So You Gut Shot an Estimate . . . 1

[RLM2000]

I have been wondering what other firms/project managers do in this situation:

You have a private client, you give an estimate based on some preliminary drawings or ideas, and the estimate ends up being off target (low and to the left).

Most of our estimates are time and materials, and there is no specific language in most contracts tying us to a percentage of the estimate.

In all situations we try and let our clients know early that we will be going over budget, and in all situations try our hardest to make the best fee estimate we can. Sometimes we just gut shoot it and the recourse is almost always painful.

How do you guys deal with these issues. Do you take hair cuts based on bad bid information and classify the loss as "education"? Do you fight with your clients to get the fee budget increased?

Of course there are almost always extraeneous conditions with every job. i.e. You are realizing that the budget is spent about the time the client is telling you to work overtime to get the project on the street.

 

[FOETS]

Why give a spot estimate; instead give a possible Hi-Low range and most likely value (or probable cost as put by ChrisConley). This is what 6 sigma teaches. The cruder the calculation the lower the confidence of being correct and the wider the range (std dev.) As you progress into the work you get more and more confidence of what the final cost is going to be.

OK its a little like betting on all the horses in race.

There is far more chance that your guesstimate is correct; as you havent really comitted to a single number; and by the fact your saying that you used a six sigma approach sounds like a scientific method of guessing.

FOETS
"social drinker with a golfing problem"

 

[ENC]

RLM2000,
Our firm tracks our hours to perform different types of work. We use our historical record to help us establish the estimate for the work. We mostly give an estimate-not-to-exceed, and we write a scope of work with our proposal so that if there are changes to the scope of work we can go to the client and get extra monies. We also add exclusions or items that are not included, and we state what the client has to provide us for us to complete the design.

However, we have bid jobs based upon Percent of Construction costs and Fix Price jobs, most of which were very profitable. I have been with some firms where this is not the case. The dicipline we use on the smaller jobs with scope definition works to our advantage when we are asked to bid fix price projects.

We can estimate the hours needed to perform calculations for stress analysis, structural design, field inspections, etc. We estimate one job three ways, by task, percentage of construction and by the cost per drawings. So far we have gone over on a few jobs but were able to recover the costs because the client just gave us more & more & more work over the years without having to spend time marketing our services. Overspend a little on a job for a good client goes down as marketing. We never had a job overrun by more than 2% to keep a client happy. Compared to most firms spending 30% on sales and marketing, I view this as a good bargin.

Good Luck.
ENC

 

[RLM2000]

ENC-

We use the same techniques for retaining clients. We have gone as high as 5% "hair-cuts" and called it marketing. We also take "hair-cuts" as education for employees (an employee is new to some type of work so they learn through a clients' project).

Often jobs that go over budget are small. We bid jobs as small as $500 sometimes (that is barely enough for an engineer to open up a Word document and type a paragraph). A 5% overage on a job like that is $25, consequently an extra hour spent due to some unforseen circumstance makes 20% overage in the blink of an eye.

We work with a lot of private parties (i.e. a mom n pop wanting to turn the back 40 into 5 acre parcels) and these jobs are pretty hard to bid. Especially when mom or pop is constantly stopping by with questions because they are new to the procedure (and unsure of what they are paying for). I can bid them based on previous work, but I can never pinpoint what the client will be like. Then at the end of the budget rope I call them to tell them "We went over because you kept calling and changing stuff" and it is hard for them to understand and even worse if their ego gets involved.

Larger companies or developers understand the process and we never run into issues with them. They will say "do this or that and tell me how much more my estimate will be". Often this is the case of choosing or educating our clients.

 

[ENC]

RLM2000,
You should treat Mom & Pop just like the big boys, and tell them that meetings cost money and how much. We tend to limit the number of meetings in our proposals and if they want more meetings it is at additional cost.

I find clients usually want to have less meetings if they know it costs them money. In addition, when we have meetings they are organized and we march through the issues, so that we are not spending too much money on a meeting if the client has to do some homework and get back to us. If need be, we tell them that the work is on hold until they can make a decision.

I hope this helps.
ENC