Why switch from SWAG Estimating to Production Rate Estimating?

Why switch from time and material based estimating? 
What are the benefits of switching to production rate estimating? 
What is a “production rate”?
How do I switch to production rate estimating? 

In this article we will talk about the first 2 questions. The 3rd question is covered by an article linked at the bottom of this article.

Why switch from time and material based estimating?

As a business owner with many years of experience you can probably do a site review and quickly establish what time and materials will be needed to complete a specific scope of work. 

This works well for many contractors but what it doesn’t do is give you a repeatable, predictable result that can be delegated to a member of a growing team or to a potential buyer of your company some day.

Let’s say that you want to grow your business and hire 1 or 2 estimators that don’t have a lot of experience in your line of work. How do you pass your knowledge from years of experience to them for your company to continue to have good cash flow and profitable jobs?

Imagine a scenario where you are not available to do the estimates: you have your feet up at a sandy beach with an umbrella drink in hand or tragically you have health issues and are unable to do estimates. Who will have the expertise you have to help the business flourish, might be your knowledge transferred into an estimating program.

Whether you want to grow, be able to take vacations or sell your company and retire, you should be thinking about creating a process that will allow you to estimate by measuring and counting instead of one based on an experienced guess.

Your many years of experience means that you probably have a spreadsheet of production rates in your head. Things like: how long will it take me to excavate for an inground pool of that size in this type of soil, how long will it take me to frame an addition of that size, how long will interior painting take on a room this size. Knowing your production rates is critical! Getting them into a system will change your life!!

What are the benefits of switching to production rate estimating?

The primary benefits of using production rate estimating is that it creates a repeatable, predictable system for profitable estimating and pricing that will allow faster creation of estimates priced based on data, not just feelings.

It will also enable faster onboarding and training of new estimators with consistent, accurate price and cost numbers.

Another benefit is simplifying price and cost adjustments. With a production rate system you can update your labor price and/or material price, and it will be reflected in the price per unit (sqft, cubic ft, etc.) automatically. 

Most importantly, when done right, it will give you the expected number of hours the job will take from a manpower standpoint and also the quantity of materials required for the job. Add in Job costing, and you can now validate your estimates against your actual performance. There are not many highly successful companies that do not measure the expected costs against the actual costs. It is truly the only way to improve your company's performance.

What is a “production rate”?

So, what is a production rate? A production rate is a measurement of how long a particular operation will take and how many materials will be required. 

These requirements are based on a unit of measure. Some typical units of measurement are Square feet, Linear feet, Cubic yards, Squares (common roofing unit), Count or Each, or any other name that describes a measurable unit. Some refer to estimating based on production rates as Unit Based Pricing. 

The key to Production Rates is that entering the measurements and counts can give you the price to charge, the profit you should expect AND the number of hours and quantity of materials required for the job…just by entering the measurements! 

There are a number of factors that influence any production rate:

• Location
• Weather and seasonable variables
• Quantity of work
• Operating conditions
• Size and type of project
• Condition of surfaces or work area
• Experience of crew

Some contractors call this time-based estimating. The trick to enabling an estimator to use those calculations is to get all of those numbers somewhere that can be used. It may be a spreadsheet or a software program that understands how to do those types of calculations.

Your estimator will do some simple measurements and put in a volume, an area or a count into the formula which will calculate the hourly budget, the material budget and a price for your client. 

We have discussed the importance of cost based estimating in the past and naturally that is going to become part of the overall formula.

In another article we mentioned the importance of budgeting hours for projects to help with overall scheduling, and systems for rewarding your employees that are top performers. 

So do you need to carry around a stopwatch to see how long it takes to do different things?

Well a stopwatch seems a bit extreme, but certainly general awareness of how long things take could come from project manager notes on any given project or even from your employee time tracking and notes, either will help shape this process.

I personally did exterior and interior painting in high school and college and can currently tell how much time a given house or room will take and how much paint will be needed and I was not a project manager. General awareness is a great starting point and dialing in the details of labor and material budgeting does become something that can be fine tuned over time.

How do I switch to production rate estimating? 

Advice on switching to production rate based estimating.

• Start with a small project
• It is much easier to compare the time spent on the 4-8 items in one area on a smaller project than the same 4-8 items in 10 plus areas on a bigger project.
• Stopwatch - No (as you dial things in you may want to do time studies in the future though)
• Project management notebook - yes
  • Taking rough notes on the different portions of a project will help with that initial setup.
• If you are using a spreadsheet or bidding software isolate the components as much as possible for comparison purposes. 

Relating the material and time needed on different portions of the project will get you the starting point you need to do the comparison.This might even come from your own expense tracking.

Here is a full article on Converting from Time and Material to Production Rate Estimating that shows you the process.

Converting from time and material estimating to per piece or production rate estimating will help you train new estimators and grow your business. It will also help you remove a bottleneck from your growth, YOU. The sooner you get started, the sooner you can increase your sales and profits!