Don’t Let One Bad Labor Estimate Ruin Your Business

Words: Danielle Higley  

Accurate cost estimates in masonry aren’t just helpful—they’re essential. According to Carnegie Mellon University, “Cost estimating is one of the most important steps in project management.” Write a bad estimate, and the entire project may go off the rails.  

But what components go into an estimate, and what parts might be problematic? According to a recent construction survey by QuickBooks, labor costs play a big role. One in 3 survey respondents said labor costs were the first thing they looked at when figuring out if a project might be profitable, yet nearly the same number also said labor costs were the most difficult to estimate in the first place. 

Also a challenge? Estimating how long a project is expected to last. And it almost seems like the two go hand in hand. After all, if you don’t know how long a project is going to take, you’re certainly not going to know how many hours of labor you’ll have to pay for to complete the project. It makes sense that with so many variables up in the air, 46% of respondents said they use an accounting solution with a job costing system or a job costing-specific app to help them keep track of costs. But what else can be done to ensure estimates are correct, particularly when the fate of the company hangs in the balance? 

The trouble with labor 

Labor costs are tough to estimate. Beyond having to know how many people must be on a job and how many of those will need to do which tasks, there’s the small issue of being able to attract the right workers in the first place.  

More than 1 in 5 survey respondents said a skills shortage was the single biggest challenge facing the business right now—an opinion that’s substantiated by a 2017 survey which found the construction workforce was expanding at a slower rate. According to the Bureau of Labor Statistics, the construction workforce grew by 1.66% between January and October, 2017, as opposed to 2.1% in 2016. That’s equivalent to 113,000 new jobs in 2017, compared to 144,000 in 2016. 

So what do fewer fully qualified laborers have to do with higher costs and estimates? The trouble comes down to simple microeconomics—inequality between supply and demand, forcing companies to pay more for specialists or highly skilled workers. Suddenly, figuring out how many workers are needed isn’t so easy. There’s an additional layer of complexity, where the person creating the estimate has to know exactly what positions are required and how much each of those positions is going to cost the company by the project’s end, factoring in special skills and scarcity. 

One way for companies to do this is to look back at similar projects and see what the total cost of labor was there. Job costing software that keeps track of total hours worked, the number of overtime hours, and the number of employees on payroll for each project can help. Even better might be an app that can track specific jobs and responsibilities as well, so managers can figure out how some specialized roles might play into overall costs. Finally, some software solutions keep track of materials too, so everything a project manager needs to make an estimate can be found in one place.  

3 tips for masons to make more accurate estimates 

When asked if he’d ever heard of a masonry business tanking as a result of an inaccurate estimate, Emanuel Suárez, project manager and estimator for the Texas-based Alamo Masonry, was clear: Companies do go out of business as the result of bad estimates, and fortunately, he’s never made such an error himself. 

Suárez has been a project manager for the last two years, but he’s been in the masonry business much longer—about 14 years. “I’ve been doing this every summer since I was 13 years old,” he says. The business belongs to his uncle, so working for the family business was a part of life growing up. 

After high school, Suárez left for college at Sam Houston State University. Upon returning home after graduation, though, he discovered that the place he’d meant to leave was actually where he belonged. So he joined his uncle’s company for good, and for the past two years, he’s applied his expertise to creating cost estimates that keep the company on track and growing. 

“I actually enjoy doing estimates,” he says, “going through the plans, working through the details, and seeing how everything comes together.” 

But Suárez’s experience is vastly different from those that many construction professionals describe. 20% of survey respondents said estimating projects was the hardest part of the financial process to get right. And to make the stakes even higher, 1 in 4 respondents said just two or three bad estimates could put their company out of business. 

So what is Suárez doing to ensure that reality isn’t one he or his uncle’s company ever have to confront? He boils his success down to three primary pieces of advice. 

