"By tightening up estimating procedures to reflect reality, you'll find that you can sell the job at the same margin but at a lower cost, thus making your bids more competitive in this tight market." Judith Miller, Consultant

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Know the Importance of Your True Estimated Costs

Material costs are relatively straightforward. In a survey I did a few years back, I found that material costs varied less than 2% overall. While it's important to track long lead items and specialty orders, such as doors and windows, most material costs can be easily controlled.

While not as easy to control as material expenses, trade contract costs tend to be subject to less risk IF a firm bid is received from the trade contractor and payments are tracked against that bid, thus flagging any overruns which might indicate work done outside the original scope and therefore produce a client change order.

The big risk remains, as it always has, in labor. The past few years have been so easy that many remodelers sold jobs bloated by the fat contained in the labor rate used for estimating. Over and over I heard the number of $45/hour used to estimate field carpenters labor. Upon closer scrutiny the real costs of those carpenters, including the most common components of labor burden, were between $22 and $30, depending on geographic location. That represents anywhere from 50% to 100% fat. When this discrepancy was noted, the common response was that variation protected the remodeler against labor overruns. However, I strongly suggest that you use the true estimated hours at the real burdened cost to estimate labor. Only then can you truly trust your estimated to actual reports for both "dollars" and "hours."

For example, if you originally estimated 100 hours at $45/hour for trim carpentry and the job autopsy showed that you were consistently on budget when you might have been anywhere between 50 and 104 hours over. Why not just use the "real" numbers, both for dollars and hours, and know that your estimate reflects reality for your company?

Weathering the storm consists of the implementation of many small corrective changes applied consistently over time. We've already discussed many of these. Now is the time to apply what you've learned and truly know what it takes to run a job as well as your business.

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