Construction cost estimating methods, and when to use each
Estimating is working out what a job will cost before it exists. How accurate that can be depends entirely on how much you know when you do it — which is why there is more than one method, and why using the wrong one is expensive.
1. The preliminary estimate
Used early, when there is a sketch and a conversation rather than a drawing set. Sometimes called a sales estimate. Three common approaches:
- Benchmarking — what jobs like this one have cost you before.
- Unit rates — a rate per square metre applied to the floor area.
- Factoring — a percentage of a job you have already priced properly.
A unit-rate example: at $1,500 per square metre, a 230m² house comes out at $345,000. Markups, contingencies and taxes go on top of that figure, not inside it.
This is a conversation number. It tells a client whether they are in the right suburb of the right price. It is not a number to sign a contract on, and the moment it starts being treated as one you have a problem, because clients remember the first figure they hear.
2. The detailed estimate
The production estimate, built from the drawings and the specification, item by item. Expect roughly -5% to +10% accuracy on a well-documented residential job.
This is the one that does real work afterwards. Your purchase orders come off it, your budget comes off it, and every actual cost is compared back to it.
The level of detail depends on what you will buy and how. If you supply soffit sheets for your carpenter to fix, you need the sheet count and the sheet width — 450, 600 or 750 — not a lineal metre figure. If the trade supplies the material, you do not.
Detailed estimating is built from the bottom up, and it is slow the first time. It is also the only version that can tell you, six weeks in, whether a trade is running over.
What to include before you total it
Costs that get left out of residential estimates, over and over:
- Labour
- Materials
- Plant and equipment — temporary fencing, scaffold hire, generators
- Transport, freight and delivery
- Council and application fees
- Insurances
- Temporary works and services, including site clean
- Preliminaries and supervision
Direct costs attach to the work. Indirect costs — the preliminaries — support the work. Both are real; only one gets quoted to you by a supplier, which is why the other goes missing.
Structure is what makes an estimate reusable
A defined work breakdown structure and cost codes are what stop things being overlooked, because an empty cost code is visible in a way an unthought-of cost is not.
The other reason to care is comparison. If your estimate and your actual costs use the same structure, budget against actual is automatic. If they do not, somebody reconciles two lists by hand every month, and eventually stops.
That is also what lets the job answer the only question that matters mid-build: not what has been spent, but whether what has been spent bought what it was supposed to. With the estimate, the invoices and the programme on the same cost codes, earned value works that out per code — over or under, ahead or behind — while there is still time to act on it.
What to look for in estimating software
- More than one structure per job, because a costing for tender and a costing for production are not the same shape.
- A bill of quantities whose quantities come from the take-off, so a drawing change does not mean a re-measure.
- A connection to the books — Xero, in our case — so orders and invoices are not typed twice.
- Budget-versus-actual reporting you can read without building a spreadsheet.
SmarteBuild is Australian estimating and job management software for residential builders. Try it free for 30 days — no credit card, every module unlocked.