Let’s build upon the rather intuitive statement that the accuracy of a cost estimate is directly proportional to the level of details that are known. Is there some sort of ‘idiot light’ that goes on once the design work reaches a particular level of completion, thereby allowing a contractor to calculate their price… with extreme accuracy?
Actually, it’s more like a dashboard gauge than an idiot light! Imagine an accuracy gauge that is controlled by the following rule: the more details I know the more accurate I can be.
WARNING: many a remodeling company will use this logic to try to convince you that an accurate price is never possible in remodeling; that doing the entire job on a time-and-material-basis is an essential ingredient to proceeding forward. We simply don’t buy this. Sure, no one knows what is hidden within a wall void, so surprises found therein do need to be priced on a time and material basis. But that which is known is capable of being accurately priced by a capable estimator!
Let’s describe this accuracy gauge …
We know that price accuracy increases with more information and that the farther along the design process one travels the more information is available, so accuracy also increases with time. We’ve assigned labels for our fictional gauge and they go like this:
- The low end of the gauge is called a ‘WAG‘, or Wild-Ass Guess. You’ll see a WAG get generated in a movie when an architect jots down some numbers on his or her napkin over dinner, or the car salesman telling you how much cars generally cost. Hardly worth the weight of the paper napkin, but better than nothing.
- Somewhat more accurate is the ‘GFE‘, or Good-Faith Estimate. We’re about a third of the way up the gauge. Once a conceptual design has been achieved we’ll typically generate a GFE.
- The gauge has topped out; we’re there now. We call this a ‘Bid’. You can take this one to the bank. And if there was an idiot light it would light up now! We now know which cabinet, what cabinet accessories, which tile, what grout… in the exact cabinet layout. Sure there may be minor, lingering details – let’s say the cabinet handles and pulls haven’t been specified – but we can set exact numbers to all that we know!
Before we talk further about this imaginary gauge, there’s another rather intuitive statement we need to throw in the mix: the accuracy of a cost estimate is directly proportional to the amount of time devoted to generating the estimate. Makes sense, right? Consider that once the design work and specifying for a project is complete, the actual time to generate an accurate price is considerable. Take a kitchen remodel whose price is around $75,000. It can take an estimator a good 30 hours of time to complete his or her work: meeting subcontractors on site who need to see the actual pre-existing conditions; meeting other subs off-site who need not see the site; discussions and correspondence with material vendors; completing spreadsheets; writing a Proposal; etc. Compare this 30 hours to the half hour devoted to a WAG, or the one-to-two hours devoted to a GFE. Simply put, it’s impractical and inappropriate to devote 30 hours to each and every price point along the gauge, thereby exacerbating the potential inaccuracy of WAGs and GFEs.
ANOTHER WARNING: Since a WAG & GFE are all guesstimates at best, please know that selecting your contractor based upon such a guess can hardly be called an accurate decision! Time and again we’ve watched a potential client choose a contractor based upon a lower guess, but these numbers are simply not dependable. So don’t depend upon an undependable number, ok? Know, too, that many a contractor will use this tendency in client-behavior by low-balling a guesstimate hoping that you might bite. Let that bait go and work towards an accurate number so that your contractor choice is sound… and intelligent.
To be clear, we may still run into some rot behind the former kitchen sink and this, by all means, would be an ethical extra, but this doesn’t change the predictability of pricing the rest of it, does it?
We will use these gauge labels often during the design process so we ask you to get to know the terms and respect the terms. Why? Because the accuracy of what we say increases over time; because what we say later may be far off from an earlier price quote… even though we carefully labeled it a GFE!
Here’s the fictional play we want to avoid:
Day 12 of the design process; a rough, conceptual design has been established for your kitchen remodel…
Designer: “We’ve estimated a GFE of between $75,000 and $85,000 for what you envision. Do you remember what we mean by a GFE?”
Client: “Oh yes, by all means! You trained me well. I know that we still don’t know so many of the details you need to generate an accurate bid. A GFE is more accurate than your WAG and that’s all I can expect right now.”
Designer: “And you know that a bid may be substantially different than our GFE, right? And that you shouldn’t hold that against us because it was merely a GFE, right?”
Client: “I get it so let’s get on with it…”
Day 52 of the design process; the drawings and specifications are complete; our estimator has spent about a week and a half creating the accurate bid; the client is sitting with our estimator, Shawn…
Shawn: “So here’s our Proposal. You can turn to the last page if you’re most interested in the price.”
Client (after turning to the last page): “Whoa! How in the world did you get to $82,475? You said it would only cost $75,000!”
Shawn: “That was the lower end of a GFE, remember? Do you remember what we meant by a GFE?”
It’s so easy to jump to conclusions, isn’t it? We’re only human, after all. We remember what we want to hear. You hoped for $75,000 and therefore react strongly to $82,475.
All we can do during the design process is define prices with our accuracy labels. We’ll be honest, open and transparent. Your job is to embrace these labels and their implications, even when weeks and weeks have gone by.
As a team let’s embrace this fictional accuracy gauge and talk clearly!
Know this: we’ve got to get your project affordable in order to work together. We’ll do the best we can at every step in this complex process to achieve this end result. Along the way we ask you to embrace the mantra that the more we know the more accurate we can be.