What Steps are Involved in Construction Estimating?

Summary:

Ever wonder why some construction projects stay under budget while others end up with massive overruns? Usually, it comes down to one thing:  getting the construction estimating process right.

Estimating is the foundation of any successful build. What materials are needed? How many labor hours? What external factors (weather, permits, regulations) could affect the schedule or cost?

When done well, the estimating process gives you a clear roadmap to manage costs, reduce risks, and deliver projects successfully.

A well done construction estimate relies on how well the estimating process was conducted. Construction estimating involves reviewing the project scope and documents, conducting site visits, and performing accurate quantity takeoffs to list material and labor. 

Before diving into the detailed steps that go intro construction estimating, let’s understand the role of estimating and why it’s critical.

What is Construction Estimating?

Construction estimating refers to the process through which all the expenses that will be involved in a construction project such as materials, labor, equipment, and overhead are calculated and predicted. This is an essential function that is carried out before the actual construction process, where it helps in setting a project's budget, giving a go/no-go indication, and making sure that the project is of profit. To do this, estimators employ a method of combining the direct and indirect costs with a profit margin and a contingency for the unexpected to achieve the target of adding up the costs of the project.

Why Accurate Cost Estimation Matters

An accurate estimating process matters because:

• It gives project owners and contractors clarity on whether the plan fits into the available budget.
• Helps produce competitive bids that are profitable.
• Lowers the risk of cost overruns and resource shortages.
• It sets the project's scale early, allowing for adjustments before work begins.
• Supports better decision-making and efficient resource allocation.

Preconstruction steps & estimating phases: Key stages in the process 

Here are the primary stages (or phases) involved in a solid construction estimating process, including preconstruction steps:

Step 1:  Review the scope & bid documents 

To create an accurate estimate, it's crucial to understand the scope of the project entirely. This process begins with reviewing all construction documents, including plans, specifications, and bid packages. A bid package typically includes documents like:

• Owner-contractor agreements
• Bond forms
• General conditions
• Supplementary general conditions
• Construction specifications

During this phase, estimators:

• Check that all drawings and specifications are included and complete to ensure an accurate estimate.
• Get an overview of the project by quickly reviewing the specifications, examining the scope, material requirements, and finish quality.
• Assess material and equipment requirements by reviewing structural drawings and specifications.
• Take into account how mechanical, electrical, and plumbing (MEP) requirements may affect the construction process, including any underground work.
• Identify any nonstandard items, such as unique floor plans, special features, or custom fit-outs.

Step 2: Conducting a site visit

‍A site visit is crucial before submitting a bid and is recommended for most projects. The main objective is to gain a real-world understanding of site conditions and how they may affect project costs.

Potential challenges encountered during a site visit that could lead to delays and cost overruns include:

• A site with steep slopes or uneven terrain may require additional grading or retaining walls, increasing project costs.
• Unfavorable weather conditions, like frequent rain or extreme temperatures, could delay construction and add extra costs for protective measures or extended work time.
• Environmental restrictions such as zoning laws or the need for permits could delay the project and add unforeseen costs.
• The presence of hazardous materials that need removal or special handling could raise safety and disposal costs.

During a site visit, an estimator performs several tasks to assess the project's feasibility and identify potential challenges. These include:

• Taking detailed notes and photos to document site conditions and possible obstacles.
• Working with contractors to evaluate how site factors may affect the project's progress.
• Review local regulations, permits, and zoning laws that may influence costs.  
• Checking for nearby specialty contractors who can handle specific tasks or if construction equipment can be easily rented locally.
• Assessing the condition of nearby roads to ensure heavy equipment can be transported efficiently and to identify any logistical issues for material deliveries.

Step 3: Material & quantity takeoff 

‍Estimators conduct material takeoff, also called a quantity takeoff, by carefully reviewing the project documents and listing all the items needed for the project. Materials are usually categorized by how they are measured, such as:

• Quantity (windows, doors)
• Area (tiles)
• Volume (concrete)
• Length (cables)

Creating a bill of quantities (BOQ) is an integral part of the planning process, and contractors often do their own independent takeoffs to ensure accuracy, even if the owner or engineer provides a BOQ. General contractors use these takeoffs to break the project into smaller tasks, either to complete themselves or assign to specialty contractors.

Estimators use this takeoff data to create a list of all materials needed for the project and estimate the equipment requirements for each task. Contractors use this data to request supplier quotes and calculate equipment needs. 

Step 4: Pricing from suppliers & subcontractors

‍Specialty contractors work with suppliers and vendors to obtain prices for materials and equipment. When pricing materials, specialty contractors need to consider:

• Material waste: Some waste is inevitable due to material sizes, but contractors can estimate this based on previous projects.
• Bulk pricing: Ordering larger quantities may reduce costs. For example, ordering 600 square meters of tiles instead of 500 could offer better pricing.
• Quote validity: Contractors must verify that supplier quotes remain valid for a sufficient period to ensure their bid is accepted and materials can be ordered.

