X-Y=P Basic Math For Contractors
Unfortunately we have a lot of contractors and far more ex-contractors who never learned what the formula, x - y = P, meant in their businesses. X and y can represent any factor. Let x = your estimate and y = your costs for performing a contract. Naturally, x must be greater than y or you are not going to survive. The P in my formula always stands for profit, which is why I use a capital P.
Simple as all of this sounds, isn’t it amazing how many contractors go broke every year? The problem lies within the large number of algebraic equations that make up both x and y. But you can control most of these complex equations.
Taking Control: Start with the x, since your estimate is the first thing you establish in a contract. I’m not insinuating your estimating is more important than controlling your costs. But just remember:
- You cannot make a profit if you don’t estimate enough labor, material, equipment or time.
- Regardless of how much money you had in your estimate, it is not profit until that project is completed and paid for.
Before we get into all of the basic methods and reasoning for producing a reliable estimate, let’s look at two mistakes that eat up the capital P:
- A $10,000 mistake for a jobsite foreman would be very rare and involve quite a bit of carelessness or lack of supervision and quality control from the office.
- A $10,000 mistake for an estimator is an everyday occurrence in some companies and need only involve moving a decimal point one digit, hitting the wrong button on his computer or calculator or missing one sentence anywhere in the specs or instructions to bidders.
Construction is a very expensive game we play, especially when most mistakes occur in estimating. But it is also a very rewarding game if we follow the rules and remember that x - y = P.
The first thing you need to consider is exactly what the word “estimate” means — to guess.
- To guess exactly when your phase of the project will actually be ready to start along with what other jobsites will also need labor at the same time.
- To guess where you will find qualified foremen and enough labor and how productive they will be in this nationwide skilled labor crisis.
- To guess how much the weather will affect your costs.
- To guess what kind of cooperation you will get from the general contractor or construction manager. Likewise with cooperation from the owner, the city or county inspection agencies, the architect and engineering design teams and the other trades on that jobsite.
- To guess how much vandalism, theft and abuse of tools and equipment will cost.
- To guess about on-time material deliveries and inventory control.
This list of unknowns and unpredictables goes on and on, but does not include the amount of pipe, fittings, material and equipment needed to complete the project. Those things are measurable.
Quantity Surveying: This is when “quantity surveying” comes in handy. It is not estimating or guessing. Commonly called “counting parts and pieces,” it is a mathemathical science that should be acurate. Here’s how to create a reliable quanity survey:
1. Review the entire set of plans, specs and bid documents. We call this “visualization and familiarization.” Take notes and create a checklist to be sure you allot enough money to cover every item. You can also use a boiler plate checklist for the following questions:
- Does this meet code?
- Is this system complete?
- Will it work?
- Is there a better way?
- How much can we pre-fab?
2. Watch for incomplete systems covered by “reasonably implied” and carefully read any notes on the drawings that might affect your scope of work.
3. Develop a system where you color every item as you count with a different color. If you can’t mark up the drawings, use an overlay.
4. Draw a freehand isometic drawing for each assembly to be sure you include every fitting.
5. Check the scale on each page before you start measuring. Use the engineer’s scale in tenths of an inch on site plans and change to the architect’s scale in the buildings. Be especially careful of scale changes on sections and elevations.
6. Number every page of your take-off sheets to prevent losing a page of critical dollars.
7. Do a neat page of calculations and identify each item as you count.
8. Justify every shortcut. Using compete assemblies or x-amount of fittings per fixture, etc., can save a lot of valuable time.
9. Use a “shotgun number” before you start measuring or counting. As you enter your numbers into your computer or calculator compare your “guesstimate” or approximate quantity to your calculated answer. This eliminates those decimal point mega-mistakes and minimizes the chance of hitting the wrong button or missing one full page as you estimate.
10.Allow absolutely no interruptions when you are doing quantity surveys. Lock the door, and shut off the phone.
11.Allow enough time to do it right.
My advice to clients is simply to compare how much money their last mistake cost vs. what it would have cost for one more hour or even one more day of their estimator’s time.
I also recommend every jobsite foreman be trained to estimate. This gives you a backup or second string estimator for any rush situation, improves the stature of your supervisors and creates a cooperative working relationship between your estimators and jobsite foremen.
Next month we will look at estimating and pricing all of these quantities to help assure your “x” is ample to subtract all of “y” and still have a nice big “P” remaining!