Cost Estimators: The Bankers of the Construction Industry

Recently guys I have started a career in the construction industry as a project manager and cost estimator for a local company (boutique) and have seen the underlying similarities to the bankers of the financial world.

It's also a career most finance and business guys haven't heard of because the companies almost purely recruit from those interested in the construction world (civil engineers and construction science majors more so). Although it is exceptionally easy to get into with a finance/business degree because many of them don't have the education at all.

Just what exactly is a cost estimator?

Cost estimators are the bankers of the construction world crunching numbers, building proposals and occasionally wining and dining clients. In the construction world you compete with other companies to get the 'project' or chance to construct their product. To do that you must meet certain minimum qualifications and then give the lowest estimate (you want to be the lowest cost to the client while still padding your pocket). As a cost estimator we determine the markup, margins, which supplier and supplies (not always the cheapest ones) and well as handle just how profitable or risky the project will be. Its takes equal parts science and equal parts art to be a great estimator. Quantitatively you will get away with the same as banking, unless you're doing heavy construction which might actually use integrals and calculus to calculate areas/volumes. Soft skills are pretty similar, in a more one-man-shop role you're going to be meeting clients on day one and coming off as an idiot is the sure way to get into the 'disqualified' pile.

On top of this analysis role, you also have to be part salesman (especially private work which doesn't always require the lowest estimate), part negotiator when dealing with changing the contract or sleazy suppliers, part financial analyst when you are determining the P&L and cash flow restraints of your projects and part bad ass (just to deal with engineers which are annoying).

You do a lot of spreadsheet work and if your company is large, there is a considerable amount of financial analysis and planning to be done with any project of 10MM or above. So you will get the financial side and you can even become more hands on with this as construction is surrounded with bonding, credit, acquisitions, debt and heavy asset allocations.

What do construction companies and cost estimators look like?

Unlike the financial world, most estimators are in small companies or boutiques which normally do less than 10MM in revenues. You'll be the sole estimator with your boss being the CEO/Owner/Chief Monkey of the company. Sometimes you'll have a Chief Estimator and be second in line but that's closer to a company with 10MM in revenue a year mark. Otherwise you are in the MM aspect of construction. These guys are normally general contractors which hire sub's and do only specific niche parts of the project. The revenues are going to be in the 100MM or less range and you'll have a more corporate structure (Jr., Sr., Chief, etc.) and your focus will be more on the actual estimation than administrative/project management work. Then you have the BB's these guys do 100MM plus in revenue and you will be a peon in the ranks. They hire from the state schools, and hire more engineers than business guys, but you can still make the ranks if you show you want it bad enough. You won't be doing the entire project estimation as some projects will range from 15-50MM alone, so you'll develop a niche such as erosion control, concrete paving, etc and become a master in those areas of estimating.

How much do 'cost' estimators 'cost'?

Similar to the banking ranks you're going to make more at the BB's and MM's than boutiques starting, but it won't be nearly as big of a differential. Starting out with no experience you can expect in the range of 50K to 60K in Texas (equivalent to 70K roughly elsewhere) at the boutiques (I'm personally on the higher end of that range and haven't even graduate yet) and probably 10-20% more at MM and BB sized companies. Bonuses are rare, but you may get them if you get your projects are on time, on cost and above expectations; also you'll normally get an expense account for mileage, lunches and other work expenses.

Senior estimators can make anywhere from 80K to 120K depending once again on the type of construction and size of the company. Chief Estimators make roughly 150K to 500K depending on the size of the company and the role you play and can take anywhere can 5-20 years to reach. Be warned because the small companies call their one man team of estimators the Chief Estimator and skew the salary statistics. The only benefit of going to a small company of less than 10MM is the fact you are the second in command and if you build the company, you practically build your own salary and future. Its probably the best option if you're a rockstar, but not the second coming of Construction Jesus (which would excel at a BB type company anyways). You could start at 55K and be at 100K within 3 years and then from 100K to 200K in the next 3 years if you bring in more work and kick ass.

Its obviously not models and bottles, its more like whores and whiskey, but that's the construction world for you.

Why you would want to be an estimator?

There are a couple things I could think.
You have a fetish for hard work, and want to learn more trades type work.
Especially at the smaller companies you may have to *gasp* use a shovel or bobcat to move some stuff around to just make the hour go along better (operating equipment is actually fun).