Contractors must also explore whether it’s more cost-effective to rent, lease, or buy equipment, factoring in maintenance and depreciation costs. 

Step 5: Labor estimation & productivity 

‍ Estimators analyze material takeoffs to estimate labor needs, including:

• Determine what labor roles are needed, and how many hours each task requires.
• Estimate labor productivity, crew sizes, shifts, and overtime if needed.
• Include labor-related indirect costs, such as payroll taxes and benefits.

Step 6: Accounting for insurance costs

‍Insurance plays a key role in mitigating risks, but adds to project expenses. Most construction firms require general liability insurance, while larger companies may need additional policies, such as:

• Builder’s risk insurance
• Professional liability insurance
• Inland marine insurance
• Commercial auto insurance

On public or large commercial projects, contractors may require various types of construction bonds, including payment, performance, and bid bonds. Contractors spread these costs across their work, including extra insurance or bonding for specific tasks. Estimators include the cost of insurance and bonding in their estimates.

Step 7: Overhead and indirect costs

‍In addition to direct project costs, estimators must account for indirect field costs and overhead expenses that are necessary for the business. Indirect field costs might include:

• Permits
• Temporary offices or trailers
• Site cleaning
• Professional services
• Equipment costs (depreciation, insurance, maintenance, fuel)
• Software costs
• Overhead costs–like office rent, utilities, and administrative salaries–are spread proportionally across all projects based on annual revenue. 

Step 8: Adding Profit and Contingency

After calculating direct and indirect costs, estimators add profit margins and contingency funds. Profit represents the contractor’s earnings, while contingency covers unexpected costs or overruns. 

The profit margin depends on the company’s goals and market conditions. Contingency typically ranges from 5% to 10% of the contract price, based on factors such as the type of construction, company size, and project risk. After adding these figures, the estimator determines the sales price to cover all expenses, including materials, labor, equipment, and overhead. 

Step 9: Final review, validation & bid submission

• Review all parts—takeoffs, supplier/subcontractor pricing, labor, overheads, profit, contingency.
• Validate numbers, check assumptions, and ensure nothing is missing.
• Adjust for risk factors, and submit the bid or proposal.

Why is the construction estimating process important?

Now that we know the steps that go into construction estimating, let’s quickly discuss why its essential. 

Budgeting: It sets up a realistic budget for the job. 
Project feasibility: It helps determine if a project is financially viable before significant investment. Basically, helps businesses understand if they should take on certain projects or not. 
Bidding: An accurate job estimate provides a basis for cotractor bids and negociations. 
Profitability: Ensures that all costs are accounted for, allowing for a healthy profit margin.
‍Risk mitigation: Allocates contingency funds to manage potential unexpected costs and risks.

Before you go 

In construction, accurate cost estimation is not just about numbers–it’s about the successful planning and execution of a project. From assessing site conditions to creating detailed takeoffs, every step plays a vital role in building a reliable estimate that aligns with budgets and timeliness.

A well-prepared estimate provides a financial roadmap, minimizes risks, and ensures resources are allocated efficiently. Whether you're a general contractor managing a high-rise project or a specialty contractor handling electrical work, mastering the art of construction estimating is key to delivering on-time, on-budget, and high-quality projects.  

By leveraging modern tools, conducting thorough site reviews, and factoring in contingencies, you can turn estimates into winning bids and successful outcomes.

FAQs

1.What is the process of estimation? 

The main estimating phases are: scope review & document check, site visit, material takeoff, cost solicitation (suppliers & subcontractors), labor estimation, indirect costs & overhead, profit & contingency, final review & bid submission.

‍2. When do preconstruction steps happen, and why are they important?

Preconstruction steps occur at the very beginning—during design or before bidding. They include scope review, site visit, and sometimes preliminary budgets. They’re essential because they help identify risks, define accurate scope, and avoid cost surprises later.

‍3. How much contingency should be included in estimates?

Typically, between 5-10% the total estimated cost. The exact percentage depends on factors like project complexity, stage of design, location, and risk exposure.

‍4. How do contractors avoid underestimating labor or materials?

They use historical data from past projects, verify material quantities with multiple sources, include productivity rates, consider local labor rates, add provisions for waste, and factor in delays or inefficiencies.

‍5. What tools or software help improve the construction estimating process?

Digital takeoff tools, cost databases, estimation software (with real-time supplier pricing), historical cost data tools, and risk modelling tools. These help with speed, consistency, and accuracy.