04 MAY 2024 | 5 mins Reading

How to Estimate Labour Cost for Construction

Are you a project manager working on a construction project? Should that be the case, one of your primary duties would be predicting labour expenses with greater precision. Every construction project has a defined budget. By precisely estimating the labour costs, you can ascertain whether the project can be completed within the allocated budget. If not, you can collaborate with site managers and supervisors to reduce your expenses effectively.

The traditional methods of labour cost estimation involve multiple challenges. For example, it is impossible to forecast wages, productivity rates, and benefits with higher degrees of accuracy. Calculating the overhead expenses can be even more challenging. Construction management software such as EzyBuild can be quite beneficial to overcome these obstacles.

Importance of Labour Cost Estimation in Construction

According to Workyard, labour typically comprises 30-50% of total expenses in construction projects. Underestimating these costs can completely erode profit margins. Meanwhile, overestimating may lead to losing competitive bids. By accurately predicting labour costs during the pre-construction phase, managers can pragmatically budget, schedule projects, and benchmark progress.

As construction operations progress, regular assessment and revision of estimates is crucial since even minor daily fluctuations in productivity or hourly pay can accumulate substantially. Construction software enables seamless updation of figures, maintaining estimate accuracy over the entire timeline to minimize financial risks and enhance overall efficiency. On top of that, you will be able to ensure client satisfaction at all times.

Factors Influencing Labour Costs

There are numerous variables that can impact the overall management of labour expenses . To bring the labour costs under budget, let's examine the most important aspects among them and decide which factors need to be controlled.

1. Wages paid to the labourers

The primary factor affecting labour costs is the wages paid to the workers. Additionally, the amount of compensation would also vary depending on:

  • Specific trades
  • Regional averages
  • Union status
  • Minimum wage laws
  • Overall scale of your project

2. Productivity of labour teams

If the right personnel are hired to work on the projects, a high level of work efficiency can be expected, which will reduce work hours and overall labour costs.

3. Benefits given to labourers

Some of the worker benefits include:

  • Health/dental insurance
  • Retirement packages
  • Payroll taxes
  • Workers compensation insurance

Each of these elements has the potential to directly affect labour expenses as a whole.

Step-by-Step Guide to Estimating Labour Costs

The exact approach followed for accurate estimation of labour costs would vary from one firm to another. But here’s a general overview of the steps that most firms follow for labour cost estimation.

    1. Break down the project into a schedule of discrete tasks.
    2. Determine which trades are required for each task
    3. Establish the number of workers and hours needed per trade
    4. Research average pay rates in the project's region
    5. Multiply pay rates by hours for cost per task
    6. Add regional overhead rates
    7. Use software algorithms to adjust for productivity
    8. Validate estimate using historical data

Best Practices for Accurate Labour Cost Estimation

During the labour cost estimation process, it is worth sticking to the best practices at all times. Here are some of the best practices that you can followed

  • Track actual costs during execution to compare with initial estimates. Analyze variances to identify estimation gaps.
  • Account for employee absenteeism and turnover using a project contingency fund.
  • Research multiple subcontractor bids prior to establishing cost baselines.
  • Regularly update estimates even after approval as new information emerges.

The Role of Construction Software in Estimation

Construction management software eliminates reliance on error-prone spreadsheets for manpower cost estimation. Configurable platforms like EzyBuild automate most of the manual estimation and data entry tasks with its cutting-edge features. It offers an advanced ‘QR code-based check in/check-out system’ for simplifying the attendance process, in addition to the comprehensive ‘time tracking and budget management’ feature to monitor personnel work hours and labour costs.

With EzyBuild, site managers can quickly validate figures across trades or project budgets by drilling down on estimate line items at any time. To provide real-time cost control, EzyBuild integrates with other systems, imports and exports labour, and project data effortlessly.

By leveraging predictive analytics, project managers can obtain labour cost estimates with over 95% accuracy and compare actual and forecast labour costs in real time, all while achieving financial efficiency. The user-friendly interface of EzyBuild can make life easy for project managers by tracking project costs and ensuring timely project completion.

Final Words

The manual process of estimating labour costs can be extremely challenging. Early identification of factors impacting labour expenses coupled with precise estimation of labour costs throughout the construction period helps managers to realistically budget, schedule, and monitor project progress.A sophisticated, cloud based, construction management solution like EzyBuild is an excellent tool that facilitates labour cost control. It will eventually help them to set realistic expectations for the clients.