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Construction Estimating:
Everything You Need to Know
Written by: InEight Blog Editors

Construction projects are intricate, with a lot of moving parts.

Funds are needed to secure materials, design blueprints, rent
equipment, obtain permits, pay the workers, and much more. All
those things require an immense amount of time, effort, and
money. That’s why construction estimating is an essential part
of any construction project.

The estimation process allows you to accurately track how

much funds are needed and where the costs are going. So, how
can you ensure that the money you’re seeking at the start of
the project is enough to make it to the end? Proper project
estimating helps you create a detailed outline of those funds.
estimate is used to anticipate all costs to build the structure in
Keep reading as we explore everything regarding construction
the project plan.
estimating. We’ll clearly define what it means to estimate
a project, why it’s essential, the key components involved, Once the estimation process is completed, the bid estimation
construction estimate software, and much more. phase is generally initiated. At that point, any construction-
related documents, historical data and other noted costs are
WHAT IS CONSTRUCTION ESTIMATING AND WHY IS IT
used to establish a precise forecast.
IMPORTANT?
Determining an accurate estimate is important because it
Construction estimating is the process of evaluating all costs
will affect the bottom line for the leading contractor. Also,
associated with a specific construction project. The costs
contractors are more aggressive when attempting to secure
generally include direct and indirect expenses, overhead, and a
new business for their company.
general contractor markup. Construction estimating is designed
to generate a construction estimate, which is a document that COST ESTIMATING KEY COMPONENTS
general contractors use when bidding for construction projects.
Construction estimates are generally the responsibility of the
A construction estimate is typically one of the first and project estimator but depending on the size of the project
most important steps taken during the infancy phase of any and organization, a project manager or someone else may be
construction project management process. That’s because the tasked with estimating.

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The person in charge of the estimate will analyze the » Level five – Bid estimate: With the previous four steps
construction plan and various other documents to assess an completed, the bid estimate provides the most accurate and
accurate cost of the build. While every project estimator may reliable figures to be used to create bids.
have different processes when arriving at the final number, the
following key components should be included: HOW TO IMPROVE YOUR CONSTRUCTION ESTIMATING
PROCESS
» Direct costs: Funds allocated toward construction duties
such as materials, labor, and equipment. Obtaining an accurate estimate is the foundation of a
» Indirect costs: Any costs that are not directly associated successful project. While it’s almost impossible to get the
with construction activities. That may include things such estimate 100% accurate down to the penny, there are things
as utilities, quality control, administration, permits, security, you can do to improve your process to ensure financial
legal fees, etc. estimates are as accurate as possible.
» Labor hours: All costs associated with the actual
ENSURE THE CUSTOMER HAS REALISTIC EXPECTATIONS
construction of the project. The wages or rate paid to the
team estimated cost for each task and potential overtime. Before the project estimator delves into the numbers,
» Subcontractor expenses: Estimated expenses for duties that it’s important to ensure that the customer has realistic
go out to subcontractors. That includes labor, materials, and expectations and that both parties are aligned on those
equipment. expectations. You’ll want to ensure that they approve the
construction plan and understand how the construction
THE LEVELS OF ACCURACY IN CONSTRUCTION phase will be when completed. Not being aligned or having
ESTIMATING unrealistic expectations can add unnecessary expenses toward

The American Society of Professional Estimators created a the end of the project.

five-tier system for identifying construction estimates. Each

TAKE ADVANTAGE OF THE UNIT COST APPROACH
level becomes more intricate as you move through them, which
makes the estimation process more accurate. There are various methods when conducting a construction
estimate. One of the common approaches is the stick estimate.
Here are the five levels of accuracy and what each one means:
That method lists out every job, including permits, labor, and
» Level one – Order of magnitude: The general estimate that materials. However, that approach is time-consuming and
is formed at the start of the project. Here, you’ll decide may not be as accurate as the unit cost method. The unit cost
if the overall project is feasible and if it’s worth moving method lists all items associated with the project based on
forward. unit price. Those figures are added at a faster rate and provide
» Level two – Schematic design estimate: As the name of the a clearer picture of the project’s expenses.
level suggests, the schematic design aids the cost estimate.
As a result, you can obtain a more accurate estimate than DO NOT UNDERESTIMATE LABOR COSTS

an order-of-magnitude estimate. Labor costs are usually one of the more challenging expenses
» Level three – Design development estimate: The cost to accurately account for. There’s more associated with labor
estimate is based on the intermediate design, but not with costs than the standard hourly rates. The cost per hour may be
the set of construction documents. easy to predict, but it’s also important to factor in how much
» Level four – Construction document estimate: The actual work an experienced crew member can do over a novice team
estimate starts to become clearer because it’s based on member. Prior to crunching the numbers for labor expenses,
the complete design with comprehensive drawings and you should identify all activities that are associated with the
specifications. project to ensure the most accurate numbers possible.

