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Controlling Estimating

The biggest problem in electrical contracting is labor over-runs. For twenty-five years, in an effort to find the causes of those labor over-runs, cost studies have been done based on dividing jobs into six installation steps.

1. Empty Raceway.
2. Switchgear.
3. Wire.
4. Fixtures & Lamps.
5. Devices, Plates, and Equipment Connections.
6. Special Systems Equipment, such as Fire Alarm, Sound, Nurse Call, etc..

In every single study the two installation steps that consistently ran over on labor were empty raceway and wire. And in every single study empty raceway and wire ranged from 69% of the total labor to 87% of the total labor. Here are some of the jobs covered in that study, showing the percentage empty raceway and wire labor was as a percentage of the total labor in the job.

EMPTY RACEWAY & WIRE LABOR SHOWN AS A PERCENTAGE OF TOTAL LABOR
TYPE OF JOB	EMPTY RACEWAY & WIRE
APARTMENTS	76%
BANKS	75%
CHURCHES	72%
DORMITORIES	78%
FOOD PROCESSING	87%
HOLIDAY INN	69%
HOSPITALS	74%
LABORATORIES	75%
LIBRARIES	75%
MOTELS	74%
NURSING HOMES	77%
OFFICE BUILDINGS	73%
SCHOOLS	70%
SHOPPING CENTERS	78%
SUPER MARKETS	75%

Total labor in an estimate is obtained by multiplying labor units by quantities. If either the quantities or the labor units are too low then the total labor will be too low. But in the studies the material for empty raceway and wire also ran over. Which meant the bill of materials and the quantities were wrong.

In each of the studies, comparisons were made between the estimated bill of material and quantities and the actual bill of material and quantities. Here's what every job studied showed about empty raceway and wire.

1. The bill of material was not complete.
2. The quantities were not accurate.
3. The prices were not reasonable.
4. The labor units were not realistic.
5. There were mistakes in the arithmetic in take-off quantities.

Now here's the facts:

1. Every job gets finished.
2. Before it gets finished it is going to get every single piece of material needed to do the job, in the quantities needed to do the job.
3. The company is going to pay for that material and those quantities, and the labor to install them.
4. The money to pay for the material and labor needed to do the job can come from only three places.
   
   
   • Estimated direct job costs.
   • Estimated direct job costs and estimated profit.
   • Estimated direct job costs, estimated profit, and the contractor's pocket.
     
     
5. A reasonable profit can be earned only when the money to pay for the material and labor needed to do a job is covered under estimated direct job costs.
6. Estimated direct job costs can be accurate only when they cover:
   
   
   • A complete bill of material.
   • Accurate quantities.
   • Reasonable prices.
   • Realistic labor.
   • Mistake-free arithmetic.

Conclusion:

The first step toward a reasonable profit begins with the ability to consistently estimate direct job costs accurately. With special emphasis on empty raceway and wire. This is why estimating is a science, not an art.

Here are the proving numbers.

Small Job Sample:

The contractor with a 10% mistake in direct job costs is almost certain to get that job. And almost certain to lose money on that job. Here's why.

PROFIT WHEN COSTS ARE 10% LOW DUE TO ESTIMATING MISTAKES

Larger Job Sample:

The same is true for a larger job. And with a larger job, there are more opportunities for mistakes.

Again, the contractor with a 10% mistake in direct job costs is almost certain to get that job. And almost certain to lose money on that job. Here's why.

PROFIT WHEN COSTS ARE 10% LOW DUE TO ESTIMATING MISTAKES

There is a cynical attitude in the industry that is expressed in the belief that the low bidder is the one who made the most mistakes in the estimate.

There is some justification for that attitude. All too often, the low bidder is low because of estimating mistakes. Specifically, mistakes that result in an estimate with:

• Incomplete bills of material.
• Inaccurate quantities.
• Wrong material prices.
• Unrealistic labor units.
• Mistakes in arithmetic, in the take-off, extending and totaling, recapping, handling low quotes, and in the summary.

Our research studies have even found computer programs that did not handle the numbers correctly.

We have shown how mistakes make the bid price too low and almost certain for the contractor to lose money on that job, if the estimate results in a contract. But, there are mistakes that cause the bid price to be high, also. These mistakes the contractor does not know about because the estimate is filed away and the estimators go on to the next job.

Research studies were done through thousands of estimates to find the types of mistakes estimators made. This research resulted in the two underlying principles of the Master Estimating System, mistake-prevention and mistake-detection.

Don't you really want to get control of estimating?

Controlling Estimating, begins with Estimating Level I, Training Workshop. An accurate and organized estimate, is the foundation of a profitable job.

Please do not hesitate to call 1-540-925-2413, for additional information or if you have any questions.

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Information contained in this website has been taken directly from our encyclopedia,
The Business of Electrical Contracting
Master Systems 1963-1990, 1990-2007, 2007-2024.