Quietly Re-Thinking Out Loud

"There is no such thing as a good, fair, or accurate Square Foot Price for an estimate. At the very best, a price based on square footage (the footprint) is nothing more than a WAG or SWAG ( Wild Assed Guess or Sophisticated Wild Assed Guess). Square Foot Estimates are inaccurate, undependable, and dangerous to use."

What follows is the Sample Deck Estimate that I’ve used several times to illustrate the lurking problems with using Square Foot estimating systems for projects. (warning don’t use these numbers because they are semi-fictional and arbitrary just for the purpose of illustrating this example.)

Deck#1-16 x 32 feet

Take that off as two Systems; The Deck measured by the SF and the Railing measured by the LF.

So (theoretically) if I want to estimate by the Square Foot I have just figured out that "I can build decks for $22.14 per SF."

Deck#2-8 x 16 feet

So the next customer wants a deck and I tell him I can build decks for $22.14 per SF and he says that he’d like one 8′x 16′ and that works out to 128 SF x $22.14 per SF which comes to $2834.40. Great! Project sold! That was easy.(or was it?)

Checking the price I just gave I go back and estimate the project using the System Costs Method that I used in my original example that gave me this SF Deck price in the first place it works out like this:

and deck # 2 SHOULD Cost $ 3,537.60 and not $2834.40.

That’s a difference of $703.68. So what did I do there? ‘Give the guy a %20 discount because his deck was smaller and easier to do????? I don’t think so. I just gave away my time and money. Not only am I doing the work cheaper than I should but since the project is smaller I am also losing in total sales volume so I’m making less money twice as fast! How’s that strike you?

Square Foot Pricing doesn’t really work and you shouldn’t even be thinking in those kinds of terms.

I’ve got a pretty detailed method of looking at a deck project (at lot more detailed than the 2 System Costs method I used in my example above) but for basics in addition to considering species I think contractors would be better off and better businessmen if they looked at, took-off, and priced deck projects according to the following basic schedule of values.

A Square Foot Estimate is often nothing more that a SWAG and with a potential of 20% error I don’t think it should be used for anything more than conversational and hypothetical talk over coffee or a beer. For real "business-like" pricing I would use the Systems Estimating Method.

Square Foot estimating and pricing should really be limited to just the bantering builders and remodelers do with each other while getting their coffee in the mornings. With a potential of 20% error it has little relevancy and practical use when it comes time to actually get in to production and build something. When you hear someone say —“I know that I will have to keep a much closer eye on my bottom line with this one.”— You don’t (and can’t) do that with Square Foot Estimating.

For the purpose of estimating building and remodeling there are basically four types of estimates. These types may be referred to by different names and may not be recognized as definitive, but most professional contractors estimators will agree that each type has its place in the construction estimating process.

There is also a fifth type of estimate worth a precautionary mention

As a guide to how I think each of the four main estimating methods can be used effectively I’ll offer the following scenario.

I run into Joe Blow downtown one morning buying the paper and he says "Hey I was thinking about putting a deck on my house how much does that cost?"

I think I know Joe Blow’s house so I say, "Well Joe, I think you’re talking about five or six thousand dollars" (Order of Magnitude Estimate, given free, no charge!)

Joe says "Hey that’s not that bad, you have one of you business cards handy. I’ll talk with my wife and we’ll give you a call"

I get the call a week later and go over to meet with Mr. and Mrs. Blow. We talk about a couple of things. The size and the shape that they want and checking a note sheet that I have (it’s actually based on the "Speedy Reckoner" section of the HomeTech estimating books) I take a couple of SF costs and using my calculator I say " I think we’re talking around $5200 for pressure treated and maybe around $6400 for cedar"(#2. Square Foot or Cubic Foot Estimate, still for free)

Mr. and Mrs. Blow look at each other and say, "Gee cedar sounds great. We want a cedar deck"

I then say "Okay lets figure some things out here and come up with a construction agreement" I open up my price book or laptop and we start to compile their project. There’s 32" of a connection to the house (ledger) @ x$ per LF. There are three posts and piers @ y$ each, cedar decking @ z$ per SF, etc etc. "What railing design would you like? Okay that one is xx$ per LF and that one is yy$ per LF. Okay you’d like YY design, that one is really nice, fancy too, let me see that makes the project price well lets see… $6920. Well that’s a little bit more because of the YY railing design. Okay you like what we’ve got here let’s write this up and we can get going on this in a week and a half. (3. Systems (or Assemblies) Estimate, job sold.)

