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 This newsletter is #9 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.
| How Accurate Can an Estimate Be? |
There is no way to determine with 100 percent accuracy what a job is going to cost, no
matter how great you are at estimating. As an estimator, you cannot control variables such
as productivity, cost of material, or the activities of other trades; yet, all of these (and more)
affect the bottom line. However, you can attempt to predict the cost of these variables with a
reasonable level of certainty and accuracy.
So what we must do is anticipate as much as we possibly can so a projected cost for the
job can be determined. If we estimate correctly and if everything we anticipate happens, we
should complete the job reasonably close to our estimated cost.
Not all expenses can be anticipated, but experienced estimators accept a satisfactory margin
of error in the accuracy of a bid. As with anything in life, the more experience you have, the
more accurate and confident you will become in your bids. With increased experience and
practice, you will also increase your speed in completing each estimate.
If you break the job down into its smallest possible parts, then the magnitude of any mistakes
will be reduced and they will hopefully cancel each other out (the law of compensating
errors). This also helps to keep the guess work to a minimum.
Accuracy of Estimating Material Notes
Material can be the most predictable part of the estimate, assuming that prices for copper
and steel do not skyrocket, and the pricing you used for the estimate was accurate in the
first place. Obviously, these prices are effective only during a certain time period and may be
subject to change as material costs such as steel and copper fluctuate. During volatile pricing
markets, it is very important that the bid includes a time window to address such cost
variations. If you are estimating manually, errors in determining the bill-of-material, pricing,
extending, and totaling can be significant.
A material budget must be given to the job supervisor to ensure the job is completed as estimated.
In addition, we cannot overlook the impact of qualified project management to ensure
the job is run according to the estimate.
Author's Comment: The estimator cannot anticipate changes in the wiring by the electrician
or unusual waste by the workmen in the field, which can quickly increase the
actual cost of the job.
Accuracy of Estimating Labor
Labor is more difficult to predict than material, but with job experience, labor can be calculated
to within 10 percent for new work, and 20 percent for remodeling jobs. Keeping a file
of completed jobs that are similar can assist in determining the labor adjustments needed in
order to be competitive.
A labor budget must be given to the job supervisor to ensure the job is completed as estimated.
You cannot overlook the need for qualified project managers to ensure the job is run
according to the estimate. In addition, you may need to make adjustments to the estimate
based on the expertise or track record of the project manager who will be handling that project
so the labor estimate reflects the realities of the job.
Author's Comment: As with material, unusual nonproductive time by the workmen in
the field can quickly increase the actual cost of the job.
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.
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