Estimation Accuracy: Key to Effective Project Management in Construction

Richard Herman

Project Management

Time estimation is one of the key factors in construction project management that should always be done with precision. Due to increasing competition, the projects are becoming large with more constraints and less budget and time, therefore the wrong cost and schedule estimates are a recipe for disaster. These negative consequences stem from the fact that poor estimates result in cost overruns, project delays, unsatisfied clients and stakeholders, and reduced profit margins. Since the construction industry suffers from economic risks and fluctuations, it is even more important for it to work on establishing good estimation practices to thrive.

Why Estimation Accuracy Matters

Every construction project – commercial, infrastructure, or residential – requires credible cost estimates and activity duration estimates to serve as the basis for planning and project delivery. Without a doubt, this means that if the baseline is not set up right with the help of accurate construction estimating services, the project plan is likely to fail big time.

Here are some key reasons why estimation accuracy should be a priority:

Prevents Budget Overruns:

A McKinsey study states that for every dollar spent on megaprojects, 1.3 is lost on average by going over the budget on this kind of project. Thus, small and mid-sized projects, respectively, experience similar overruns even if they begin with insignificant estimation discrepancies. This can be disastrous in construction where the profit margin is sharply measured often hovering near the break-even point. Benchmarks avoid such shocks and give confidence to all users about the actual money outlay at the initial stage of the project.

Enables Realistic Activity Scheduling:

Other than costs, when activity duration estimates are uncertain, then schedules are vastly affected. This creates a series of mis Estimated Time and Scheduling which affects the timely implementation of the project, work congestion at the end of the project, improper site/people/machinery management, and confusion. This results in high costs on contractual time for not honoring contractual time-bound obligations. This is very true since good duration estimates help in coming up with reasonable schedules for the development.

Facilitates Risk Analysis & Contingency Planning:

A risk assessment of cost and schedule estimates can also be made since they incorporate the variables and assumptions they use. The next step in this explanation is that when risks become apparent and measurable, they can be managed through the preparedness of contingencies. This is important so that one does not incur extras that they never expected or planned for.

Eases Stakeholder Management:

Those poor estimates result in such a shift in the budget that not only the planned milestones are missed but also the investors/shareholders who expect clear and proper planning get frustrated. They tend to trigger shareholder activism because confidence in the firm has been eroded. Also, it affects relations with suppliers/sub-contractors negatively and can lead to staff turnover in project teams. It helps ensure that there are no misunderstandings and that the relationships that both parties have are professional and trustworthy.

Several important challenges have to be met when striving to maintain accuracy in estimation:

While the value of estimation accuracy is undeniable, achieving it consistently involves addressing some intrinsic challenges, including:

Lack of Data & Insights on Past Projects:

It was also established that between 30 and 50 percent of material costs may be due to mistakes in quantity take-off from available drawings/ specifications of previous projects. Thus, proper historical benchmarking is required to evaluate the trends in judgmental errors that are impossible to see and rectify otherwise.

Cognitive Biases & Intuition-Based Estimates:

It remains that 90% of estimates are still done based on a hunch or more technically, of a gut feeling. However, it is necessary to note that behavioral science also demonstrates many psychological factors that affect human judgment and cause systematic over/under-estimations. There are cognitive effects that can be rectified through estimation with data.

Communication Gaps & Hidden Assumptions:

There are several times that estimates are relayed through the hands of the engineering department, estimating department, project management, and site teams. At each stage coefficient assumptions get lost and exclusions get lost leading to invalid estimates. This plan ensures that errors are not made when establishing traceability from the creation of an estimate to its execution.

Market Fluctuations & Unique Project Constraints:

These may include supply chain disruptions and the issues arising from the execution of works in a specific location, thus creating elements of variability that make project estimates deviate from the costs framed during the conceptual phase before the feasibility study is conducted. It is a good practice for estimates to be reviewed periodically to align with them as more constraints come to light.

Improving Estimation Capabilities

Achieving enduring estimating services accuracy requires strategic initiatives focused both on estimation techniques/tools as well as team capabilities:

Estimation Based on Historical Data Analytics:

As for both cost estimates and activity durations, this data has to be analyzed based on historical data coming from previous projects to establish a project-specific baseline, not an industry average. The last category of analytics that is used to examine judgmental biases is pattern recognition.

Adoption of Data-Driven Estimating Tools:

Digital tools that apply historical data for predictive modeling and parametric estimates reduce error margins as well as the amount of time, compared to manual functions. It defines and organizes activities and prevents multiple keying of data in and out of estimation, budgeting, and bidding.

Cross-Functional Collaboration During Estimating:

It is common for estimates to be created and reviewed in silos; hence, effectively breaking these silos can be highly beneficial. Pre-estimation workshops that involve engineers, estimators, project managers, and construction managers help eliminate technical and non-technical mistakes before making them final. It facilitates the tracing of estimates of the creation of assumptions.

Developing an Estimating Center of Excellence:

To provide context, Table 1 summarizes the key strengths of the estimates and discusses how the following practices support organizational learning: Dedicated in-house global teams of senior estimators creating and reviewing all key estimates. It also foster the training of junior estimators to enhance capabilities for improved results on different projects.

Estimate Risk Reviews & Contingency Planning:

It can be beneficial to incorporate more frequent collective estimations, which should be accompanied by a shared review of risks and their management strategies. Synchronize risks to cost risks, apply stochastic or predictive analysis for risk assessment, and incorporate contingency allowances. Such changes may include updating contingency plans with the emergent risks within the organization as issues.

The Bottom Line

For construction estimating company contractors who may be operating on thin profit margins and who are seeking to build a cushion against the prevailing market adversities, estimation accuracy is something that cannot be overemphasized. While the process of getting there does entail confronting organizational issues, coupled with the fine-tuning of methods and technology, the reward in the form of improved fiscal control, reduced risk, and predictable time frames make it entirely unavoidable. In turning estimation excellence to the direction of the benefit throughout the project’s lifecycle while interacting with other functions and the Centre of Excellence, net positive results attain longevity.

Organizations that can do estimation well will have a competitive edge, because clients and shareholders can have a lot of confidence in the organization’s ability to deliver projects most predictably. The fact of precise estimation defines which construction companies are built to endure the test on the market and which cannot. This is the time when the industry should take time and act in an organized manner to address it.

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