What is Construction Estimating | Gold Coast Schools

What does Estimating Mean in Construction?

Construction estimating is the process of predicting the total cost of a construction project by accounting for all possible expenses, such as:

Materials
Labor
Equipment
Permits
Overhead
Anticipated profit

This essential step in pre-construction planning helps assess project feasibility, define scope, and establish an accurate budget. If you bid too high, you may not get the job, and if it’s too low, you won’t make any money or worse, you may lose money!

An accurate estimate also prepares the owner for what’s ahead and helps them decide whether they have the funds necessary to move forward with the project. If you’re submitting a bid as part of an RFP process, a thorough estimate can set you apart from competitors, even if your bid is higher.

Here is your step-by-step guide to construction estimating to win over clients while building a profitable construction business.

What Does a Construction Estimator Do?

Large construction companies often hire construction estimators.

Cost estimators are big-picture people: they can evaluate a project from multiple perspectives, anticipate possible challenges, and mitigate against potential change orders.

Estimators analyze project plans based on project specifications and contract documents to prepare cost estimates for direct and indirect costs while building in contingencies and profit.

In addition to being skilled with numbers and having in-depth knowledge of building supply and labor costs, they are excellent communicators. Construction estimators collaborate with the construction team, including architects, engineers, and project managers.

The Construction Estimating Process

No matter who a construction estimator is working for, they generally follow the same basic process. The goal is always the same: determine the price for a specified construction project as part of the bidding process.

While a lot goes into each step, the construction estimation process essentially break down into:

Identifying the project scope
Preparing a cost analysis including direct and indirect costs
Planning for contingencies
Building in a profit margin
Submitting a bid

Let’s take a closer look at each step.

Review Project Scope

The bid package contains the information you need to get an overview of the project. It contains owner-contractor agreements, insurance bond forms, conditions, and construction specifications.

The process of reviewing a bid package usually follows the same process:

Verify that all drawings and specifications are included.
Construction documents may be organized differently depending on the design firm’s preferences. Estimators should confirm that all required drawings and specifications are available to prepare an accurate estimate.
Gain an overall understanding of the project.
A preliminary review of the specifications provides a general understanding of the project’s scope, material requirements, and expected quality of finishes.
Assess structural requirements.
Reviewing the structural drawings helps estimators identify the building’s structural systems and determine the materials and equipment needed for construction.
Review mechanical, electrical, and plumbing (MEP) requirements.
Estimators evaluate how the building’s MEP systems will affect the construction process, including any specialized installation requirements or underground work.
Identify nonstandard or unique project elements.
Since contractors often specialize in specific types of work, estimators should pay close attention to unusual layouts, architectural features, or specialty finishes that may increase project complexity and cost.

During this phase, you want to get a really good idea of the project scope and any specialty contractors you might need, including mechanical, electrical, and plumbing (MEP) requirements. Pay close attention to any non-standard items that might affect costs.

Conduct a Site Visit

Although a site visit is only mandatory for some projects, it is strongly recommended because it allows estimators to assess actual site conditions beyond what drawings or photographs can reveal.

The primary objective is to identify factors that may affect project costs, such as poor drainage, unstable soil, limited site access, nearby structures, or the location of existing utilities. During the visit, estimators typically take notes, capture photographs, and consult with contractors to evaluate how site conditions may influence construction.

In addition to inspecting the project site, estimators should become familiar with the surrounding area, including local building codes, permit requirements, working-hour restrictions, parking regulations, the availability of specialty contractors and equipment rentals, and nearby roadways for material deliveries.

This information helps determine the project’s feasibility and supports the preparation of a more accurate and reliable cost estimate.

Perform Cost Analysis

There are two components to the cost analysis: direct costs and indirect costs. Together these costs include all potential expenses such as materials, labor, subcontractors, equipment, and overhead. Cost estimators use construction estimating software to simplify this process.

Direct Costs

Direct costs include materials, labor, and equipment. Labor costs include employees and subcontractors and should have a cushion for potential overtime pay. Equipment costs include purchases and rentals.

Materials are calculated using what is called a material takeoff or quantity takeoff. A quantity takeoff counts every item required for the project listed the way they are measured: quantity (e.g., doors, windows), area (e.g., drywall, flooring, insulation), volume (e.g., concrete), and length (e.g., wire, piping).

Indirect Costs

Indirect costs include indirect field costs and overhead expenses. These are expenses necessary for project completion but not directly tied to the construction work, such as :

Permits
Insurance
Bonding
Temporary facilities
Management salaries
Site clearing
Equipment costs

Although these costs are not spelled out in a bid package, estimators still need to consider them as part of a construction project.

Contingencies

After estimating all project costs, the estimator adjusts the total amount to include both the contractor’s profit margin and a contingency allowance.

The profit margin represents the contractor’s expected earnings from the project and provides funds that can be reinvested to support business operations and future growth. The contingency allowance is reserved to cover unforeseen expenses, cost overruns, or material waste that may occur during construction.

