How to Revise Construction Estimates Mid-Project Without Losing Profit

Unexpected problems can throw even the best-laid budgets off track in the fast-paced building business. It's common for building estimates to need to be changed in the middle of a project. But how can contractors make sure that these changes don't cut into their profits? This article will show you how to accurately estimate costs and deal with changes in the middle of a job while keeping your bottom line in mind.

Why Do Construction Estimates Change Mid-Project?

Many factors can cause predictions to need to be changed, such as:

• Unforeseen conditions: Costs can go up because of hidden building problems or delays caused by bad weather.

• Scope changes: Clients can ask for extra features or changes.

• Material price fluctuations: Changes in the market can have a big effect on costs.

• Errors in initial estimates: Miscalculations or overlooked details can lead to inaccuracies.

Knowing why these changes are happening helps workers deal with problems before they happen.

Types of Construction Estimates

To manage and revise estimates effectively, it’s essential to understand the different types of construction estimates commonly used in the industry. Each type serves a specific purpose and varies in detail and accuracy.

1. Preliminary Estimate

This is a rough estimate prepared during the initial stages of a project. It provides a general idea of the project’s cost based on limited information, such as:

• Project size

• Basic design requirements

• Historical data from similar projects

Preliminary estimates are ideal for feasibility studies and early decision-making but should not be relied upon for final budgeting.

2. Detailed Estimate

A comprehensive and accurate estimate based on complete project plans and specifications. It includes:

• Material costs

• Labor costs

• Equipment expenses

• Subcontractor quotes

This estimate forms the basis for project bidding and contract negotiation.

3. Quantity Takeoff (QTO)

This type of estimate involves calculating the exact quantities of materials required for the project. It’s highly detailed and focuses on:

• Material types

• Measurements

• Unit costs

QTO estimates are critical for procurement and inventory management.

4. Change Order Estimate

Prepared when modifications are requested mid-project, this estimate outlines the cost implications of:

• Design changes

• Additional work

• Material substitutions

Ensures that all parties understand the financial impact of changes and agree on adjustments.

5. Budget Estimate

This is a high-level estimate used to set financial boundaries for the project. It includes:

• Expected costs

• Contingency funds

• Profit margins

Budget estimates help in financial planning and securing funding.

By understanding these types of estimates, contractors can better navigate revisions and maintain control over project finances.

Read more: A Guide to Construction Cost Estimates: Types, Methods, and Examples

Steps to Revise Construction Estimates 

1. Evaluate the Current Estimate

Start by reviewing your original budget and identifying discrepancies. Ask:

• Which costs have increased?

• Are there areas where savings can offset overruns?

• What’s the impact of these changes on the project’s overall financial health?

For example, if material costs rise, explore alternative suppliers or bulk purchasing options to mitigate expenses.

2. Communicate with Stakeholders

Transparency is key. Inform clients, subcontractors, and suppliers about necessary adjustments. Use clear, concise language to explain:

• Why the revision is necessary.

• How it will affect the timeline and budget.

• Options for minimizing additional costs.

Proactive communication builds trust and prevents misunderstandings.

3. Leverage Technology for Real-Time Updates

Using construction bookkeeping and project management tools can streamline the process. These tools allow you to:

• Track expenses in real-time.

• Identify potential overruns before they escalate.

• Generate updated reports for stakeholders.

For example, software like Procore or Buildertrend integrates cost tracking with project management, ensuring accuracy.

4. Adjust the Scope or Timeline

When costs rise, consider adjusting the project’s scope or timeline. Discuss options with clients, such as:

• Postponing non-essential features.

• Phasing the project to spread costs over time.

• Opting for cost-effective materials or methods.

Balancing quality, cost, and timeline ensures client satisfaction without sacrificing profit.

5. Implement Profit-Focused Budgeting

A profit-focused budgeting approach prioritizes maintaining margins. To achieve this:

• Separate fixed and variable costs.

• Allocate contingency funds for unexpected expenses.

• Regularly review and adjust profit goals.

For instance, if labor costs increase, reallocating funds from less critical areas can preserve profit margins.

Additional Strategies for Managing Changes

Make an emergency plan.

Unexpected events will always happen, but having a good backup plan can lessen their effects. Set aside 5 to 10 percent of the total project budget in case there are costs that were not planned for. This proactive step lowers the need for major changes.

Regularly Review Project Milestones

Breaking the project into milestones allows you to assess progress and costs incrementally. At each milestone, compare actual expenses to the budget and adjust as needed. This practice helps keep the project on track and prevents small overruns from snowballing.

Engage in Value Engineering

Value engineering involves finding cost-effective alternatives without compromising quality. For example, using recycled materials or innovative building techniques can reduce costs while maintaining standards. Collaborate with architects and engineers to explore these options.

Train Your Team on Cost Awareness

Educating your team about cost management ensures everyone contributes to staying within budget. Provide training on:

• Efficient resource usage.

• Identifying cost-saving opportunities.

• Reporting potential issues early.

A well-informed team is an asset in controlling costs.

While managing budget revisions independently is possible, it’s often time-consuming and prone to errors. That’s where Construction Cost Accounting can help. Our team specializes in:

• Accurate cost tracking: Ensuring every expense is accounted for.

• Real-time reporting: Keeping you informed about your project’s financial status.

• Customized solutions: Tailored strategies to meet your unique needs.

By outsourcing your bookkeeping and accounting needs to us, you can focus on running your projects while we handle the numbers.

Conclusion

Revising construction estimates mid-project doesn’t have to mean losing profit. By following these strategies and leveraging professional tools and services, you can stay on track and achieve your financial goals. Ready to simplify your construction bookkeeping? Contact Construction Cost Accounting today to learn how we can help!