Building More: Are You Estimating, Or Paper Trading

Words: Corey Adams

We were all told as youth that winning isn't everything. I will put this statement right up there with Santa Claus and the Easter Bunny. Winning is the only thing to be focused on when estimating.

When I was a kid and early on in my career with my father, we “paper traded” a lot. For those of you who have never heard this, I will explain. Paper trading is the act of going through an exercise without ever actually committing to it. It is exactly like the old newspaper stock pick 'em contests of old. Pick ten stocks, the highest return wins a prize. You didn't have any real money involved, but you were picking the stocks nonetheless. It is the art of playing a game without risk or reward.

The problem with paper trading is that opportunities can pass you by while you are testing the market. I can remember many so-called gurus running fake ads on social media trying to gauge market saturation. This exercise can teach you something, but does it really gain anyone? Not really.

Where many businesses have become a slave to paper trading is in their estimating department. I will say this right now: estimating is not an exercise in paperwork; it is a discipline with the sole intent of victory.

Too many estimating rooms are not focused on winning every bid they work on. They have little direction in what projects to bid, and even less assistance from leadership. “Go sell some work.” That is about the dumbest statement anyone can make to an estimating room.

An estimating team should be focused on projects that have the highest probability of victory, at the margins you want, and in the trades you do best. "Sell some work" means nothing without direction and dedication to winning every bid.

How do you answer all these questions? Easy, track everything. In 2008, times were tough, borderline bleak. There was nothing—no phone calls, no new contracts, no pipeline. What were we to do? We discussed at length how to survive. It boiled down to us focusing our efforts into the services that met two criteria: easy to win and most profitable. This propelled us into 2009 with a new estimating focus and success beyond what we were expecting. We didn’t just survive; we decided to rebrand the company due to our newfound success. Had we actually been tracking our bid hit rate versus margin in the past, we would have been a powerhouse in the market that no one would have touched.

The moral of this story is that bid hit rates are great, but a single bid hit rate doesn’t tell the whole story. We categorize our bids into multiple categories: location, size, scope, trade. This gives us about ten different bid hit rates. We can easily see where one style of project is more advantageous to bid than others. Eventually, we phase out the underperformers and focus more effort on the jobs we can win.

I have seen many estimators in my day spend countless hours working, claiming to be busy, and never really winning anything of substance. For example, if an estimator bids $10 million a year, wins one project for $1.5 million, and loses $8.5 million in work scattered over 30 projects, did they have a good year? 1 in 31? 15%? How do you look at it? Should they bid more projects in the $1.5 million range?

Estimating can feel like an exercise in futility at times. Get your team focused, even if you are the estimating team as an owner. Break down your bid hit ratios into real numbers that can be used to target the right projects. Then let your team run wild, bidding projects to win them, not just shuffle papers.

Building More: Are You Estimating, Or Paper Trading

About: Building More

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