Material
$200,000
Labor
20,000
Subcontractors
100,000
General Expenses
30,000
Subtotal
350,000
Overhead @10%
35,000
Profit @10%
38,500
Selling Price
$423,500
Prof. Awad S. Hanna
$100,000
230,000
10,000
10,000
350,000
35,000
38,500
$423,500
Profit Should Correlate to Risk (cont.)
 Job Comparison
# labor
5
5
6
6
5
5
7
7
7
5
5
4
1
2
3
4
5
6
7
8
9
10
11
12
10
10
2
3
11
12
week
12 weeks  65 labors
# labor
15
2
3
3
2
2
3
1
2
3
4
5
6
15
7
8
12 weeks  65 labors
Prof. Awad S. Hanna
9
10
week
Profit Should Correlate to Risk (cont.)
 Materials
Low to medium risk
 Labor
High risk
 Subcontractors
Low risk
 General Expenses
Low risk
Prof. Awad S. Hanna
Accuracy is Critical for Success
 A typical project can be broken down as
follows:
Material
40-45%
Labor
35-40%
Equipment Expenses 8-10%
Overhead
10%
Profit
2%
Prof. Awad S. Hanna
Common Estimating Mistakes
 Misread or misinterpreted specifications,
drawing, or any other contract document
 Takeoff omissions or overlaps
 Missing quotes
 Estimating by unit prices
 Using the percentage method to establish the
cost of certain systems
 Prorating indiscriminately
 Crumbling under pressure to procure work
Prof. Awad S. Hanna
Common Estimating Mistakes (cont.)
 Cutting prices to meet or beat someone else’s
quote
 Underestimating the complexity of a project
 Expecting and excessive amount of favorable
changes
 Overemphasizing volume purchasing
 Undertaking a project with incomplete bid
documents
Scaling drawings
Prof. Awad S. Hanna
How to Improve your
Estimating Procedure
 Company labor tables and current material
prices should be stored in your database.
 Manual estimating is not cost effective and it
is subject to more errors and omissions.
 Computerized estimating should automate
and expedite the manual estimating process.
 Establish the company labor unit sand labor
factoring tables.
 Maintain current material pricing.
 Establish an estimate review procedure.
Prof. Awad S. Hanna