Where does #4. Unit Pricing come in? Lets say I haven’t sold a definitive job but I have sold a contract to design a deck and develop accurate pricing for what ever design I develop then I could use Unit Pricing or I could use Unit Pricing on a set of plans and specification that they had prepared by a designer or architect. Or I could have used a combination of Systems Estimating and Unit Price Estimating to deal with the condition on one corner of the deck where I had to work the deck around this one tree that Mr. & Mrs. Blow wanted to keep to help shade the deck.

In all the models where I’ve looked at this cost per Square Foot issue (SF of Kitchen SF of Bathroom SF of Deck and more) to the best of my knowledge in every single one as the project gets smaller the cost per SF always goes up.

If you talk to enough contractors about this someone always says in defense of SF estimating. "Well you just have to know how much to raise the SF cost as the project gets smaller", Well how do you know that? How do you know or determine what that quotient is? There is just no way to accurately come up with a number for that. (Well actually there theoretically is but that’s one helluva a complicated algorithm to create and it would be different for every different kind of project).

‘Fine tuning’ SF estimating is kind of analogous to saying I could shoot more accurately if I had a laser sight on my flintlock musket. No you wont, it just ain’t gonna get any better. The flintlock is just inherently inaccurate as soon as the ball leaves the barrel and no sight is ever going tomake up for that inaccuracy.

Other articles discussing the application and inherent problems in Square Foot Estimating:

	Journal of Light Construction March  2006 The Myth & Math of Square-Foot Cost by Dennis A. Dixon
	Journal of Light Construction July 1999 Unit Pricing Pitfalls By Sal Alfano   Abuilding’s shape affects square-foot costs

by: Jerrald Hayes

Okay time for an update, in my blog post last Monday of 6:02 PM as an aside I complained about how long the official NAHB booksore BuildersBooks.com was taking with a book that was supposed to be the official NAHB book on scheduling. Well by Friday I had had enough and called them to check on my order and cancel it.

After given the person on the other end of the line my order number she told me that that order had been canceled! Canceled by who I asked? She then told me they (BuildersBooks) had canceled the order. I then asked well why wasn’t I informed of this? She then proceeded to tell that "when you order books online there are sometimes problems with the order taking systems" and that’s what happened in this case.

"…when you order books online there are sometimes problems with the order taking systems". No there aren’t. I’ve ordered hundreds of books on-line before this one and I have never had a problem before. There is a problem with BuildersBooks an the NAHB. I had also tried to contact the Home Builders Institute (HBI) of the the NAHB via email three times eventually sending e-mails to every address I could find on the HBI site asking about the programs and books they had to teach project management, scheduling, and supply chain management. I never got any response at all.

I don’t know, I just think that there are some real problems in the NAHB, Home Builders Institute, and BuildersBooks and their business processes and e-business awareness is locked in the stone age.

Is it any wonder that project management, scheduling, and supply chain management are so far behind so many other segments of this country’s business environment.

by: admin

Went to the Macworld Creative Pro Expo with my brother again this past week and while it may have been the smallest Macworld Expo we ever attended it was still exciting, inspirational, and informative. Watching the demonstrations of Apples Final Cut and the suites of products Apple has developed around it I find myself drawn back to my roots and heart which was in theatre design and technology back in the late seventies and eighties. Since I approaching this time in my life as a change of course, a change of direction, or just a time of change period I think I am going to approach and learn the technical aspects of video production and make it a part of the Paradigm-360 service offerings.

