A construction project estimate is vital to keeping a project from going over budget. This guide explains an assessment and how to create an accurate estimate before the project begins.

Budget overruns in construction are practically a guarantee these days. Construction projects are complex operations, and people tend to be overly optimistic about their success. Add to that the fact that clients love making changes on the fly, and it's easy to understand why keeping a project on budget is next to impossible in this industry.

But it doesn't have to be that way. It is possible to control your costs and protect your profit margins.

When you're talking about cost control in construction, you're talking about getting an estimate done right at the start -- not managing finances midway through, which is a recipe for disaster. By becoming an excellent construction cost estimator, you will avoid those budget overruns that cost your business.

Construction estimates also make construction project management more accessible because you can be confident that the tasks you are executing have been laid out in the budget and will get the project closer to completion without jeopardizing the bottom line. Here's what you need to know about estimates and how to do one correctly for your next project.

Overview: What is a construction estimate?

A construction estimate is a document that lays out, in detail, all of the costs involved in a construction project. A reasonable construction cost estimate will give the construction manager and the client an idea of the project's cost so there are no surprises when the project is completed. As a result, this is one of the essential parts of the construction project because a badly-done estimate will result in budget overruns and possibly even delays, leading to evaporating profits and unhappy clients. Therefore, construction managers should devote significant time and energy at the outset of the project to properly flesh out all of the costs associated with a project.

Five construction elements to factor into your estimating

When it comes time to create your construction estimate, generally, all costs fall into four main categories.

A. Materials - (Matls)

Every construction project requires materials, so compile a detailed list of every type of material associated with each phase of the project, the quantity of the materials needed, and the expected price of those materials at the time you purchase them. The last item, the price, is the most difficult to predict due to cost fluctuations outside your control. To be safe, budget for higher-than-normal prices to ensure an accurate quote.

B. Labor -

(40% - 60% of Matls)

Salaries and wages refer to authorized by the Department of Labor and Employment. Provide a detailed breakdown of the person-hours expected for each project phase. Include some wiggle room in the construction workflow if overtime or extra emergency workers are necessary due to change orders or unforeseen challenges. Don't forget to factor in subcontractors as well. Labour will eat up a large chunk of your budget, so any mistake in this category will cause a significant miscalculation in terms of the overall cost.

C. Equipment and Tools (10% of Materials)

Equipment may take up a significant portion of your budget or be relatively minor. If you already own all the necessary equipment and need to carve out some space in the budget for fuel and maintenance costs, your expenses in this category will be relatively minor. But jobs that require renting or buying new equipment will result in significant expenditures, which should be noted in the final project cost. You should also include expenses for wear and tear -- even though it may not cost you money out of pocket in this project, by having it in the estimate for construction, you will set aside money for purchasing new equipment down the road.

D. Professional Fee (5% - 10% of Materials)

Items of professional fees in the Philippines are one of those consolidated, and this is what we will take here.
Withholding tax rates of professional fees under TRAIN RA 10963 Philippines Under RR 11-18 amending Section 2.57.2 of RR 2-98, as amended, the following are the withholding tax rates on professional
fees, promotional, talent fees, or for any other form of remuneration:
Professional payments to individuals: 5% if current year gross income does not exceed P3M. Otherwise, 10%, if exceeding.
Professional fees to juridical entities: 10% if current year gross income does not exceed P720K; otherwise, 15% if
exceeding P720K.
To avail of the 5% for individuals or 10% for non-individuals, the payee taxpayer would need to provide a Bureau of Internal Revenue (BIR) sworn statement-Annex "8·1" of RR 11-18 for individuals, or Annex "B-3" for non-individuals, along with Certificate of Registration in the Philippines or BIR Form No. 2303 to withholding agents or payors not later than January 15 of each year or at least before the initial payment. For those exceeding P3M individuals, Annex "B-2" of RR 11-18 is applicable.

I. Direct Cost = Matls + Labor + Equip & Tools + Professional Fee

E. Overhead, Contingency, and Miscellaneous (OCM)

Overhead 5% of Direct Cost

Contingency 7% Of Direct Cost

Miscellaneous 3% of Direct Cost

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A construction project will feature lots of miscellaneous overhead costs, from your salary as a construction manager to temporary on-site facilities to permitting and fees. It's sometimes tough to remember all of these items, so consult with past projects to see where you spent your money, and discuss this category with your crew so they can identify other expenses you may have forgotten.

