Accuracy and speed as a competitive edge: the basics of modern cost estimation

Two ways to lose a quote

There are two ways to lose with quoting. The first is being slow: the enquiry arrives on Tuesday, the quote goes out the following Thursday, and the client has already chosen. The second is being inaccurate: the quote goes out the same day and wins, but the margin only shows up in the final accounts.

These are often seen as opposites, as if speed eats accuracy. Usually both come from the same thing: the groundwork for every quote starts from scratch. This article looks at where the time on a quote actually goes, works through one quote in euros, and covers what you need to know about price estimates and how long a quote stays valid.

Where six hours go

A typical renovation quote takes about six hours, and the breakdown surprises most people:

• measuring quantities from drawings: 2 hours
• finding and checking the last similar quote: 1 hour
• asking subcontractors and suppliers for prices: 1 hour of work and several days of waiting
• the actual pricing and setting the margin: 1 hour
• putting together and checking the quote document: 1 hour.

Work that needs real expertise is about a sixth. The rest is measuring, searching, waiting and formatting. That is why an experienced estimator is hardly faster than a beginner: experience speeds up the one hour of pricing, not the other five.

Calendar time is usually set by waiting for subcontractors to reply. Price requests should therefore go out first, before you measure your own quantities.

Hurry makes a quote too cheap

When a quote has to go out quickly, the shortcuts are not random. They always happen in the same places. The risk allowance gets left out because it is added last. An unclear item is estimated as easy because there is no time to measure it. The comparison is the most recent similar job rather than the one that actually matches, and two bathrooms can differ more than a bathroom and a kitchen.

The combined effect is that a rushed quote is too cheap on average. When the quantities for a 30-square-metre wet room renovation are estimated by eye and the tiled area comes out 10 percent too small, the gap shows straight away in both materials and labour hours.

Example: a bathroom quote worked through

A bathroom renovation in a detached house from the 1970s, about 6 square metres. The figures are examples, and every company replaces them with its own.

Own labour. 70 hours at an hourly cost of about 40 euros including employer costs, 2,800 euros. How the hourly cost is built up is covered in the article on contract estimating practices.

Materials. Waterproofing, tiles, fixings and fittings: 2,600 euros.

Subcontracts. Electrical 900 euros and plumbing 1,400 euros, 2,300 euros in total.

Direct costs come to 7,700 euros. Overheads at 10 percent, 770 euros, cover the van, insurance, office and software. Cost price is 8,470 euros.

Risk allowance. In an old house anything can turn up under the floor, so a 5 percent allowance of about 420 euros. In a newer building it can be smaller.

Margin. 15 percent on top of cost price and risk allowance, about 1,330 euros. The quote price is about 10,230 euros excluding VAT, and about 12,840 euros for a consumer including VAT at 25.5 percent.

Two points about the calculation. First, a 15 percent margin on top of costs is only about 13 percent of the selling price. If your margin target is set on the selling price, this difference matters. Second, if the buyer is another construction company, such as a main contractor, the reverse charge applies to the sale of construction services in Finland, and no VAT is added to the invoice.

Estimate, range or firm price

Not every quote needs the same precision, and in consumer sales the wording has a legal meaning.

Price estimate. When the client asks for a ballpark, a quick answer steers their decision to continue with you. Under the Finnish Consumer Protection Act, however, a price estimate given to a consumer may be exceeded by at most 15 percent unless otherwise agreed. If you tell a consumer "around 24,500 euros", the final price can be at most about 28,200 euros. If something turns up under the floor that the estimate did not cover, it has to be agreed separately as extra work before the work is done.

Range with reasons. When structures have not been opened or the scope is still open, a range states the uncertainty honestly. The condition is that you say what moves the price: "20,000 euros if the floor structure matches the drawings, and up to 30,000 euros if there is an old screed underneath that has to be removed." An answer like that tells the client you understand the job.

Fixed price. Needs measured quantities and a risk allowance, because any error is the contractor's to pay. This is worth the time.

Unit prices. Suit work where quantities are uncertain, such as demolition. The quantity risk moves to the client, but the unit prices have to be right, because they are no longer negotiated.

Four checks before sending

An accepted quote is a contract, and its content is what the quote said. A quote is written in a sales situation and is often read in a dispute, so four things are always worth checking.

Scope. What the price does not include matters as much as what it does. Clear exclusions prevent most extra work disputes before they start.

Price basis. Fixed, unit-priced or hourly. If the quote mixes them, they are itemised.

Schedule conditions. If the start depends on the client, such as permits or a previous contractor finishing, say so.

Validity. A quote without a deadline does not stay open forever. Under Finnish contract law it has to be accepted within a reasonable time, but what is reasonable is open to interpretation. With material prices moving, it pays to state a validity period, for example 30 days.

Accuracy comes from your own history

General unit prices are a good starting point, but they tell you what the industry does on average, not what your own crew does. In some work phases you are faster than average because you do them a lot, and in others slower.

Using your own history takes two things. Actual hours have to be recorded by work phase as well as by project, otherwise you know what the job cost but not where. And once the contract ends, budget and actuals have to be compared. Post-calculation is skipped most often because the next contract is already running, but it is the only point where estimating learns anything.

The win rate does not tell the whole story

If you win almost every quote, your price is probably too low. If you win very few, your price may be too high, but just as often you are quoting for the wrong jobs. A more useful measure is the actual margin on the jobs you win: a company that wins half its quotes at a good margin does better than one that wins them all at zero margin.

It is worth asking why a quote was lost. One question is enough: did we lose on price or on something else? If the price gap was large, there may be an error in the calculation. If the reason was the schedule, references or someone else getting there first, the fix lies somewhere other than the price.

How this works in FiSAS

In FiSAS the groundwork for a quote does not start from scratch:

• A quote draft from drawings. Upload the drawings and the request for quotation, and AI drafts the quote with quantities and prices. You check, correct and send it, so the final quote is always one you have approved.
• Quantities you can check. AI calculates areas, lengths and counts, and the drawing shows where each quantity comes from. You can also measure yourself from a PDF, image or DWG drawing by clicking.
• Your own price lists and standard assemblies. Prices, margins and standard assemblies are saved once, and every quote after that builds on them. Materials, labour and subcontracting are in the same calculation, and taxes and payment instalments are calculated for you.
• Electronic acceptance. The client accepts and signs the quote in a browser, and the accepted version is stored in the project's contract history.
• From quote to project. An accepted quote becomes a project in one click, and its budget is compared with actual hours and costs. The data for post-calculation builds up on its own.

Quoting is included in every plan, including the single-user Maker plan. Quantity take-off from drawings is in the Builder and Master plans.

Test your own situation

Take the last quote you sent and estimate how many minutes went into the actual pricing and how many into everything else. If the second number is bigger, you know where the first fix should go.

FiSAS can be tried free for 14 days. You can price the next request for quotation in it alongside your own method and compare which was faster and whose quantities came closer.