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Estimating with the Five-Part Judgement Analysis II

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Impact of Judgment Factors Worksheet

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Loading Multiple LAMI Areas

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Remodeling Industry Facts and Figures

Dear Friend:

If you read last month’s article, Estimating with Five Part Judgment Analysis, you now know that regardless of the type of estimate you are preparing, you need to apply your judgment on how certain conditions will affect your ability to complete a job. Last month we covered the impact that job conditions, customer requirements, and code requirements can have on an estimate.

This month, we’ll discuss how special requests and company capabilities can affect how much you markup an estimate and the impact these judgment factors have overall in the estimating process.

Make sure you get your copy of this month’s free download. Our Calculating the Impact of Judgment Factors worksheet summarizes both last and this month’s articles and you can use it to calculate the dollar affect judgment factors have on your estimates.

Finally, we’ve changed the format of this newsletter to make it easier to read. We hope you like the changes. Please let us know what you think of this new design by sending us your feedback.

Walt Stoeppelwerth
HomeTech Building Business Ideas

Walt Stoeppelwerth

 

P.S. Handyman jobs can provide additional revenue, especially during down periods. Yet, you need to price them differently than if they were part of a remodeling job. We've got a great pricing guide. Pick up your copy of Handyman Cost Estimator today!

Great Resource for Pricing Small Jobs

The HomeTech Handyman Cost Estimator gives you the ability to price small jobs (those under $4,000) with the speed and accuracy HomeTech products have been delivering for more than 35 years. This comprehensive system is laid out the same way as the HomeTech Remodeling and Renovation Cost Estimator with the same 25 divisions from Plans and Permits to final Clean-up. For additional information or to order your copy, click here.

Now you can make money on small jobs. Order now »

Estimating with the Five-Part Judgement Analysis, Part II
In this second part of a two-part series (see Estimating with Five-Part Judgment Analysis, Part I, May 2007), we explore how project analysis and company capabilities affect estimating for remodeling and renovation projects. We have also included a really great free download, Calculating the Impact of Judgment Factors worksheet, to help you track the impact of your judgment factors for your jobs.

Project Analysis
Whether you are considering a remodeling or renovation project, chances are you will be working with an existing structure or footprint. Often you will need to "tie-in" the remodel or renovation work to what is already there. You need to look carefully at:

• existing materials (millwork, brick, roofing, windows, siding, doors),
• roof lines,
• foundation,
• heating,
• electrical,
• floors and
• heating and cooling systems.

Your estimates should include specifications that protect you from having to do an exact match on existing materials. Reviewing existing materials and using your judgment as to how difficult it might be to match as closely as possible the existing materials, however, is an important aspect of estimating. No homeowner will want to see a substantial difference in roof color from an existing structure to an addition. Homeowners will want to see matching — or complimentary — windows, doors, millwork, flooring, etc. You need to employ your judgment, and maybe incorporate some research, as to how difficult matching existing materials will be. Is the millwork special order? Do you need to level the existing floor to match a new one? You should factor into your estimate how much of an impact, cost-wise, matching existing materials will be.

Company Capabilities
You have been running your business for some time — and only you know best what your company is capable of doing. You know your team’s strengths and weaknesses. You know how long a certain project typically takes to complete. You know your sub-contractors, their capabilities and how they perform for you. All of these factors need to be reviewed during the estimating process. Why? Because a shift in any of these areas can drastically affect the profitability of the work that you do.

What happens if you typically work with a certain plumber and that plumber is tied up on a job or, you need more resources than that plumber is able to provide? You need to factor in additional costs for using a plumber or plumbers who are not as familiar to you. You may not receive comparable rates from the new plumber, or you may find that the new plumber does not work as effectively as your primary plumber. There is typically a learning curve with each new subcontractor you hire and if you know at the onset of a project that hiring a new subcontractor will be required, your estimate should reflect these higher costs.

Is your company capable of taking on more work? Understanding your existing job commitments and how a new project could factor into this workload can affect how you estimate a job. If your crew’s time is already allocated, and you want to take on more work, hiring new people and supervisory staff to manage the job can have a huge impact on what you should charge for a job. Likewise, if your workload is on the lighter side, you might choose to lower your profit in order to win projects. Consider carefully whether the additional work is worth the decrease in profit.

Are you quoting on a job that is mostly labor or mostly materials? You should be aware of your mix of labor vs. materials since these two components will affect your overall profitability. A job that is unusually labor-intensive should be marked up at a higher rate, because the standard ratios of mark-up and margin are based on roughly equal percentages of labor, materials and subcontractors. Recently, more contractors are marking up labor 125% and materials 25% rather than marking up each of them the historical 50%. On an average job roughly evenly divided between materials and labor, these markups should generate a gross profit of 40-43%.

On the other hand, if a job is almost completely subcontracted, and materials are also a high proportion of job costs, the profit margin might safely be somewhat lowered. Do not make the mistake of dramatically lowering the margin, however, because you know you have to stand behind the work of the subcontractors and you'd better protect yourself in the estimate.

In estimating remodeling and renovation projects — experience counts. Being able to use your judgment on a variety of factors can substantially affect your profit margins.

Is your company capable of taking on more work?

 

Bonus Download
We have put together a really great download for you this month. This worksheet helps you keep track of HomeTech’s 5 judgment factors and even does the calculating for you. Just click on this link to download your copy of HomeTech’s Calculating the Impact of Judgment Factors worksheet. This spreadsheet will automatically calculate the total impact of the five judgment factors on your estimate. Let us know what you think of this tool.

Loading Multiple LAMI Areas in The HomeTech ADVANTAGE Software

Choose from over 218 LAMI cost database areas for local costs when calculating your estimate.

HomeTech ADVANTAGE software users have access to all 218 LAMI areas in the United States and Canada. LAMI stands for Local Area Modification Index. (In short, these are the different pricing areas in the United States and Canada that HomeTech Information Systems, Inc., monitors on a quarterly basis).

• You can load up to any 4 of these pricing areas in the software at any one time.
• You can then choose which of these pricing areas to use when calculating your estimate.

To learn how, click here »

Read more on this month's tip »

Remodeling Industry Facts and Figures
HomeTech has recently developed the Remodeling Cost Index (RCI) to measure the changes in remodeling costs from year to year in various parts of the U.S. On average, remodeling costs increased 4% in the U.S. between 2006 and this year. The largest regional increase was in the East where costs increased 5%. The South and Midwest saw 4% increases and costs in the West rose by just 3%.

New York City is the most expensive remodeling market in the country followed closely by San Francisco. An average remodeling project in those cities can cost 50% more than the same project in lower cost markets like Raleigh NC and Columbia SC.

Source:
HomeTech Remodeling Cost Index (RCI), June 2007

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