F. Contractors Profit (8% - 12% of Direct Cost)

Generally, the amount to be paid by the Owner to the Contractor for the execution of the Work? The Owner should pay the CONTRACT PRICE for the performance of the Work by the Contract. The Owner's obligation to pay the CONTRACT PRICE ends when he makes the FINAL PAYMENT to the Contractor. There is a FINAL PAYMENT when payment is made of the final progress billing and all approved claims, including but not limited to variations in the Work, Contract Price adjustments and escalation, acceleration of Work, and others.
In government projects in the Philippines Contractor's Profit Margin - shall be 8% and 12% of the EDC for projects above P5Miliion and up to a million, respectively.

DO_197_s2016

II. Indirect Cost = OCM + CP

III. Vat exclusive = 8% of (Direct + Indirect)

IV. Grand Total Estimates

= Direct + Indirect + Vat

How to create a successful construction estimate

Once you have all of this information, you're ready to build your construction estimate. This is a relatively simple process involving five basic steps.

Perform a quantity takeoff

List all materials costs for each phase and then provide a total estimate. The estimate should identify all materials needed for the project and the expected prices.

Estimate labor

Compile all labor hours for each phase and the labor rates, taking into account possible overtime and subcontractor quotes. Add all of these together from all the steps to get a final project labor estimate.

Use a template

Add these estimates from each phase and plug them into a construction estimate template. You can find many construction estimating templates online -- choose one that fits your business.

Create a timeline Using Formula Automation.

It uses the project scope to determine what needs to be done and when drawing up a construction schedule or timeline that breaks down the project into multiple bite-sized phases.

If you are wondering how I used timeline using formula automation. I'm gonna show you how in Google Spreadsheets. You can email me at engr@jaspergementiza.com, I will send a sample then you will be able to customize it by making a copy.

Add equipment and overhead for the final estimate.

Add estimated total equipment and overhead costs for the project by factoring in fuel, maintenance, facilities, and other miscellaneous expenses, and combine that with the labor and materials costs to get your final estimate.

Five tips and tricks for creating a construction estimate

The process sounds simple, but is it? Not exactly. Even the most seasoned professionals struggle with construction estimates. Here are four tips and tricks to help you get it right the first time.

1. Give yourself wiggle room.

Avoid being overly optimistic when you create an estimate -- pessimism is your friend here. While a client may balk at a higher price tag for the project, it will be worth it when you don't have to frustrate your client by telling them you've gone over budget. You may come in under budget and be in your client's good graces. This alone may ensure future Work with this client and, at the very least, leads to a good reputation for your firm.

2. Talk it over with your team.

When estimating, you want to get every last expense included to prevent unwelcome surprises at the end of the project -- or, worse, right in the middle of it. Big decisions like this should not be made in a vacuum. Involve everyone on your team in estimating because they're likely to spot at least a few expenses you've forgotten.

3. Consult past projects

Do you wonder if your budget is truly comprehensive? An excellent way to know for sure is to look at the final expense lists for past projects. These are records of what you spent money on and how much you ended up paying. Completed projects will help you come up with estimates that better reflect reality rather than what you hope you can accomplish.

4. Consider hiring a professional

If you can't get your estimates right, hiring a professional to look at your calculations and spot problems may be time. Consultants are expensive, but if they can get your estimates right, they'll save you enormous money in the long run.

5. Try out new software for your next estimate.

Construction management software typically has construction estimating tools that will make it easier to come up with accurate estimates -- and you can even find construction estimating software devoted explicitly to this task. These tools will guide you through the construction planning and scheduling process and generally make it easier, encouraging you to spend more time with an estimate rather than rushing through it because it's an unpleasant task you want to get done. The software also often includes construction management and analytics tools, so you can use data to develop insights. Budgeting tools will keep an accurate record of past project expenses that will inform future estimates.

Reference:

How to Estimate a Construction Project: A Step-by-Step Guide. https://www.fool.com/the-ascent/small-business/construction-management/articles/construction-estimate/
SECTION I - DEFINITIONS AND DOCUMENTS. https://ciap.dti.gov.ph/content/section-i-definitions-and-documents