Why Current Construction Cost Data Is Essential for Accurate Estimates
November 1, 2021
The Hidden Benefit of Construction Estimating Software
It’s no secret the average construction project is likely to develop a cost overrun. In fact, according to a recent study, 9 out of 10 construction projects experience an average cost overrun of 28% whereas larger projects experience a whopping 85% average cost overrun. Indeed, cost overruns have become an intractable industry problem with no solution in sight because there are at least 173 known contributing factors.
However, a frequently overlooked fact—that poor cost estimation is consistently ranked in the top three causes of cost overruns—provides critical insight into how this entrenched problem might be solved. In other words, if you solve the root problem of cost estimation, the industry’s most pervasive “cost overrun problem” is also solved as a matter of consequence.
While much industry conjecture and academic study have been devoted to finding the answer to these intractable problems, it might be surprising to learn that the answer to both lies in an often neglected aspect of construction projects: live construction cost data.
Outdated Cost Data Results in Inaccurate Estimates
Cost estimation has always been difficult to get right because of the ever-changing nature of cost data. While most contractors assume they can rely on historical cost data for accurate estimates, the truth is that construction costs are constantly in flux.
Markets for materials and labor constantly change, but so do a myriad of other factors: raw materials prices, supply and demand, shipping fees, seasonality, and even industry trends. In fact, because over 90% of construction data in the RSMeans database will be updated in an average year, it’s just not possible to rely on past construction cost data to get a clear view of a future project to develop an accurate cost estimate. Simply put: accurate budgets depend on current cost data.
This insight becomes even more evident when you realize that if the entire construction project lifecycle depends upon a near-perfect accuracy, even the smallest changes in prices can lead to extremely inaccurate cost estimates, which in turn lead to cost overruns. Take a basic building material such as steel as an example:
According to the latest Producer Price Index (PPI) published by the Bureau of Labor Statistics, while general building materials costs have risen only 19.4% in the past year, the price for industry staples like steel mill products has increased over 108% in the past 12 months. To see just how much this recent change in steel prices can affect your final cost estimate, multiply 108% by the number of times you need steel in a given project. Now imagine the effect of similar changes on nearly every material in your project. If nothing else, this example demonstrates that relying on historical cost data can have a massive impact on your project cost estimate. For larger projects, simple errors in cost data can literally cost a builder millions of dollars. In the case of megaprojects, small errors in cost data can result in billions of lost revenue.
Inaccurate Construction Cost Data Increases Contractor Risk
The dangers of using historical cost data for cost estimates far exceed an unprofitable bid and can include stalled or shut down projects. When projects go over budget or stall, trust between contractors and project stakeholders—owners, architects, subs, and suppliers—breaks down, destroying relationships necessary for doing business. In other words, failing to use current construction cost data results in contractors taking on unacceptable levels of risk and is simply not a sustainable practice for long-term success.
Leverage Construction Estimating Software for Current Cost Data
If current cost data results in more accurate bids, but industry-standard cost databases such as RSMeans remain 90% inaccurate, then the answer to the cost estimation problem lies in construction tools and technologies, such as 1build, that enable builders to get the most current cost data available for their estimates.
1build’s cost estimation software connects with hundreds of local suppliers across the country, providing local material rates by zip code. With live local material rates available through 1build, builders get cost data that reflects the final price of their sourced materials so project costs are accurate. In short, 1build’s cost estimating software provides the most accurate material prices so contractors can submit the most competitive estimates without sacrificing their bottom line.
Gaining access to the world’s largest and most current database of material and labor rates is a game-changer for builders. With 1build’s real-time construction cost data, contractors can stay competitive, increase profit margins, and virtually eliminate cost overruns. Contractors using 1build win more profitable bids; accurate estimates help them build trust with project stakeholders and strengthen business relationships that ensure long-term success.
Say goodbye to cost overruns. Say hello to more profitable work by using 1build’s estimating service, which uses the latest local cost dat to produce winning bids.
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