How To Estimate Labor for Your Remodeling Projects
When it comes to estimating home remodeling or renovation projects, most of us tend to follow a best-case scenario when calculating labor costs and project timelines.
One cause of this is forgetting to factor in time for the “in-between” tasks that can add additional days to the project schedule and cost to your budget.
Another issue that plagues your schedule is that you don’t work in a distraction-free bubble, and dozens of things can and will interrupt your day. This decreases your productivity, making that seemingly easy 2-hour task take an entire day, increasing your labor costs and project timeline.
Why Remodeling Jobs Take Longer Than Planned
There are several reasons why remodeling projects take longer than anticipated, and it often comes down to how we estimate labor and plan our project schedules. In the initial stages of creating a cost estimate, we know the least about the project and all of its intricacies.
Whether it's removing a load-bearing wall in a living room or making other major structural changes, we typically think about that task - but not the other intertwined components involved in completing that work. That oversight impacts our estimates because we aren’t allowing enough time overall to cover the things "we don't know that we don't know" yet.
The truth is that a project will take however long it takes. But when we constantly miscalculate the time, running past the original timeline we set in our pre-construction process, we risk the job (and our overall business) becoming unprofitable.
This is particularly true for fixed-cost builders, who are tied to those costs and timelines established in your cost estimate (provided nothing changes on the project, but it just takes longer). Cost-plus builders are somewhat less tied financially to those estimates but will still have an unhappy client because the project has run over time and budget.
Remodeling Projects Don’t Happen in Silos
When pricing projects, it's critical to take into account all of the interconnected tasks required to execute components of the project.
For example, consider framing a kitchen wall. As professional remodelers, we (probably) know how long it will take to cut the wood and actually build the wall. But we often forget to budget the time for setup and assembly of related equipment needed before we even get a saw near that first piece of wood.
Those tasks need to be added to your cost estimates too.
For example:
Planning and ordering the required lumber
Receiving the order
Staging material
Setting up saw horses
Running power and air hoses
Grabbing your skil saw
Doing that tiny bit of demo you forgot you had to do
Laying out
FRAMING THE WALL
Cleaning up
Moving your tools and equipment
While each of these tasks may seem minimal, they add up to a large chunk of time that eats away at your day (and your budget), making that framed kitchen wall a bigger cost than you thought.
Remodelers Don’t Work in Odd-hour Increments
Parkinson's Law states that "work expands to fill the time allotted," which, in layman's terms, means that if you schedule a task for 6 hours but you don't have anything else scheduled for the same day, you will spend your whole 8-hour day on it.
This is particularly true when scheduling work plans for our internal carpentry teams - and it makes no difference if the job is a remodel or a new house. When creating a workplan for a team member, consider adding more work than an 8-hour day will allow for to ensure that Parkinson’s Law can’t take effect.
Because if you only schedule tasks that you’ve allotted 5 hours for in your estimate, but don’t provide additional tasks, your team member will likely take 8 hours to complete them.
This error can compound to a significant amount of additional time to the project, and cost to you if you’re not properly scheduling work plans to avoid it.
We Estimate Remodeling Jobs Using Best-Case Scenarios
Most of us are people-pleasers by nature, and that’s especially true when it comes to our clients. So we tend to estimate remodeling projects based on best-case scenarios - where everything goes according to plan, and we feel we are making potential clients happy.
Part of this is connected to the delicate balance of respecting our business and our need to be profitable with feeling confident we can sell the project at the right price to a client.
Trying to manage that balancing act leads to the “Planning Fallacy,” a phenomenon in which predictions about how much time will be needed to complete a future task display an optimism bias and underestimate the time needed.
But things rarely go according to plan on a job site.
And when we don’t buffer our timelines to make allowances for issues beyond our control, like the work taking longer than we thought, trades not being available, material shortages, and shipping delays, we end up running over our timeline (and budget), which can lead to uncomfortable client conversations about their home renovation costs - and profit bleeds for contractors.
We Don't Work in Bubbles
Even when we might actually estimate the right amount of time for a component of the build to be completed, we can still be distracted by everyday occurrences, like multiple phone calls from trade partners on another project, or chasing down an inspector to schedule their next inspection.
Not to mention the constant interruptions from trade partners on-site with you, making it hard for you to complete any of your physical work because you are constantly being asked many questions and required to troubleshoot details, especially with remodeling projects.
Accurate Estimates Lead to a More Profitable Business
Running a successful, profitable remodeling business means ensuring that the business operates as efficiently as possible.
