Project estimation or development work is one of the most arduous responsibilities for many construction industry professionals. It is, however, one of those unavoidable duties that must be carried out, often at several points throughout the project.
Estimation is done upfront to cost the project and map out timeframes. Other estimates include the estimate for change orders during the project, and clients are frequently offered ballpark estimation figures on work they ‘might’ want to be done.
Have you ever wondered how precise your projections are? According to a poll by QuickBooks and TSheets, roughly 1/3 of construction companies earn less profit than predicted based on their forecasts. That’s not unexpected, given that 40% of participants aren’t sure how accurate their estimates are.
It’s unlikely that one incorrect estimate on a money-losing project will knock you out of business. However, you can end your business entirely if you combine unproductive initiatives. According to 25% of all respondents, only two or three incorrect estimates would be enough to bankrupt their business.
Even though meeting the estimation targets appears difficult, most contractors commit common estimation blunders. As a result, contractors frequently experience cost overruns, delayed project delivery, and late payments due to inaccurate estimation.
Let’s see the common project estimation pitfalls in construction project management and how they can be avoided.
Estimation Based On Unclear Project Needs
Client business needs, end-user usability requirements, and functional requirements are all part of the project requirements. You won’t be able to create reliable cost estimates until you clearly understand project requirements obtained from the perspective and understanding of your client’s subject matter experts. Nonetheless, as you carry out the project based on those erroneous estimates, you find yourselves receding further away from the base projections as you learn more about what it will take to finish the project.
How to Avoid
To overcome this, considerable time for requirement analysis should be set aside; The project’s end-user officials should be trained on how to add value to the requirements definition best; Additionally, the team members should be educated to delve deep into those requirements. Furthermore, the project requirements should be documented extensively, utilizing a structured technique that eliminates the uncertainty with traditional English narratives.
With well-crafted specifications, you’ll be better positioned to create more accurate cost estimates that your clients can trust.
Inability to Account for Bias, Pessimistic and Optimistic Perspectives
The project manager must be mindful of their own bias and that of the project team and management. Pessimistic bias occurs when a person intends to add time because they believe it will take longer or there will be some blunder. Let’s not be too harsh on this character. They frequently have solid reasons for taking this strategy, which is most likely based on their experience or the fact that they can perceive enormous gaps in the scope’s description. This must be balanced against the optimistic bias.
This upbeat type tends to feel that everything is easy and more can be accomplished than practical. For instance, suppose an SME is asked how long it will take to complete a set of tasks. The quote is predicated on them doing the assignment flawlessly without considering the experience of the individual(s) involved in the task. Optimists who wish to be viewed as having a “can-do” attitude are the most harmful. A project manager must have a “can do” mentality, which must be matched with realism, as with many of these buzzwords.
Some people believe they can complete a task in a few days without any problem; however, it is not achieved. Therefore, the accurate estimate is often not fulfilled.
How to Avoid
The recommended thing to do is to adopt a behaviour that is a blend of optimism and pessimism. For example, the project manager should believe that he and his team can complete the project in a fixed period, but that estimated fixed time estimate should match realism.
Project Risks Are Not Taken into Account
This relates to the initial point about being overconfident. Cost estimation goes hand in hand with risk planning. Every project contains risks, and Project Manager’s job is to detect them early and evaluate how they may impact the project. Risk management is integral to the planning process, but many of our hazards are tied to people. For instance, what if the technical architect cannot complete her current project on time; how will she be replaced with someone with comparable or superior abilities?
How can a reliable acceptance test be ensured if the client’s project team includes bad user acceptability testers? How can a potential delay be avoided if an equipment vendor agent fails to deliver on its promise of early delivery?
How to Avoid
To mitigate this error, such risks must be considered, appraised in terms of their likelihood of occurring, and reflected in cost projections. Not all of them will happen. Some will only take place in part, with little consequences. Some will happen. It’s prudent to be realistic about potential risks to avoid catching off guard later.
Failing to Understand Quotations and Estimations
An estimate is a prediction, but a quote is a defined price. When a customer requests a quote, knowing precisely what you’re pricing for is critical. Fixed-price contracts are frequently agreed upon without enough study and description of the needs. Particular vigilance should be exercised when you or your organization attempts to win business.
How to Avoid
In this case, you must spend some extra effort upfront defining and agreeing on the scope. The extra time spent now could spare you from a later loss-making endeavour. But, on the other hand, there are projects where the scope is not specified and costs much more than it should.
Making Informed Guesses
It’s astonishing to believe that people in the industry still rely on educated assumptions when there’s so much information available online, historical databases, and cost estimation software.
It’s a risky move for your company to make and a horrible thing to do. But, it’s a guaranteed technique to raise your company’s chances of dealing with expense overruns.
How to Avoid
It has been witnessed that when a team is pressured to complete the bidding process fast, it begins to cut corners.
As a general guideline, all expenses should be based on the most up-to-date information.
Failing to Double-Check Your Construction Estimate
Creating a cost estimate is time-consuming and exhausting, and the prospect of reviewing all the documentation at the end might feel like a penalty.
While it’s tempting to think that what you’ve put together is correct based on experience, your estimates should always be double-checked by yourself, a colleague, or a third party.
How to Avoid
Everyone makes mistakes from time to time. Even the most seasoned estimators can be fooled. Small margins of error accumulated over time might add up to a significant financial burden that will almost certainly have to be paid for out of your pocket. The importance of this cannot be overstated. Check, check, and double-check.
Construction project estimation is a complete and extensive project which requires painstaking efforts and careful execution. However, everybody can make errors. Even the most experienced project managers commit mistakes during cost estimation. Although it’s never late, you can learn from those mistakes that damage your business and take the necessary actions to avoid them.