On our way home from the Expo Thursday I guess not getting enough Apple exposure to satisfy us we stopped in the White Plains Apple Store in the Westchester Mall. We got a second closer look at something we had seen earlier that day that Apple calls iSight which is a camera-microphone that works with Apple Macintoshes using iChatAV for video conferencing. While we noted that it was currently a Mac only solution right now which limits it’s business use in this Windows centric world since the three nodes of the Hayes family are all Apple we could all use it to talk to each other and it would allow little Ann and little Phil to talk to Grandma and allow her to see them talking to her. That gift to Grandma alone may justify the cost of the system even now. I guess we’ll all have to look into this further.

by: admin

Okay a couple more blog type thoughts I’ve had today.

Been thinking about the concept of Six Degrees of Separation and its ironically come up in a number of places in these last few weeks. And this evenings thought on that subject is relative to blogging and reading blogs. I just checked in to catch up on my blog reading for the first time since the middle of last week. The first three places I go to are Frank Patrick’s Focused Performance Weblog, Joe Elys Learning About Lean and Hal Macombers Reforming Project Management. It’s been from reading their bogs that I’ve been turned on to a whole bunch of other great blogs.

It was tonite in reading Frank Patrick’s Focused Performance Blog that I just got turned onto another blogger Erik Benson. I was reading Frank’s blog post of Thursday, July 17, 2003 regarding and commenting on
Erik Benson’s blog post The Idea Algorithm. To anyone reading this particular blog post that’s Three Degrees of Separation were talking about. Your reading something here (the first degree), that I read somewhere else (the second degree), that he read somewhere else (the third degree). While Frank’s post was primarily about Erik Benson’s Idea Algorithm he also made mention of Erik’s thoughts regarding the non-self-evidence of good ideas. That was the hook for me this evening.

Earlier in the day I was talking with a colleague Joe Provey who is going to be the editor of the Taunton Press’s (Fine Home Building magazine’s) new business management newsletter due to start early next year. In our conversation, in addition and in contrast to Erik’s thoughts regarding how good ideas are often hidden I had mentioned to Joe how I thought bad ideas were valuable and useful. Often when talking with the fellows I work with regarding business process improvements I hold off saying anything for a while, sometimes not even attending the initial meetings just so that my people wont be tainted or influenced by trying to think or anticipate what I’m thinking we should do.

And even then when I eventually do join in I will on occasion intentionally offer up some bad ideas for discussion. The benefits to that are; #1 it humanizes me so I’m not seen as the higher than high end all authority on what to do. It "humblizes" my position and helps to make me appear capable of the same stupid mistakes that everyone else makes. Not that I don’t do that enough on my own at times, but the point is real true creativity is not driven and inspired by trying to anticipate and figuring out what the boss (me) is thinking.

#2 the fellows get some good mental exercise finding what’s wrong with my bad idea and they can then take that thinking and apply it to their own "better ideas" to see how they hold up under the same kind of scrutiny.

#3 sometimes things just need to get shaken up and something really stupid and ridiculous can help reveal a beautiful elegant underlying path to a fresh good idea.

In the long run I don’t think good or even great ideas necessarily come from thinking harder and working the kinks out of out one particular idea. They come from having lots or tons of ideas. Isn’t it (I think?) Tom Kelly of Ideo and author of The Art of Innovation who talks about the importance of the rapid iteration of many ideas as being a key to great creativity?