That includes:
Accurately estimating remodeling projects for the true cost of goods you'll need to complete the work correctly the first time.
Ensuring that you've allowed enough labor time for each task within the overall project timeline to keep the project on pace.
Let's explore key strategies you can implement to ensure you don't succumb to the Planning Fallacy and Parkinson's Law on your next cost estimate.
5 Keys to Accurate Labor Estimates
1. Timeline Approach
One of the secret tricks I used as a general contractor in estimating remodeling projects was to estimate in a siloed approach first, meaning I would work through the components of the build and allocate the time I thought was needed for each component.
Then I would build out a construction timeline for the "blocks" of work. Once I had a timeline I felt was reflective of the work plan and matched the amount of overall time I had factored into the cost estimate, I placed hours into each of the weeks to represent how many people I had on-site for each part of the project.
More often than not, when I compared the total of both documents, I found that I wasn't properly accounting for the in-between time between blocks.
Estimating construction projects this way lets you see how other components of the project will impact each task and assist you in determining whether you’ve allotted the correct amount of time for the job.
2. Estimating Remodeling Jobs Using the Rule of 4s and 8s
My general contractor days also taught me how to count by 4s and 8s, and I learned to estimate a project in 4 or 8-hour increments so it could easily be scheduled into a day’s work without too much gap time.
This helps you avoid Parkinson's Law when scheduling your teams to ensure we are maximizing our days to the best of our abilities.
When you’re scheduling tasks for a remodeling project, consider all the variables for the entire task - not just your portion, and budget that into the overall timeline.
Is there a component to the task that is dependent on someone else to complete?
Will other trades or vendors impact my ability to start on time?
How long will commuting to the job site take?
Am I waiting for materials to be delivered to do the task?
Then add the necessary amount of buffer time to that task - and (ideally) fit it into an 8-hour workday.
3. Avoid the “Planning Fallacy”
Probably the greatest lesson I learned as a general contractor was that having a second set of eyes review my cost estimates was the most effective way to avoid underestimating time and labor. It’s easy to lose perspective when you’ve got your head buried in a project; a second set of eyes can help you see the forest for the trees.
It’s a powerful lesson to teach project managers too, and I often had them build the construction timeline and then add the labor needs across that timeline. We often saw significant discrepancies when we compared notes from my cost estimate to the timeline and were then able to course-correct and clarify the project's labor needs, which would help avoid profit bleeds downstream.
But an even greater unintended outcome was that by having a member of my team build the timeline, they had full accountability because they had a hand in creating the work plan.
4. Take it Slow
There are so many things to consider when developing a cost estimate for a renovation, which is why it should never be rushed. Even if the clients are asking for it immediately and you are feeling the pressure, ensure that you pause and explain why we need to go through a paid pre-construction process.
Rushing through the estimating phase can lead to mistakes in labor allocation and will catch up to you downstream in additional costs squeezing your profits
So, take the time to ensure you’re accurately planning for each step of the project and allowing sufficient time for related tasks.
5. Track Your Data
Along with getting your internal team to provide feedback before a project starts so you can set a better timeline alignment, another valuable tool you should be using is your job costing.
By tracking labor hours expended by category of ongoing construction, you can use your past performance to help you align the labor needs for current project estimates.
It's going to take time for you to build up enough data to be meaningful, but once you pass that tipping point, this can be a great way to avoid the planning fallacy and ensure you are selling work at the right price and avoiding downstream profit bleeds.
The Bottom line
Running a profitable construction business with internal team members is by far one of the greatest challenges in the residential construction industry. Many factors can wreak havoc on your actual costs, causing you to bleed overhead and profit contributions, leaving you frustrated and potentially stressing out your teams.
Remember that contractors don’t work in silos and that your estimates should align with your project timeline. Keep in mind that things will go wrong during construction (this happens in both older homes and new construction), so never assume a best-case scenario for every project.
By accurately estimating labor costs, you can ensure you are pricing your projects correctly and not leaving money on the table. To do this, you need to:
Consider the time needed to complete the job and its interconnected tasks
Avoid the planning fallacy by populating across a timeline
Plan for the things that can go sideways
Ensure you get your team's buy-in
I created the BUILD AND PROFIT SYSTEM to help residential contractors run profitable businesses by using proven financial systems to understand their numbers and a bulletproof way to estimate work so that you capture labor costs correctly.
Click the button below to learn how the BUILD AND PROFIT SYSTEM can help ensure you estimate your labor correctly and feel confident selling projects at the right price so you don't leave money on the table on your next project.
