Tips Help Drilling Contractors Build Cost Estimates
Most of us have heard the saying, “If you want something fast, good (high quality) and cheap—you only get to pick two.” Even if you have not heard this saying, you most likely have experienced this in real life. If you want to purchase the highest quality pickup truck this weekend, you should expect to pay a premium. However, if you are willing to wait a few months or go with a vehicle of lesser quality, you may get a price deal.
|David S. Bardsley|
This is what is commonly called the price or value triangle.
Now let’s look at the triangle from a different point of view. Can the same cheap, fast and good issues be important in something that you provide to your clients for free? What the heck do drillers provide to their clients for free? How about a cost estimate?
How does the value triangle work in this case? Your client wants a cost estimate; this becomes the end product (the pickup truck so to speak). They would like the estimate two hours after giving you the project scope (fast). The client wants the price to be as low as possible (cheap). And finally, they do not want change orders or any surprises after the job starts (good). Guess what? In the real world, they can only get two.
Let’s say the client gives you two hours to put the estimate together. We have all heard, “My boss says I have to have this quote by close of business today or we will go with the other driller.” You look at your watch. Of course, it is 2:30 p.m. on Friday. Can the client get a fast, cheap, quality bid? Probably not.
Think about the estimating process: materials, labor, fuel, permits, subcontractors—the list of cost items is quite long. Let’s just look at just one part of estimating the job: materials pricing.
The price, or value, triangle can guide all aspects of drilling, even cost estimates. Source: iStock
Remember, it’s 2:30 p.m. on a Friday, no time to contact your vendors to get the most up-to-date pricing on materials. Oh yeah, the client wants stainless steel screen. Those prices are volatile, sometimes changing daily. So, what do you do when there is no time to check with vendors for materials pricing? You guess, based on your past experience. However, most drillers I know will try and take the risk out of “guesstimating” by adding extra costs to cover the risk of a bad guess. This affects the “cheap” corner of the triangle.
The other option you have when it comes to materials pricing is to assume that the last quote you got from the supplier is still valid and just plug those numbers into the bid. What happens when it becomes time to purchase the materials for the job and the price has risen 35 percent? You can ask for a change order or try and reduce costs on other portions of the work. There goes the “quality” portion of the bid.
We just discussed only one part of the estimating process. With little (or no) time to accurately develop the cost estimate, the guesstimating continues with the other portions of the bid. This can lead to a cost proposal that is way too high, causing sticker shock to the client, or you may lose the bid based on price.
No driller I know wants to provide quotation based on guesses, and we really do not like messing up the cheap and quality portions of the triangle. So what is the best way to handle this situation? Be honest with your client; reference the quality triangle and let them know that, with a little more time, they can get cheap and quality. This may eliminate two possibilities: sticker shock from too many guesstimates or a bid that looks too good to be true with quality suffering in the end.
Cheap, fast and good.
Let’s try and provide two of the three with our estimates.