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Have you ever been sitting in a meeting and been asked to give a cost estimate on a capital project without having the opportunity to get up from the table to investigate? An immediate answer can set the stage for a misleading conversation that could eventually come back and bite you. You might answer conservatively because you are not comfortable with the question. Or you could go aggressive if you don’t know any better but feel the need to answer. Either way, you are headed for trouble.
Many veterans of the industry can tell you war stories about when they have been put on the spot and expected to give an immediate answer on large-scope projects. “How much would a 100,000-sq-ft building cost?” is one question. You are expected to make this guesstimate without knowing the city, county, state, site, construction materials or many of the other critical details that drive the cost of a building today. So what do you do? Often you quickly multiply the square footage by $100 and come up with a $10 million project.
“How much will the conveyors cost?” is another typical question. Again, you probably don’t have the luxury of asking, “Can I get back to you on that?”
So what do you do? Other than suggesting you find a way to excuse yourself from the request, it’s hard to say how to field this question. Most will give an answer and hope for the best.
Ideally, here is what you can do to develop a quality estimate on a capital project. Let’s look at a hypothetical, two-production line, 100,000-sq-ft greenfield bakery as an example.
The first element of preparing an estimate is time. This cannot be done on the back of an envelope. A first-pass estimate should take between two and three weeks of full-time and even overtime effort.
You have to understand all facets of the site where the new building will go up. Will the land be large enough, how will the building be oriented on the site and will it need pilings to support the structure? A $100-per-square-foot building without pilings could be a $125-per-square-foot building with pilings. Pilings could be a multi-million dollar add-on before you ever start the design.
You need to have a good idea what the internal finishes might need to be. Will this be a standard bakery, a showplace facility or a USDA operation? Will it have corporate offices or just essential space for local management? Your answers to these questions can affect overall costs in a hurry.
Now let’s take a look at the production lines. Will the systems be manual, semi-automatic or highly automated — maybe with robotics? Most of today’s bakery lines can be considered custom built to some degree. There aren’t too many cookie-cutter lines out there, so you must engage your equipment suppliers and give them a clear scope so you can get the best information possible from them.
The other significant pieces to a capital budget that are often missed in the original guesstimates may include owner-purchased items, material handling equipment and start
up costs. These hidden gems will nickel and dime you to death before you finish the project.
Providing an estimate or guesstimate for a major capital project must be approached with the same care and consideration you would have if you were building your own house with your own money. Time, clarity of scope, detail and knowledge of the capital project process are invaluable tools when it comes to answering questions pertaining to your boss spending his millions of dollars.