Pricing risks and management strategies for estimators in the residential construction industry

Abstract

A construction estimator is responsible for estimating the cost of a construction project. The process itself has many risks involved and has always been an important area of research. Numerous studies have been carried out in the past which only looked at risks in construction project in general; very little research has been done on the topic of ‘pricing risks’ from the construction estimators’ perspective and certainly in New Zealand residential construction context. The aim of this research is to examine the question –What are the perceived pricing risks and practical management strategy amongst construction estimators in the Auckland residential construction sector? Data were collected through semi-structured interviews with questionnaire to collect survey data includes demographic information about the estimator and its company; perception of pricing risks in terms of their level of importance and frequency of occurrence; number, level of details, sources, reliability and purposes of cost data.

The result showed that overall, the top pricing risks were ‘site related issues’, ‘project complexity’ and ‘change in scope of work’ and the most common method used to deal with the risks is use of Provisional Sum. Furthermore, it is concluded that the estimators interviewed had low number of cost data because many of the cost items are quoted. This is confirmed by the estimators that the most frequently used cost data is the ‘subcontractors’ / suppliers’ quote’. The result also showed that the most reliable source of cost data is the ‘in-house rate buildups’ and the biggest problem when collecting or applying cost data originate from the subcontractors. Methods such as back costing; ask the subcontractors to include specific items; understand and raise questions on quotation received or make arrangements with the subcontractors to fix the price for a period of time are used to manage those risks.

Possible areas for further researches include whether the number of cost items relates to a company’s annual turnover and vice versa; how do large, medium and small construction companies or how do construction companies that specialise in different types of project compared in respond to risk and management of cost data.