The appropriate profit margin varies among construction firms and is determined based on factors such as company growth objectives, market conditions, competition, and the level of risk associated with the project.

Estimators factor in extra costs for unforeseen circumstances, potential overruns, and waste. This amount varies significantly but generally is calculated between 5 and 10% of the total contract price.

Profit Margin

A project only makes sense if it makes a profit. Construction companies determine their own minimum profit margin based on their goals, market conditions, and other factors.

Finalize and Submit the Bid

Once the process is complete, the bid is submitted. In an RFP process, all bids are sealed until the deadline to keep the process competitive.

You can learn how AI and construction estimating are changing the game in our recent blog!

5 Types of Estimates

The American Society of Professional Estimators developed five levels to construction costs estimating, each building on the other. The premise is to determine early on whether the project is feasible before getting into the details of how much it will cost.

Here are the five tiers:

Order of Magnitude. This is a very rough idea of how much the project will cost based on similar past projects to determine if the project is feasible and worth pursuing.
Schematic Design. Once a project is considered feasible, square foot calculations are used of similar projects to estimate overall costs of the new project.
Design Development. The next level uses a tentative project design to adequately determine materials and quantities to establish a rough estimate for the specific project.
Construction Document Estimate. This estimate is based on a completed design document with comprehensive drawings and specifications for the project. Estimators can establish a fairly realistic budget for a project here.
Bid Estimate. This is the most detailed estimate based on the bid package.

Why Accurate Estimating Is Crucial for Contractors

The construction cost estimator’s job is pivotal to the success of the company. An accurate cost estimate minimizes cost overruns and budget issues and ensures profitability for the project.

Accurately estimating total costs also builds trust and credibility as a company.

How Contractors Can Improve Their Estimating Skills

Contractors can improve their estimating skills with practice and continuing education. Professional construction estimating classes in Florida build a solid foundation to accurately prepare different types of estimates used to bid on construction projects.

Courses often include how to use estimating software and automation tools and the shortcuts estimators can take to speed up the process without sacrificing the detail needed for accurate costs estimate.

Construction estimating requires the know-how learned through continuing education and practice gained through experience. You’ll also need to stay keenly aware of labor and material costs and trends. Over time, you’ll refine the process.

Conclusion

Construction cost estimating is a multi-step process that begins with determining whether the project is feasible from a cost perspective and ends with a detailed bid of all the costs, contingencies, and profits built in. The role of the construction cost estimator is vital to project success and the overall profitability of the company.

The best way to learn how to perform a construction cost estimate is to learn the tricks and tips from professionals. Gold Coast Schools’ Introduction to Construction Estimating and Bidding Essentials course teaches contractors how to submit competitive bids to win the job!

The comprehensive course helps contractors hone their skills to accurately prepare different types of estimates to bid—and win—construction projects.

Explore Florida contractor licensing courses and Gold Coast Schools to uplevel your skills and grow your business.

Construction Estimating FAQs

Do Contractors Get Paid for Estimates?

Typically, contractors are not paid for estimates. However, their cost is often included in the bid as an indirect cost or built into the overall profit of the project. Estimator salaries are an overhead expense for a construction company—their role is vital for securing business.

What are the main construction cost estimating methods?

The primary estimating methods include unit cost estimating (calculates costs per unit of measurement), detailed estimating (breaks down pricing for each item and task), parametric estimating (predicts costs based on certain variables), assembly estimating (assess costs for larger project components), and analogous estimating (incorporates historical data from related projects to predict expenses).

What are common issues in estimating building costs?

Common issues include missed takeoff or inaccurate measurements, volatility of material and supply costs, failing to review your work, and underestimating labor costs.

What is construction estimating?

Construction estimating is the total of the direct (material, labor, and equipment) and indirect (permits, utilities, and insurance) costs needed to price construction projects and create profitable bids.

Interested in becoming a Florida real estate agent?

Connect with an enrollment advisor today.

By clicking “Submit”, you authorize Gold Coast Schools (“us”) to deliver, or cause to be delivered, to you at the phone number you provided above with telemarketing, promotional, informational, and transactional calls and/0r text messages using an automatic telephone dialing system or prerecorded/artificial voice. Message and data rates may apply. Text message and call frequency varies. You may opt-out of receiving texts at any time by replying “STOP”. You may opt out of receiving calls/texts by contacting us at info@goldcoastschools.com and letting us know you want to opt-out. Reply “HELP” to a text for assistance. Calls and texts may be recorded for quality and training purposes. Your consent is not required to purchase any goods or services from us.

By clicking “Submit”, you also agree to receive commercial, promotional, and transactional emails from us at the email address you provided above You can opt out of receiving future emails at any time using the unsubscribe link in our electronic messages or by contacting us at info@goldcoastschools.com and letting us know you want to opt-out. See our Terms and Conditions and Privacy Policy for more information.

Need Help?

We're here for you!

Our expert enrollment advisors are available with any questions you might have.

800.732.9140

Hours:
Mon-Thur 8am - 6pm (EST)
Fri 8am - 5pm (EST)
Sat 8am - 12:30pm (EST)