This newsletter is #10 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.

There are three primary methods for effectively estimating a job correctly, with each having its own set of advantages and disadvantages.

Manual Estimates
Even though manual estimates are good for very small projects, especially if you use unit pricing, and have been sufficient for electrical contractors for over a hundred years, this method is not efficient for the electrical contractor who is regularly bidding jobs. Because it takes so much time to estimate a job manually, you have only enough time to get the bottom line price and not much more. Manual estimating requires so much time that estimates often become backlogged and project management suffers. Additional disadvantages include:

Overhead. No matter how we look at it, estimating a job takes time and costs money. Let’s assume we are a small contractor and we win one job out of every four bids we submit. If we successfully win 1 job out of every 4 bids we submit (25%) and we spend an average of 4 hours to estimate each job at $30 per hour (including benefits), it will cost us $480 for every job that we win [4 hrs. x 4 jobs = 16 hrs. x $30]. If we are able to reduce the amount of time spent on each bid, then the overhead cost per bid will also decrease and that is where computer estimating software shines.

Bid Accuracy. The pressure of completing the estimate quickly so you can move on to the next estimate can result in increased errors as you work with the many calculations involved, especially when there are last minute changes on the bid.

Bill-of-Material. It will not be easy to develop the bill-of-material that you will need to send to your suppliers for pricing and to the job foreman for project management.

Project Management. Because of the time it takes to manually extract project management information without the use of estimating software, most electrical contractors just do not do it. The result is that the job cannot be tracked to ensure it is properly managed.

Response to Changes. It will be very difficult to cope with last minute changes to the drawings or specifications. Sometimes the change is so great that you do not have enough time to redo the bid in a timely manner. This can result in an attempt to make an educated guess, or you may just give up and not submit a bid at all. Either way, this is not a good business practice.

Time. Today, more than any other time in history, we operate in an age of instant information and expected response. Because of cell phones, email, the Internet, and fax machines, customers demand and expect to receive information almost instantaneously. In today’s fast-paced world, few customers are willing to give you the time you need to prepare an accurate manual bid.

Estimating Software
The computer-assisted method of estimating is actually the same as estimating manually, except that a computer performs the mathematical calculations. While considerable effort and progress is being made to produce an estimating system that can produce a reliable bill-of-material from a set of drawings, that has yet to be accomplished. However, there are systems now that provide for on-screen take-offs. It must be understood that computer-assisted estimating is only as good as the person’s experience in using the system. The many advantages of using estimating software include:

Overhead. The cost of producing an estimate is an overhead cost. No matter how we look at it, estimating a job takes time and costs money. Let’s assume we are a small contractor and we win one job out of every two bids (50%) we submit. We spend an average of 4 hours estimating each job, and the labor rate for the estimator is $30 per hour (including benefits). Based on this information, it will cost us $240 for every job that we win [4 hrs. x 2 = 8 hrs. x $30].

Bid Accuracy. With estimating software, errors with pricing material and the application of labor units will be significantly reduced, as compared to the manual method. There are no transpositions of numbers, no mistakes on the totals, and no errors when transferring numbers to the estimate summary. Your bids will be clearer, more legible, and more professional in appearance. Estimates will not become backlogged and you will not feel the pressure to rush the estimate, especially with last minute fixture quotes, switchgear quotes, or changes.

Bill-of-Material. Estimating software automatically provides a list of material needed for supplies and project management.

Project Management. Estimating software produces reports with information that can be used for job management, job tracking, and bid analysis. This lends itself to fewer errors before the bid is submitted and allows closer monitoring of field costs as compared to estimated costs as the job progresses.

Response to Changes. It will be easier to accommodate last minute changes to the drawings or specifications.

Time. Estimating software permits you to produce up to four times as many estimates in the same amount of time required to produce one manually. What takes 8 hours manually can take less than 2 hours with a computer and the odds of winning the job are increased.

Estimating Service
An estimating service is a temporary agency that you use and pay for only when you need it. When an estimating service produces an estimate, you have the opportunity to review the information to ensure that the estimate is accurate and complete.

You might use an estimating service to double-check an estimate you have completed, or when you do not have the time to do it yourself. An estimating service is an excellent tool to help you gain estimating experience at a reduced risk.

Estimating services offer:
Low Up-Front Cost. You can enjoy the benefits of computer-assisted estimates without investing in your own computer estimating system.

Knowing Your Estimate Cost. With an estimating service, you will know in advance what it costs to estimate a job. Their fees are generally based on the total electrical bid dollar amount.

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.