I’m adding this as an addendum to Eriks thoughts on the non-self-evidence of good ideas. When he says "Good ideas, therefore, are hidden. They’re hidden in dark alleys which are only good because you know that there’s a route to escape and your pursuer doesn’t." That’s very true. Sometimes the bad idea can throw light down that alley or shake things in a way opens up a crack in the wall that will let that good idea out into the light of day. The bad ideas can be helpful in breaking down down the walls that hide the information that Erik has pointed out good ideas are built on.

by: admin

On opening up my emial when I got home this afternoon I saw the PMBboulevard.com e-mail newsletter I subscribe too had "Home Building" as the focus this week. I clicked through to read an article by Lynnette Simpson entitled Modular Homes Revolutionalize Home Building with Better Project Management. I didn’t find anything particulary startling there but it came with a poll that said

What seems most appealing about the system-built process?

• Assembly line construction.
• Lower costs.
• Quality control.
• Speed to market.

…I wanted a fifth choice:….All of the above.

Not having that available I gave my vote to "Quality control" in that I could see how "Lower Costs" and "Speed to Market" could be included as sub-sets of or results of "Quality control" improvements. Also I’m finding myself now thinking "Assembly line construction" could be good or bad depending upon how its applied or accomplished. If were talking about concepts like Flow, Lean, Pull, Drum-Buffer-Rope, or the Theory of Constraints as applied to a production line then I can see "Assembly line construction" as appealing or a beneficial construction method.but otherwise its just the same old problems all of us in construction face in a different wrapper.

Then again another interesting thought come to mind reading the National Association of Home Builders (NAHB) being quoted as saying: "system-built construction is the fastest growing segment of the industry.  These factory built structures take advantage of a repeatable process, with lower costs, proven quality, and a quicker time-to-market."

A little over a month ago in the project management forum I run as part of this site a contributor there was telling me that some of what I was saying was contrary to or contradictory to what the NAHB (officially) publishes regarding scheduling and production management. While I was sure that the books that the NAHB offers under their Builders Books label weren’t touching any of those concepts I mentioned above (yet) I wanted to see what they had to say about using CPM (Critcal Path Method) and most importantly how they addressed the effects of statistical variation in developing schedules. Having practiced CPM for some twenty something years I discovered empirically what TOC began to teach me (through understanding Herbie and the "hike") seven years ago; that having no float or slack along the critical path gave you a schedule that was statistically and/or virtually impossible to achieve without crashing it or changing its scope. If you made promises based on a no float- no safety schedule you were essentially promising your client something you really couldn’t deliver on or you were promising you’d work overtime to deliver it (crashing).

This fellow was taking me to task essentially saying that the NAHB books say Critical Path activities absoultley can’t have slack where the Critical Path definition I was arguing for was that the Critical Path "is the longest sequence of activities in a network. Usually, but not always, a sequence with zero float." (Critical Chain Project Management by Lawrence P. Leach Feb 2000 ) or "The series of tasks that must finish on time for the entire project to finish on schedule. The line of project activities having the least float , especially when float is close to, or below zero." There is an important difference between those two definition in my estimation.

Soooo,…I went online and ordered the book that this fellow was holding against me to see what it really had to say. In the process of placing the order the website informed me that it would take three to five days to process the order and then I should allow another thee to five weeks for delivery. Hmmmnnn,… right then I began to wonder….

That was back on Monday, June 16

It’s now July 21st and it still hasn’t arrived yet.

Geez I’m thinking, this is the NAHB approved book on production management and scheduling? Just how good or authoritative can the book be if they can’t deliver it to me within a week or much less a month? It’s been over a month now and if I take the scheduling information they gave me they’ve already passed the best case scenario and if if I doesn’t arrive by next Monday it is in ever sense of the word (both theirs and mine) LATE.

I’m going to put my money on it NOT getting here on-time.

Back on Wed July 9, 2003 I contacted their customer service through their website where I ordered the book saying "I would like to cancel this order for this book how do I do that?" and I never received a reply or even an acknowledgement to that message and my VISA hasn’t been credited with the price I was charged for the book so I’m thinking it’s still on it way.

The NAHB may very well be correct and accurate in saying: "system-built construction is the fastest growing segment of the industry." but I’m sorry to say I would not look to the NAHB or the building and remodeling industry in general as an example or model of better project or production management practice.

by: admin