PMs, Estimators, and Scaling Your Construction Business
Who should estimate projects? Estimators, of course! That is unless you’re one of the many contractors successfully managing your estimating effort through your project management staff. In my work with hundreds of contractors (both trade contractors and CM/GCs), I’ve seen a few very different, equally successful ways of handling estimating that I’d like to share with you. I’ve also seen a few unsuccessful ways I’ll share here as well.
Separate Functions: Pros and Cons
One key benefit to having a separate estimating department is the role specialization and focused effort gained from the division of labor. To have a department dedicated solely to getting work to fill the backlog minimizes the peaks and valleys often endured by construction businesses while they’re too busy doing work to spend any time chasing it. Estimators are allowed to spend their time mastering their craft, expanding vendor relationships, and cranking out enough bids to fill the backlog. At least, in theory.
One significant downside to this approach is tied to that last concept of “cranking out bids.” Too often, the dedicated estimating department turns into a bid factory with low win rates that provides immense value to potential buyers for free without capitalizing on the effort. While I’ve met many exceptions, often the type of people drawn to pure estimating roles are resistant to relationship development. This creates two critical problems. First, the lifeblood of estimating is securing accurate, cost-conscious pricing from subs and vendors, which is hard to achieve when those prices are provided by veritable strangers. Second, since estimators are operationally unencumbered, they’re often tasked with winning work as well. If they aren’t building relationships with their customers, your company’s bid is just a faceless number to your potential buyer.
Another problem with separating the roles is the added overhead associated with pure estimating roles. PMs are direct job costs for CM/GCs, should be for specialty contractors as well, but are at least indirect costs that are billable across all projects for some portion of their time. Estimators, unless they’re pricing a big change order on an active project, are non-billable and go straight to overhead. That can be hard to justify!
What are the Benefits of Combining PM/Estimating in the First Place?
Clients absolutely love having a single point of contact for their entire project lifecycle. “Cradle to grave” is an extremely attractive pitch to clients who crave accountability and deep relationships with the people actually doing the work, not just selling it. This is a strategic selling advantage for the companies who use this strategy. In addition, there’s more ownership of project outcomes when the person who estimated the job must also prove the accuracy of their estimate. Gross Margin tends to be higher with the PM/Estimating combined role. As hard as it is to manage, there’s really something to it!
Org Chart Do’s and Don’ts
When you’re a small, growing contractor with less than 10 office staff, it’s totally normal to have the PM and Estimating functions shared by the same people. It’s often necessary due to lack of cash to fuel Overhead. As small contractors grow into mid-sized ones, to me this is the most important time to create at least some dedicated estimating staff. You’re too small to not have at least some team members dedicated to keeping the pipeline and backlog full. That said, you must either have estimators who enjoy developing relationships or you must fulfill that need explicitly elsewhere in your business.
Once you’ve graduated from a midsized to large contractor, believe it or not, I’ve seen the PM/Estimator hybrid role work extremely well. I believe this is due to the large amount of inbound leads from repeat, referral, and word-of-mouth business that keeps these companies swimming in opportunities. With the “peak and valley” risk eliminated, these companies can benefit from the sales and operational advantages of combining the roles without worrying about work drying up.
Let’s talk about your business!
If we haven’t discussed your org chart and you’d like to get some ideas, please reach out to me or anyone on the Well Built team. We’d love to help.
The Spark Notes:
Ideally, dedicated estimators should handle estimating, but many contractors successfully use project management staff for this role.
A separate estimating department offers role specialization and helps maintain a steady work pipeline, but can lead to inefficiencies like low bid win rates and increased overhead costs.
Combining project management and estimating roles can enhance client relationships, accountability, and project ownership, often leading to higher gross margins, especially in companies with strong, consistent work opportunities.
Small contractors may need to combine roles due to limited resources, but as they grow, it becomes crucial to have at least some dedicated estimators to maintain a full pipeline.
