Conceptual estimating is one of the oldest forms of project quality control and preproject planning. Today, a majority of the conceptual elements are now being performed by technology as opposed to human creativity and inspiration. This transition to a more automated approach has spurred many to consider using conceptual estimating, as it is less labor-intensive.
“Conceptual estimating is a technique that is based in part on the computation of historical project cost and is an effective method for producing rapid estimates for a specific type of project from the feasibility phase to the budgeting phases,” said George Hague, president of ConEst Software Systems. “The conceptual estimate is part art and part science and opens the door to design/build projects for specialty contractors like electrical. Conceptual estimating and design/build are commonly taken as having the same meaning, especially for subcontractor trades.”
“Conceptual estimating for electrical contractors can be divided into two practical groups: bidder-design and back-of-the-napkin quick price estimates,” said Courtney M. Stearns, industry sales manager, Sage Software. “Not surprisingly, the difference is manifested in the amount of detail required, so in the bidder-design world, conceptual estimates typically have a hierarchy along the lines of the type-of-work (hospital, school, industrial, tenant improvement, etc.) and then by system (feeders, branch, switchgear, lighting, devices, low voltage and so on).”
The fastest way to achieve a conceptual estimate is the one that most contractors may do for small- to mid-sized projects and with good reasoning.
“The quick back-of-the-napkin type of conceptual estimate is generally boiled down to the type of work and the price per square foot,” Stearns said. “In either case, the definition has not changed in a significant fashion, but the technology now available has made instant accessibility to accurate historical data a reality.”
“A conceptual estimate is pretty much a ‘back-of-the--envelope’ estimate of what a project might cost,” said Don Fornes, CEO, Software Advice. “It is not the detailed, ‘bottoms-up’ estimate a contractor would build when bidding on a job. Instead, it is a quick response to a general contractor or building owner who is contemplating a new project but has not committed to or designed the building. It is typically used by the GC or building owner to make a go/no-go decision. The definition has not changed much, but the way in which the conceptual estimate is developed has changed.”
The conceptual estimating process typically starts with an overview of the size and function of the new facility. The EC reviews similar completed projects and uses those costs and simple ratios (e.g., cost per square foot) to determine the conceptual estimate.
Since conceptual estimating is more about technique than a rule-bound approach, there are various ways for contractors to approach how they handle things.
“There’s no standard template for a conceptual estimate. Office buildings, apartments, hotels, factories all have unique requirements and unique challenges, each of which has to be factored into the overall estimate. There is always one new item or installation that must be considered in every project. At the design/build or budget stage, there is no need for a formal estimate. Using historical data, the contractor can create a budget number,” Hague said.
The best way to improve accuracy is to calculate values using historical estimates and documentation. Look for commercially available square-foot numbers and percentage values for different types of projects or those that report national square foot averages.
“The art of conceptual estimating requires that one leverage experience and collaborative relationships with the GC, owner and other related trade contractors,” Stearns said. “Done well, this enables one to quickly produce estimates that meet the requirements of the customer for utility and price.”
Since conceptual estimating often involves “what if?” scenarios, having instant access to detailed estimate history expedites the process while enhancing one’s credibility significantly.
Now, the best practice would be to combine such historical estimate information with design or drawing tools, having a visual representation of the conceptual estimate. This technology is available today and has begun making the process more automated and technology-driven/supported.
In addition, there are electrical design/build estimating products on the market today that use the National Electrical Code to calculate service and feeders, voltage drop, fault current and lighting requirements. This may help ease the transition from the familiar to this new method.
“Conceptual estimates in one form or another are a fact of life for electrical contractors, and that is unlikely to ever change,” Stearns said. “What has evolved is the ability for electrical contractors to provide far more accurate, detailed conceptual estimates in the same amount of time that they produced the back-of-the-napkin estimates for the past 50 years. That level of speed and accuracy is, indeed, sort of a new generation for conceptual estimating.”
Technology has helped make conceptual estimating a much more reliable and relevant part of the contracting industry.
“It is absolutely an important part of the construction industry today,” Fornes said. “Technology is absolutely improving the ability to develop more timely and more accurate conceptual estimates. The more automated contractors become, the better they are able to review historical job costs and use them as a basis for new jobs.”
Using the method
Conceptual estimating helps contractors manage large and complex projects, especially with internal decision making.
“Developing your methodology, collecting historical data and producing conceptual estimates takes time and hard work. Conceptual or design/build estimating is a selling process. If you have calculated the service and infrastructure requirements, voltage drop, fault current and lighting requirements, use it as a sales tool. Many programs produce excellent documentation and makes for a great presentation. Remember, at the inception you are not selling price, you are selling the concept that your company has the ability and technical expertise to engineer and build this project,” Hague said.
“In many cases, the conceptual estimate from the electrical contractor is a bottleneck for the general contractor because of the nature of the work,” Stearns said. “Therefore, if you can produce accurate, comparatively detailed conceptual estimates with visual references, you can improve the likelihood that you will be included in any select-bid list of GCs that require conceptual estimates. Furthermore, the accuracy and billing timeliness of your change order estimates (which are often conceptual in nature) will result in significant cash flow improvement.
“Have a good IT infrastructure in place to collect and store project cost data. This means a good estimating system but also a good job costing system that tracks the costs ‘as built.’ If data is collected throughout the process, it can then be retrieved and utilized down the road for conceptual estimates. While estimating tools are important for developing the conceptual estimated, they need solid historical data to work with,” Stearns said.
Today, ECs are taking on the task of data, communications and smart systems. To be a total design/build solution, the contractor needs both electrical and data estimators. An experienced and knowledgeable estimator can create first-rate conceptual estimates that will add to the finished product’s quality.
“By mastering the concept of conceptual estimating, contractors can form relationships with owners and developers and be included on the design team of future projects,” Hague said.
Typically, conceptual estimates function for negotiated work, but similar practices apply for change orders on hard-bid work. Accurate conceptual estimates based on historical estimates and/or job costs are a huge competitive advantage.
“[With whom] do you think a general contractor would prefer to work? The electrical contractor that produces remarkably accurate conceptual estimates in minutes or the electrical contractor that quickly produces conceptual estimates that are accurate to plus or minus 20 percent with little or no detail?” Stearns asked. “Keep in mind that if you make it easier for the general contractors or clients to win and manage their work, you are far more likely to be used on the next job.”
The clear direction for the creation and use of conceptual estimating is based on tighter integration between systems and departments and more external collaboration between the owner, general contractor, electrical contractor and related trades.
“Indeed, the speed of communication and depth of collaboration available today is a win-win-win scenario for the electrical contractor, general contractor and owner. In the future, this collaboration will expand to include vendors and manufacturers so that conceptual estimates can be produced with detailed specifications yet take no more time than the old back-of-the-napkin estimate,” Stearns said.
“If you develop a reputation for providing good conceptual estimates, owners and GCs are more likely to come to you as a trusted adviser early in their planning,” Fornes said. “Of course, it works both ways: A bad reputation in conceptual estimating will work against you.”
Eventually, ECs will be developing conceptual estimates based not only on their own historical data, but also based on the costs of their peers. The more that adopt this collaborative approach, the more accurate the data can become.
STONG-MICHAS, a freelance writer, lives in central Pennsylvania. She can be reached at JenLeahS@msn.com.