Estimates to complete
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A very simple example of the value of good estimates to complete in the construction process.
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Estimates to complete
- 1. An example Prepared for Hayles and Howe, Inc. Joselin R Martin Financial Manager
- 2. Value of contract $3,500 Estimated budget mandays 12 Estimated budget manday rate $200 Estimated total cost $2,400 Estimated profit $1,100 Estimated profit % 31% All rights reserved 07/26/2012 2
- 3. Calculation: Subtract the actual to date from the budget Benefit: Easy Drawback: May or may not have any relationship to the amount of work actually performed to date All rights reserved 07/26/2012 3
- 4. Original Estimate Method 1: Budget - Actual Value of contract $3,500 $3,500 Estimated budget mandays 12 12 Estimated budget manday rate $200 $200 Actual mandays incurred 5 ETC: Est - Actual 7 Estimated total cost $2,400 $2,400 (12*200) Estimated profit $1,100 $1,100 Estimated profit % 31% 31% All rights reserved 07/26/2012 4
- 5. Calculation: Conduct physical evaluation of manday to complete each phase Benefit: 1. Better reflection of remaining work 2. Makes clear just how to schedule work 3. Allows identification of overages (change?) Drawback: Requires understanding of scope and ability to evaluate how much work remains All rights reserved 07/26/2012 5
- 6. Original Estimate Method 2: Physical Evaluation Value of contract $3,500 $3,500 Estimated budget mandays 12 12 Estimated budget manday rate $200 $200 Actual mandays incurred 5 ETC: Physical review 10 Estimated total cost $2,400 $3,000 (15*200) Estimated profit $1,100 $500 Estimated profit % 31% 14% All rights reserved 07/26/2012 6
- 7. Method 1: Budget - Method 2: Physical Original Estimate Actual Evaluation Value of contract $3,500 $3,500 $3,500 Estimated budget mandays 12 12 12 Estimated budget manday rate $200 $200 $200 Actual mandays incurred 5 5 ETC 7 10 Estimated total cost $2,400 $2,400 (12*200) $3,000 (15*200) Estimated profit $1,100 $1,100 $500 Estimated profit % 31% 31% 14% All rights reserved 07/26/2012 7
- 8. Physical evaluations of mandays to complete (by phase) are important to effective job cost control and management PM should periodically walk job with Superintendent to ensure estimates properly reflect ETC Unexpected variances should be investigated promptly for causes and potential remediation. Possible explanations: • Change orders need to be priced • Productivity issues on site • Problems with original estimate Failure to get good ETC information makes remediation difficult, if not impossible! and perhaps…. All rights reserved 07/26/2012 8
- 9. A good ETC program makes it possible to implement a project bonus program!!! All rights reserved 07/26/2012 9
Notes de l'éditeur
- Note that Method 1 will always give you what you want to hear (on budget, on time), not necessarily the reality of what’s happening on site. For example, 7 remaining days is odd – one week and two days for one person, or 3-1/2 days each for two guys.
- This seems like a quick response that says, “yeah, a couple of guys next week.” While it doesn’t sound like a big deal, not managing the work more than halves the desired profit.
- For example, if the supervisor pushes to meet the budget, there is still enough profit in the job to have something left for a bonus, but if (s)he lets it slide to the 10 days, there is not only no bonus but there is barely any profit for the time spent.