You prefer the ability to be a jack of all trades and do a little bit of everything. Its EXTREMELY entrepreneurial and if you're into building, growing and leaving a company: its a great option. Most of these companies still have 1999's website, not even on the cloud (say what) and don't utilize anything other than Excel as far as software goes. If you're the type of person who is new age, extremely tactical and business oriented, you could come in and wreck shop bringing the 21st century or Wall Street to the blue collar world. Kind of like Belfort meets Billy Joe.

Many of the owners of these companies start off as an estimator at another, learn the industry and then leap to do their own and become blue collar millionaires.

You didn't go to a name brand school, but want to have a good life and live the middle to upper middle class. Several times in small shops, you go from being the estimator to the kind of CEO when the owner retires (and with the baby boomers they ARE retiring and need to hire someone to help take over the company) as this is my current path.

If you have any questions or want to know more, just ask and I'll answer.

*I know this doesn't belong in the corporate corral, but it gets more exposure than 'The Other Road'.

 
anonymousbro:

What kind of background did you have to get this position btw?

Other than my education, I had over a years experience as an insurance analyst for F500 construction and energy projects.

On top of that I knew the owners were very country but smart people so I played up my Texan accent and tried to come off like a good ole Texan businessman.

Superleggera:

Great read, thanks! I second the "day in the life" post.

I will definitely work on this!

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 

Good post. Curious, so you're at a construction co/contactor, correct? Not an estimator/third party project management shop, so your company owns/leases trucks, equipment, etc and employs people swinging hammers and digging holes and your roles is estimator and PM?

I'd be interested in how the PM side is going in relation to the estimating side.

 
Best Response
anonymousbro:

Cyclical though, and it's easy for small one's to go out of business over one mistake.

It is cyclical, but not as much as you'd think now a days. Larger companies are able to do work all around the state, nation or world. Although if you are not careful or spend exorbitantly then yes, it is in fact very easy to get too deep in the red and die out. This happens with massive equipment purchases before rainy season or getting upside down in loans (surprisingly common for small companies). Run it lean, and run it with financial acumen and your company will be fine.

Our company specializes in roadwork, excavation, and utility work like water at sewer. Dirtier work, with slightly less margin than residential or commercial 'above ground' building. More recession resistant in general.

SocratesIsMortal:

This was a great read. Tons of construction firms in my city and I've always wanted to know the opportunities for the more "finance"-weighted individuals. Half of my fraternity's board members operate in construction firms.

Good industry too, there's always something needed to be built..

It's a great little job to have, and in the right company you have stability and income. Project management and cost estimation are very different roles you'll never know unless you are 'in the know'. Its similar to sales jobs where you don't have to have an particular pedigree to get a foot in the door. The benefit is that estimation is also in industries like manufacturing, aerospace, energy and even software.

Dingdong08:

Good post. Curious, so you're at a construction co/contactor, correct? Not an estimator/third party project management shop, so your company owns/leases trucks, equipment, etc and employs people swinging hammers and digging holes and your roles is estimator and PM?

I'd be interested in how the PM side is going in relation to the estimating side.

Exactly; we are contractors and do mostly jobs where we are the main contractor with some subs and occasionally act as a sub for general contractors. It's interesting because the boss and I were discussing general contractors can work on all office staff and just someone to manage the site.

I like the project management side of my work but it's mainly purchasing, logistics, HR (compensation and hiring). It's hard to see where the PM and estimator begins and ends. Example is currently I'm speaking with the boss on acquiring local competitors who are struggling owner operators which have had cash flow issues due to weather recently, as well as determine project selection strategy. Even talks about adding SWPPP and erosion control branches since we already have all the fixed costs counted for. I'd put this under my more project manager side of the job, but in a small company your estimator is your project manager. You make a good point about there being a difference but I prefer the actual financial/estimation and strategy side.

anonymousbro:

What was your education? Apologies, I missed that. Also, how would you recommend getting into a similar position? I.E. if I can't get cost estimator go for the insurance analyst spot you spoke about?

Just business courses and my CRIS designation. My actual degree is a BA in Interdisciplinary Studies with a focus in Management. Haven't even finished (still quite young). I'd say you'd be making a unnecessary loop to go insurance analyst to estimator. Something closer to financial analyst, cost analyst or project manager would be a better entry point but cost estimating is an entry level position which is different than almost anything else you could 'drift' in from.

