STRATEGIC ESTIMATING:
3 ESSENTIAL ESTIMATING PRACTICES FOR COMPLEX BUILDS
3 ESSENTIAL ESTIMATING PRACTICES FOR COMPLEX BUILDS
Estimators know: Every profitable construction project starts with an accurate bid. Estimators also know: that’s easier said than done. So it’s good news that in today’s booming but difficult construction environment, the estimating function is getting some much-needed attention. The most recent KPMG Global Construction Survey found that respondents’ biggest priorities are to improve transfer risk, innovation, and — not surprisingly — estimating accuracy.
ESTIMATING IN A CHANGING WORLD
Good news abounds in construction lately. Total construction output continues to expand globally, led primarily by infrastructure work, according to the Q3 2023 Global Construction Monitor by RICS.
An influx of funds provides more good news, thanks to three pieces of legislation: the $1.2 trillion Infrastructure Investment and Jobs Act, the $50 billion CHIPS Act, and, most recently, the $369 billion Inflation Reduction Act. These initiatives are beginning to fill capital coffers as companies pursue infrastructure, clean energy, and sustainability projects. McKinsey suggests the flood of funding will lead to $130 trillion in projects for decarbonization and critical infrastructure. Given that high interest rates have hit the construction industry hard, the best news going into 2024 may be that the Federal Reserve is considering lowering rates if inflation continues to fall.
And confidence is high. In KPMG’s 2023 Global Construction Survey, 66% of respondents — individuals representing project owners and engineering and construction companies — reported feeling “optimistic” about the direction of the construction market. Thirty-eight percent felt “very.” Contractors remain confident of growth and expect an increase in profit margins and staffing levels, particularly in the first half of 2024, says a report from the Associated Builders and Contractors.
3 KEY LEGISLATION FUNDS FOR INFRASTRUCTURE WORK
$1.2 Trillion
Infrastructure Investment and Jobs Act
$50 Billion
CHIPS Act
$369 Billion
Inflation Reduction Act
DESPITE GROWTH, CHALLENGES REMAIN
Yet despite all the change and opportunity on the horizon, it’s still a tough world out there.
McKinsey found that 98% of megaprojects incur more than 30% overruns, and 77% are at least 40% late. KPMG’s 2023 Global Construction Survey found that only half of all owners complete projects on time. The report also says that, of all respondents, 37% missed budget and schedule targets.
McKinsey also notes poor outcomes, citing cost overruns of at least 79% for 500 global projects, each with a total value of at least $100 million — 62% of the projects were megaprojects valued at $1 billion or more. The same report gave an example of an international mining company that left $500 million in net project value on the table by under-evaluating the project during pre-construction.
CHALLENGES FOR $100 MILLION MEGAPROJECTS:
98% of megaprojects incur more than 30% in overruns
98% of megaprojects are at least 40% late
ESTIMATING: WHERE PROFITABILITY BEGINS
The profitability puzzle starts with the estimating piece, so you’re wise to explore how world-class estimating can help your team tackle challenges like bidding on the wrong jobs, where you can’t be profitable, or bidding inaccurately so that your company winds up losing money. Add to that the increasing complexity of projects, and accurate bidding becomes even more difficult.
Innovative estimating teams have been leading the charge for change. Instead of using old playbooks, they’re creating new standards to transform efficiency, accuracy, and win probability.
You can do the same by developing estimating expertise and competence and following forward-thinking best practices, including using historical data, adopting standardized processes, and automating repetitive tasks. By embracing this change, you’ll be at the forefront of the industry’s evolution, primed to navigate the complexities of tomorrow’s projects with seasoned insights.
THE INCREASING COMPLEXITY OF PROJECTS MEANS ACCURATE BIDDING HAS BECOME EVEN MORE DIFFICULT.