Budgeting versus Estimating
There is a spectrum of estimating efforts that can span from a quick square foot (SF) budget from a short phone call by a customer all the way to detailed quantity take-off (QTO) pricing. Usually, the former budgeting is associated with conceptual or schematic design (SD) drawings, and the latter estimating task is associated with complete construction documents (CD). The level of effort for this task will depend on several factors such as:
The purpose of the effort, which is usually either for; competitive bid, internal check for design progress, or at the request of a customer for help with their budget with their customer
The amount of information available, or that is defined, for you to price.
The accuracy needed with respect to the cost of your effort
Given the overhead cost of this effort, how do you know how much to do when? It is pretty straight-forward to estimate a complete set of plans off of CDs, and if this is in the form of an RFP or ITB (Invitation To Bid). Therefore, most of this discussion will be directed to the approach to budgeting, which is a much greyer area than a QTO. There are many estimating books that can teach specific budgeting techniques, and you are encouraged to research these for trade-specific activities.
First, consider your relationship with your customer, and the position of the person asking. Is the person asking you influential and knowedgable about their use for this? E.g, is it a project executive that can share details with you, or an estimating assistant that is just asking for a price and does not know any more? If the latter, insist about asking who else you can talk to in order to get more details – you deserve to ask given the potential effort you may put into this. Plus, you want to make sure you accurately understand the expectations so you can exceed them.
Is the information that you have to work with limited to just architectural drawings, or are there some SD level of your trade’s drawings. If there are equipment schedules, you must get at least one price on all this equipment, as this will be one of the best ways to converge on overall accuracy with minimal effort, assuming you have vendors in your trusted circle that will do this for you. If there is any kind of plan layout, consider getting subcontractor pricing, but be careful they don’t just include tons of contingency – you may be better off pricing yourself based on your historical data.
Regarding the accuracy needed – will they be making a decision based on this round of budgeting? Or are they getting several budgets to average together to share with their owner customer for high-level budgeting, e.g. If they are making a decision from this effort with limited pricing documents, ask about filling holes or not, so that you do not appear to be uncompetitive. Be mindful of significant figures too when considering the level of effort and associated costs and benefits of your efforts. If you are quickly budgeting a subcontractor to the nearest $100K (perhaps by SF or historic means), why spend extra days trying to optimize material and labor to within $5,000?
A common characteristic associated with all these efforts will be clear communication of assumptions, clarifications, and exclusions (ACEs). Make clear your assumptions about filling gaps, and what you expect your customer to do. Always include a few clarifications about the plans or specifications to demonstrate your level of engagement with the information given. This gives your customer confidence and can be a differentiator from your competition. Make clear your exclusions. Refer to the book Radically Different MEP Preconstruction for many such examples in the MEP trades.
Finally, have your effort reviewed by an expert. How is “expert” defined? The expert estimator should have ample estimating experience in your trade, and ought to be able to know the most competitive labor methodology to accomplish the work. Ideally, an expert estimator will be humble enough to consult with field experts to understand for unique or tricky installations and the best methodologies to use, as usually, there is always someone smarter than the estimator for certain components (“no one is smarter than all of us”).
Make a system for your company that can be used to train newcomers to your company and even the industry, so when your company gets this request, you don’t have to start from scratch each time. Keep historical records, by system and occupancy type, and know how to escalate older projects by utilizing industry indexes. Include tools such as rules-of-thumb such as price per panel, foot of pipe for various sizes with an assumption about frequency of fittings, or pounds of ductwork per SF depending on occupancy, and then price per pound. Ensure that this can and will be updated regularly, but be careful to make sure those who use this know the range of accuracy and do not use this as a crutch and avoid learning more from every example.
Budgeting can be a great way to differentiate yourself as a trusted partner. Stay knowledgeable with the current market and find a mentor to learn techniques, make use of this effort as a touch point for frequent conversations with your customer (ensure they are influential for you), understand the expectations and exceed them always, and have a system to be able to react quickly and cost-effectively. Utilizing these strategies will help you maximize the greatest return for your overhead efforts.