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CONSTRUCTION ESTIMATING SOFTWARE CAN HELP you don’t overlook anything. It can even store details and files
MAKE THE PROCESS EASIER from your past projects you can pull from, so you don’t have
to waste time replicating the same materials repeatedly with
As the industry continues its evolution to digitalized processes,
each estimate.
estimating has also been evolving. Construction companies
wanting to bypass the past challenges associated with Bringing uniformity to the process goes beyond forms and
traditional manual estimating methods are instead adopting templates, though. It also applies to the data that informs
construction estimating software. your bids. Do you have benchmarks from past projects? Make
them work for you on future bids by leveraging those real-
Many of the significant pain points experienced by estimators,
life numbers from recent builds with similar details. You can
including inaccuracies, frustrations, uncertainties, and a lack of
incorporate rate libraries if you don’t have a solid historical
profitability, have been greatly reduced by digitization. Instead,
database. Estimating software will allow you to modify the
they are finding benefit-rich functionalities to help your
numbers to localize wage rates, materials costs, and taxes.
business better manage all the details and costs associated
with the estimating process. Templates and databases enhance consistency in format
and information to make your process more predictive and
So, what can you do with construction estimating software?
streamlined.
Let’s delve into some of the benefits to help make your
estimation process go smoother.
GAIN COST CERTAINTY

IMPROVE EFFICIENCY Proliferating data, evolving details, and constant changes are
all part of the hectic estimating phase. It can make pinning
The efficiency of cost, time, and effort is a goal of any
down cost certainty for a project that hasn’t started yet sound
construction project. This is also true for the estimating
rather a pie in the sky. Where cost uncertainty has often
process itself as a virtual “constructing” of the project before
resulted from the traditional paper-based and computer
the physical work begins. And yet it has always been a time-
spreadsheet estimating methods, construction bidding
consuming, difficult process. This becomes magnified within
software adds a level of precision and control.
large, complex builds where risks are high, budgets are firm,
and costs and progress are under heavy scrutiny to ensure How? With its ability to do real-time calculations, there’s no
nothing puts the project at risk of going behind schedule or longer any risk of broken equations in computer spreadsheets
over budget. or human math errors. When data is modified in one place,
it’s immediately reflected where necessary throughout the
Estimating software optimizes the whole process right from
estimate, so you can breathe a sigh of relief knowing you
the beginning—performing time-saving takeoff calculations,
don’t have to repeatedly re-enter that same data. Plus, when
and drawing from your own or industry databases. This data
integrated with the details from your takeoff, your estimates
includes real-world job costing, plus tracking past and current
can be automatically figured out, so there’s less chance of early
project data such as materials, labor costs, resource allocation,
mistakes snowballing into bigger ones that could jeopardize
and more. Some solutions also allow you to integrate other
securing project funding.
software to further expand your project efficiencies.
Estimating software to manage the tiniest of details gives
STANDARDIZE YOUR ESTIMATING PROCESS
project managers, contractors, and owners alike a more
Recreating all the documentation required by each bid can realistic picture of what it will truly cost to complete a project
eat up time, which can be devoted elsewhere. This is where and provides a level of transparency that fosters confidence in
templates found in construction estimating software — for those numbers.
common documents such as bid packages, estimate reports,
and cover letters—can save you precious time while ensuring

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ADJUST VARIABLES IN REAL TIME 3. Decide what duties will need to be performed by
subcontractors
We all know data, conditions, and even scope can change
throughout the estimating process, let alone during 4. Estimate the cost of materials
construction. For example, weather, market conditions, and 5. Outline terms and conditions
supply chain issues can affect materials pricing. The going
6. Review the estimate
wage rate in your area may have changed since your last
project or may be different from what’s listed in the rate 7. Submit the estimate

library you’re using. And what was once a project idea is now
WHAT DOES CONSTRUCTION ESTIMATES INCLUDE?
taking shape so that the top-down estimate you created is
migrating to a bottom-up estimate as details become known. Construction estimates should include four key components—
Construction estimating software allows you to adjust variables direct and indirect expenses, labor hours, and subcontractor
anytime, which are automatically updated elsewhere in your expenses.
estimate. And even as you revise details in your forecasts, the
WHAT ARE THE THREE MAIN TYPES OF ESTIMATES?
software will immediately recalculate the impact of what-if
» Ballpark estimate
scenarios, including scope changes on overall costs, before they
become part of the final estimate. » Detailed estimate
» Flexible estimate
MAKE DATA-DRIVEN DECISIONS
SEE WHAT CONSTRUCTION ESTIMATING SOFTWARE CAN
While this is important for any size build, it becomes even
DO FOR YOUR BUSINESS
more critical when your projects involve millions of dollars,
hundreds of craftspeople, thousands of pieces of equipment, Construction estimating can be a challenging process,
and countless materials. When you remove the guesswork especially with all the moving parts. However, it’s the
from the estimates and replace it with accurate data, decisions foundation for all construction projects. You want to ensure
about hiring, scheduling, changes, and risks become more you’re including all direct and indirect expenses as well as
proactive and purposeful. Plus, dashboard and reporting labor hours and subcontractor expenses.
capabilities enable data to be interpreted and considered in
a more timely and informed way and have the added benefit
of strengthening the decision-making collaboration between
contractors and owners.

FREQUENTLY ASKED QUESTIONS

Here are the answers to some frequently asked questions

regarding construction estimating.

HOW DO YOU ESTIMATE CONSTRUCTION?

Every project estimator may have a different process for

estimating a construction project. However, the general process
should include the following steps:

1. Analysis of the scope of the project

2. Create a rough timeline for each process

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 About the Article

This article is republished from the InEight Behind the Build online blog.
InEight provides field-tested construction project management software for
the owners, contractors, engineers and architects who are building the world
around us. Customers worldwide rely on InEight for real-time insights that
help manage risk and keep projects on schedule and under budget across the
entire life cycle.

Any views and opinions expressed in this article may or may not reflect the
views and opinions of the Construction Management Association of America
(CMAA). By publishing this piece, CMAA is not expressing endorsement of the
individual, the article, or their association, organization, or company.

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