  1. Take your time 

Suárez may enjoy his work at Alamo Masonry, but he admits that estimating isn’t for everyone. It requires patience, an eye for detail, and a willingness to double-check the numbers you think you know—all practices that take considerable time. In other words, a good estimator must be diligent and thorough. For a beginner, his advice is to ask a lot of questions. “It’s like reading a book,” he says. “You’ll forget everything you just read if you don’t pay attention.”  

One method for creating an accurate estimate is to use the Program Evaluation and Review Technique, or PERT analysis. Used by government contractors, in particular, the PERT analysis is “a network diagram that provides a visual depiction of the major project activities and the sequence in which they must be completed.”  

A viable solution, PERT is also complex, and some are turned off by the amount of time it takes to complete. Videos on how to create a PERT chart are available online for free, however, and the strategy may be worth learning if it means a better estimate from the start.  

  1. Get smart tools—and use them 

When asked what tools their company used to help keep track of project costs, 27% of respondents said they’re still doing the math by hand.  

Suárez takes an approach that blends the old with the new. “I do use a software that helps me with a portion of the estimates,” he says, but he adds that he still prints off the plans so he can make notes on the page as well and make sure nothing’s missing. 

For project managers who need better tools for estimating labor and material costs, time tracking software may be able to help. Some such tools, depending on their range of services, offer job costing, as well as easy-to-read records that keep track of hours, overtime, and other labor-related details. Reports based on these may help estimators in their endeavor to more accurately track and forecast costs.  

  1. Consider all the variables 

As a result of all the double-checking he does on a daily basis, Suárez says his estimates are rarely wrong. That puts Suárez ahead of the curve. While 63% of construction professionals said their estimates are typically “close or exact,” 28.9% described their profits as “usually less than expected.” 

Suárez says a good estimate is one that considers all the variables. “If the building’s elevation is high, that translates to more labor and more money,” he says. “The higher you go, the slower production gets.” Of course, the price also varies depending on which material is used and how it’s laid. 

Location also plays a critical role. Suárez admits that when his estimates are a little off, location usually has something to do with it. He’s found that places like Dallas, especially, tend to require higher estimates, as opposed to other parts of central Texas. “Sometimes I’m low, even though I’ve based the estimate off another project with the same square footage,” he says. “People just charge more in the Dallas area.” It might be because labor is more expensive there or materials cost more. Either way, Suárez says, “We’re currently trying to find ways to become more competitive.” 

High confidence, low survival rates 

Despite the fact most construction professionals admit estimating to be a challenge, Suárez isn’t alone in feeling confident about his work. 94% of survey respondents said they felt at least “somewhat confident” in conducting cost estimates before a project, and slightly more felt confident in their abilities to track costs during the project.  

But if that many construction professionals are masters of estimation and job costing, why do so many construction businesses fail?  

“Survival rates for establishments vary by industry,” writes the Bureau of Labor Statistics. “The health care and social assistance industry, for example, consistently ranks among the industries with the highest survival rates over time, while construction ranks among the lowest.” 

﷟HYPERLINK “https://www.bls.gov/bdm/entrepreneurship/bdm_chart4.htm” 

As any experienced construction company knows, contracts are won and lost with estimates. A good estimate is one that can beat out the competition while still earning the company a tidy profit. Too high, and the company misses out on potential business. Too low, and the company might not have enough funds to make payroll or worse, forcing the business owner to go into debt instead of growing the business. 

But despite the high stakes involved in estimation, many construction and masonry firms say they’re not concerned. 68% of construction companies said job costing was “very important” to overall business profitability, yet the No. 1 factor that’s affected their job profitability in the past was underestimating labor costs. Still, the majority of that same group (49%) is reviewing their expenses weekly and is confident their business will be more profitable this year (51%). With any luck, that optimism will prove to be well-founded, and masonry firms across the country will grow. But if yours is not among those that prospers, it might pay to take another look at your company’s estimation process, and particularly at labor, the biggest cost of all.