This newsletter is #8 in the series in which I share with you my methodology for electrical estimating. I explain how to determine the material cost, labor cost, and the calculation of direct job costs, overhead and profit. Estimating is a skill that can make or break a career, and make or break a company, and I want to help you understand the estimating and bidding processes so that your business can be profitable. You need to know going into a job how you can avoid failure - which in some cases might mean not taking the job!

The following content is extracted from Mike Holt's Guide to Electrical Estimating.

The correct method of estimating the cost of a job is the “Detailed Method” and generally includes the following steps:

Step 1: Understanding the Scope of the Bid
The estimator must understand the work to be completed according to the drawings and specifications. Read all of the specifications and make notes of the items that affect the cost. Complete a checklist so you will know when the estimate is done. No guesses here!

Step 2: The Take-Off
A “take-off” is the process of counting and measuring to determine the material needed for the project. When you perform a take-off, you are mentally visualizing the installation of the proposed electrical system and you are counting and measuring the symbols on the drawings. Using a systematic, repetitive system for this step will help keep errors to a minimum. For the person who has the specific electrical experience related to the job, performing the take-off is an easy step and actually very enjoyable, if estimating can be enjoyable.

Step 3: Determining the Bill-of-Material
Information gathered from the take-off is used to create the bill-of-material required for the project. This step is very labor-intensive and lends itself to likely errors. Using a systematic, repetitive system for this step will help keep errors to a minimum.

Author’s Comment: If you are using estimating software, most of this will be completed automatically.

Step 4: Pricing and Laboring
Once you have the required bill-of-material list (Step 3), you will need to send it to your supplier(s) for pricing. The labor units for each item must also be looked up in a catalog. This step is fairly easy for experienced electricians because they are familiar with the material; however, most persons can be taught how to perform this process. This is a very labor-intensive step and lends itself to likely errors if done by hand.

Author’s Comment: Estimating software will do most of this automatically although labor units for specialty items will still need to be looked up or you will need to request a quotation from suppliers.

Step 5: Extending and Totaling
Once you have the price and labor unit for each item (Step 4), it is time to determine the total material cost and labor. Extending means that the price and labor unit of an item is multiplied by the number of those items taken off. Extending and totaling can be performed by anyone who has reasonable math skills and a calculator. This step is very labor-intensive and lends itself to likely errors if done by hand.

Author’s Comment: If you are using estimating software, this will be done automatically.

Step 6: Estimate Summary
Once you have determined the total cost for material and the total labor hours needed, you need to make the necessary adjustment(s) to reflect the job conditions, plus the cost of miscellaneous material and small tools (such as drill bits, screwdrivers, and extension cords), as well as the application of sales tax, subcontractor expenses, direct job costs, and so forth.

Step 7: Overhead and Profit
This is where we separate the true estimators from the amateurs. Most electrical contractors can do the take-off and determine the cost of material and labor (if they use labor units), but applying the correct values for overhead, profit, and other final costs is where many contractors fail.

Step 8: Bid Analysis
When the bid is complete, you must verify that you did not make any common estimating errors, so you ensure your price is valid and accurate.

Step 9: Proposal
When you have completed the bid, a written proposal must be submitted so there will not be any misunderstandings between you and your customer. The proposal must clearly state what your bid price includes and what it does not include.

We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.

This content is extracted from Mike Holt's Guide to Electrical Estimating textbook. If you have enjoyed this newsletter, you can get the full content in Mike's Electrical Estimating DVD Library here.