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 

Thanks for this. I'm definitely considering going down a path as I come from more of a construction/blue collar background. It just seems so interesting to be dealing with such tangible aspects rather than securities and what not. I just gawk at all the new buildings/excavators/cranes in my area and how it opens up so many opportunities to make money.

 

As someone who works in the construction industry and who has been involved in it my entire life, here are some things I've noticed. Older guys HATE when the young guy, who has some type of construction degree think they know what they are talking about. Most times they don't. You need real work experience and the other skills to be respected and do well. The best thing you can do if you are interested in this path, is get out on the job site. I learn more in one hour on the job site than a week of construction related courses.

 

Nice read: Civil Engineering UG, currently a PM intern and I had a whole different perspective on cost estimating before this experience. The only con of my current role is that the company focuses on a very specialised scope, so some projects can be boring.

And yes great industry to be a part of especially for those with an entrepreneurial spirit. One of my PM's actually manages weekend projects on his own: he previously had a general contracting firm but went downhill after his partner and him had some disagreements, luckily he was close to his clients so they still contact him.

For those interested in these types of roles and are coming from a different background many companies offer the rotational programs within Estimating, PM, CM, etc. giving you a chance to get a feel for which role is best for you.

 
saw23:

This was my first job out of college. Good intro to Excel and great project management experience to prepare me for investment research, but damn were those engineers I worked with nerds.

Where I work the engineers are often civil country boys, which means they come off as hillbilly geniuses. It only sucks when they get their superiority complex going on full tilt.

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 
anonymousbro:

Is it a every hour you're doing something kind of job, or is it a lot of lulls and then shit creek?

Depends on your week.

This week is a heavy week because we are tying up the loose ends on three different jobs while also bidding 2 medium and 1 large size job. It's hard because although we are focusing nearly 100% on the finishing and 2 mediums that large one is something we really, really, really want. So since about 6AM this morning I haven't stopped with phone calls, subcontractors pulling out last minute from sending quotes and then on top of that doing some out in the field surveying stuff.

So I'd have to say lulls then up shit creek. However, even the lulls you can always be doing more at a small shop (website development, hiring a secretary, equipment depreciation and expense forecasting model, etc.). It's really fun, but the busy days suck at a small shop.

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 

Great post, thanks man!

I've actually looked at some of these jobs with some of the larger companies, but sadly anyone I've gotten a response some wants an engineering/construction science degree. They won't even look at a business degree. Do you pretty much have to sneak in the back door (ie- start at a smaller/mid-sized shop) or is there something I'm missing here?

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

How is this different from a Plan & Cost Review or is it more detailed? PCRs typically entail review of the hard costs and soft costs, contingency, and the ability of the project to be built within the scheduled timeline. However, in my PCRs I haven't seen opinions on markups etc..not sure if that matters all too much with a GMP contract anyway to the owners.

Thanks.

 

70k? Maybe in DC, San Fran, or NYC, with a few years experience. In flyover country, starting salary will be 40k or below. Laborers in the field will make more than you with overtime. You will not be wining or dining anyone unless you are actually more of a senior estimator/ operations/business dev/pm at a boutique sub. 90% of your time will be spent making phone calls, playing with spreadsheets, and editing word documents and pdf'ing them. Occasionally you will be able to leave the desk or cubicle for a site visit or pre bid(small construction offices are not going to be clean, pleasant, or aesthetically pleasing in any way). Sexism and racism is rampant in the good ole boy industry, so you need to be able to get along with anyone and have thick skin. Architects and engineers with no common sense or people skills whatsoever are quite common. Estimators are the lowest on the totem pole in a GC or CM office, so trust me, you want to focus on starting out as a PE or APM if you can possibly get there. You will get estimating knowledge vicariously in turnover meetings and through pricing change orders.

I spent 3 years at a concrete/drywall self perform GC(50 -75 mil)with 90 guys in the field. Now I am at a smaller site work GC. I was in the field for about 6 months before these, but I have a liberal arts degree so proposal writing and sales/estimating seemed like a good fit. It was a good starting point but I want to move into a PM role quickly. Estimating is truly a nail biting position, you most likely won't get paid enough for managing the companies' financial risk, and one misplaced 0 could break the company.

 

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