In today’s volatile economic climate, Benchmark Estimating Software Australia Chief Executive Frank Prestipino asks why so many construction companies still rely on spreadsheets to estimate costs
On 23 March the Sydney Morning Herald reported that Lloyd Group, a large construction firm specialising in building schools and other government infrastructure had gone into administration. It was the second building firm in 24 hours to collapse as a result of what the Herald said were mounting pressures driving Australia’s building industry to a crisis point.
The company had more than 200 staff and 59 projects under construction at the time. A spokesman for the administrator said the company had been unable to overcome increasingly challenging circumstances over recent months that had eroded project margins.
Other reports blamed the company’s collapse on rain and flood events that had led to procurement losses, along with project delays, insurance claims and subcontractor insolvencies.
Even the best cost estimator in the world would likely have failed to fully factor in all these cost-hiking developments. However, a highly accurate estimate based on costs and factors that could be assessed with reasonable confidence might have at least helped. Unfortunately, many such estimates are way off the mark: not because of any lack of estimating expertise, but because of a lack of sufficiently granular information and the proper software tools to turn all the available information into an accurate estimate.
Instead of making use of these purpose-built tools, too many estimators rely on the humble spreadsheet: a general-purpose tool whose functionality falls far short of what is required to produce good estimates, even when ample and accurate data is available.
Two of their greatest shortcomings are a lack of visibility and lack of auditability. Formulae are the heart of every spreadsheet but are normally invisible. And you cannot identify when a spreadsheet has been changed or by whom. A change of one formula, possibly unintentional, could easily render a spreadsheet widely inaccurate. One company discovered a $250k error in a submitted tender because of a hidden column in a spreadsheet.
Spreadsheets do not present a single comprehensive view of a project, and are static entities: they are not responsive to changes in data and shifting risk factors.
Any estimate needs to be validated and reviewed before it is submitted and if its source data and calculations are not easily accessed, review and validation will at best be extremely time-consuming and at worst, unreliable.
Nor do spreadsheets lend themselves to collaboration. Estimators are members of teams and rely on inputs from others to produce estimates. Ideally, software used to prepare estimates should have a single user interface available to anyone involved and, crucially, one that is secure, that authenticates users and secures data in transit.
It requires a mountain of work to turn a generic tool into a custom tool for an application like estimating. Furthermore, if that tool needs to be used by multiple people throughout an organisation, then they all must be trained in its use. Often, knowledge and skills reside with only one or two people, creating an unacceptable business risk.
All of these limitations beg the question: why use a spreadsheet when software designed specifically for the production of estimates is available? Such software can be deployed as a cloud service that can be accessed securely by all who need it, regardless of where they are.
AI-powered software has features that address all the shortcomings of spreadsheets.
- It enables all changes by every user to be tracked.
- It offers a 360-degree view of all project data.
- Entries can be validated against a set of rules, from simple errors such as using an incorrect unit of measurement to more complex and hard-to-spot errors.
- It allows for collaboration and peer review.
- It can capture business intelligence, including data on how it is being used and by whom.
- It can provide seamless reporting across multiple projects to streamline project management.
- It can support first principles estimating, a method of pricing projects by identifying, analysing and combining basic resources.
- It enables a bill of quantities provided by a client to be imported, providing more accurate quoting for tenders.
In addition, this software often has fully integrated features that make the estimator’s job easier. It can have multiple features to suit cost estimating for different project types, including:
- Parametric estimating, which uses a set of algorithms, statistics or models to describe a project, ideal for preparing repetitive quotes quickly and accurately.
- Three-point estimating, which uses best case, worst case and most likely outcomes to arrive at the most probable outcome, providing businesses with an edge on more sophisticated scenario testing for projects.
- Creating a schedule of items (scope of work) for a project by adding prebuilt items from a central item library or from a previous project.
- Auto allocate, which enables cost estimates to be produced rapidly by using items stored in an item library.
For the high-level estimating requirements of construction projects, a sophisticated and tailored estimating software designed for the job can provide the granular detail, transparency and collaboration far beyond general-purpose spreadsheets.