Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations.
Take Control of Your Estimating
One remodeler uses a customized estimating system to take complete control.
Computerized estimating offers fast, accurate bids on projects of any size and type -- as long as remodelers have done the hard work of going through the program point by point and adapting it to their methods of operation. Until a remodeler takes control of the program and knows what’s embedded within the calculations, software programs will just help lose money in a fancier format.
Tim Englert, CR, president of Tim Englert Construction Inc. in Wadsworth, Ohio, believes strongly in deconstructing computer estimating and building it back to the remodeler’s specifications. His system has become so customized that estimates wind up within 1% to 1.5% of total costs over the year with individual jobs usually within 4%. They are so reliable that he pays his production manager a percentage of the gross profit from produced jobs.
"A computerized database is essentially just a big calculator," he says. "There’s no magic to making the estimates accurate. You have to roll up your sleeves and look at every line item and adapt it to how you work. You have to dissect it and tweak everything to fit your business."
Computerizing a unit-pricing system saves a lot of time and improves productivity, and any remodeler doing much estimating volume should be using a unit-measuring system, he adds. With few exceptions, using a stick method -- in which all materials are logged in and added up along with labor in one big group -- takes too long and is difficult to teach to new estimators. "The overages and underages may even out overall, but it’s not a confident way of working in the long run."
Englert has been using computerized estimating systems since 1986, and he has become intimate with the pros and cons of the programs. A key element is creating the major activity categories into which all possible remodeling work can be subdivided. There are three major options: Create your own system from scratch, adopt the 16 divisions of the Construction Specifiers Institute’s program, or adopt the 25 divisions used by the popular HomeTech system.
Naturally, Englert chose a fourth -- taking the HomeTech format and condensing it to fit his purposes, primarily by combining the three suggested categories of Framing. It fits his needs better, he says, because his lumber bill didn’t make it easy to break down framing lumber by category. He’s now adapting his system for use on ProEst 8.0, a recently released version for PCs that has increased graphic capabilities and a faster system. Englert has been using the software in some form for about 10 years.
Such changes are at the heart of what Englert says must be done to make any estimating system work for a remodeler. "Until I really understood the program and what everything stood for, I realized there were real chances for getting into trouble," he says. "I could underestimate jobs and win them, which would cost me money, or I could overestimate jobs and lose them, which would cost me doing a profitable job. I had to know what was going on in the software."
That can be difficult because the value of such programs is that they combine related items to facilitate estimating materials and labor costs in one unit. For instance, if a remodeler estimates a roofing job will take three squares, he can type in "3" in the appropriate place and receive a complete printout of materials and costs to do the job -- if he has packaged things properly. A key timesaver from the programs comes from being able to call up packages of activities required for a specific project. Keying in a bath or kitchen remodel, for instance, will call up a variety of activities that are universally included in those jobs, ensuring that no elements are overlooked. Those then must be added to as needed for the specific job involved.
Englert’s roofing calculation includes the cost per square of shingles plus the charge to deliver them and the cost for pneumatic nails. But he includes separate line items for felt, ice shields, drip edges, roof vents, plywood sheathing or other elements because those can vary per job. Even then, he points out, when the price of shingles rises by 5%, he has to be careful not to raise the "roofing" line item by 5%, or he’s also raising the cost of delivery and nails. On the other hand, his supplier has a minimum cost for delivery, so ordering one square of shingles could cost him the same for delivery as ordering three.
He also has found that key areas need to be broken down more specifically than most packaged software provides. For instance, he breaks Electrical into every possible activity and product that can be installed, including electrical tear-out, switches, outlets, lighting and electrical services panel. This allows him to insert change orders for items such as additional outlets.
"There’s a tremendous judgment factor involved in figuring how you want your estimating database to work," he says. "Most people assume that two remodelers using the same estimating program to estimate the same project would wind up with the same outcome. But it’s not that easy."
That’s because of the large number of variables involved in creating an estimate, such as the client’s personality and comfort level with the remodeling process. For instance, figuring the labor to remodel a bathroom where the shower walls appear to have rot behind them can be a crapshoot. Englert offers customers two approaches. In one, he figures a set number of hours for tear-out and adds a set time allowance for handling unseen damage. In the other, he bills the client on a per-hour basis for however long it takes to fix. "Some prefer the set amount to guarantee they know what it will cost, and they don’t like to be nickel-and-dimed to death with added charges," he says. "Others prefer to share the risk and hope for the best. You have to read the client to know."
Englert updates his pricing on a regular basis as price changes come through. He also tracks job costs weekly against his accounts payable with his estimator, George Darling. But supplies make up only about 25% to 30% of an estimate’s total. The key to ensuring that pricing stays on track comes in having field staff code their labor time.
"Coding time cards is vital to tracking job costs and comparing them to estimates," he says. "Even if that means they have to take off their tool belts 10 minutes early each day, it’s necessary." For each project, Englert uses a sheet that lists his 23 categories across the top and the crews’ names down the side. Each person accounts for his time in 15-minute increments for each category. (A time card is used to make up weekly payroll.)
Englert keeps the field staff apprised of his estimates, so they know how much time has been allocated for each activity. "I used to give them the hours with dollar estimates attached," he says. "But I discovered they sometimes got left lying around the site, and I don’t want the clients looking at these breakdowns and trying to figure out how they relate to the overall job cost. Besides, I want the crews focused on the labor needed to complete each activity, not on the dollar amount involved."
All elements key off a master document that lists each product used by the company, including brand names and sizes. This ensures that no matter who writes up a contract, the product listings are identical. It also links to each line item in the estimating program to ensure that all aspects of a job are considered and all use the same codes no matter which document is being referenced.
The result has been a system so exact that production manager Dick Holmstrom has his compensation geared to a percentage of the produced gross profit on the jobs. That requires high confidence that estimates will match actual job costs and that profit will be made on each project. It also focuses the staff on the key element -- making money on each job by working effectively and within the bid.
"There’s no magic too it," Englert says. "It takes work, and it takes understanding. But if you understand the system you use and account for it, computerized estimating can make your estimates more accurate and efficient and raise your productivity and profits."
Stick vs. Unit