10 Best Practices For Project Estimation

Running a service or contractor business calls for an accurate estimation of project costs, time, and resource requirements to ensure all your contracts turn out profitable. According to the Project Management Institute (PMI), time and cost overruns can always be traced back to inaccurate estimates. Oftentimes, such erroneous projections can have disastrous consequences to a business, including monetary losses and fallouts with the client.

Thus, it’s critical to predict your project requirements as accurately as possible. Here are 10 best practices for project estimation that will help you to quote accurately and win the right business.

1. Understand the requirements

Using the example of a lawn care business, it’s never enough for a client to tell you they want their compound lawn mown and then you rush to give a quotation per square meter. Be shrewd enough as a seasoned entrepreneur and request to see the site in person. This is what is known as a reconnaissance survey.

Take this time to get the actual dimensions of the job site. Accurately measure the length and breadth of the piece of land to be mowed. That’s better than merely estimating the size of the plot in terms of acreage.

Also, try to see if there are any obstacles that might make your job more challenging. For instance, if the lawn is filled with boulders and other debris, you wouldn’t want to charge the same amount you charge for a perfect lawn with grass only.

While at the site, it’s also advisable to ask the client whether there are any special requirements for the job. Such unique specifications may cost you a bit more, so remember to factor them in when making your quotation.

2. Use project estimation software

Sticking to manual estimation approaches, where you use a pen and paper for calculations, maybe unbecoming, especially at this stage of technological advancements where your competitors will likely be digitally savvy. More traditional methods tend to be more time-consuming, energy-draining, and prone to errors. Technology also makes you appear more professional and organized.

Use industry-specific project estimation tools to do this, such as this free fully customizable job estimate template from Jobber which prompts you to list everyday line items for various field service jobs. Whether you run a cleaning, construction, painting, lawn care, tree trimming business, or anything else – research the market to find the right technology for you.

Presenting professional quotes to your clients portrays you as a focused entrepreneur who means business. And that goes a long way in building your trust and credibility with your customers.

3. Borrow ideas from past projects

If you’ve handled similar projects in the past, you will be in a stronger position to make informed estimates moving forward. Hindsight is a great thing if you can learn from it and use it to your advantage.

However, don’t lift figures blindly without considering other factors such as inflation, location, and discounts. A raw material you purchased some five or so years ago may not have the same price now. Also, if you got discounts from a previous supplier, don’t use that price for your present estimations. It’s also crucial to understand that prices vary from region to region.

While checking your past projects, ensure you effectively apply the lessons you learned. Perhaps you previously underestimated the time requirements for carrying out a specific activity. Now that you know better from experience, let your current estimate be more accurate.

4. Have some margin

It’s no coincidence that some dictionaries define an estimate to be an educated guess. The term “guess” tells you there’s no guarantee that the results are 100% correct. For instance, when you estimate that a given landscaping job will take you 40 hours, you may fail to complete the actual job within this set time. That’s why it’s critical to have some decent margin on your estimates.

However, take care not to misapply risk and contingency. Failure to determine the correct level of risk may lead to an inaccurate contingency factor being applied to an estimate. In the example above, you wouldn’t want to estimate the required time to be 80 hours. Setting such a high contingency may cause you not to win the job.

On the other hand, setting the contingency too low may lead to a loss of money on the project. So aim to apply an appropriate margin to your estimates without unnecessary exaggerations.

5. Break it down

Creating a work breakdown structure (WBS) helps you get your estimates more accurately. WBS is a deliverable-oriented hierarchical decomposition of the task to be done by team members. In other words, it involves breaking down a large project into smaller tasks. The more itemized and specific the individual tasks are, the more accurate the project estimate would be.

For this reason, always divide any given project into distinct line items. For example, if you’re contracted to build a house, you’d want to split the project into the following subparts and sub-subparts:

• Foundation
  • Earthworks
  • Retaining wall
  • Backfilling
  • Reinforcements
  • Slab
• Superstructure
  • Walls
  • Windows
  • Doors
  • Exterior finishes
  • Interior finishes
• Roofing
  • Trusses and other structural components
  • Roofing material
  • Ceiling
• Electrical work
• Plumbing
• Drainage

Breaking it down this way sets you up for more authentic estimates since you’ll not only be generalizing issues.

6. Master the major parts of project estimation

When talking about project estimation, you may think it’s all about costs. But that’s not entirely true. Project estimation comprises three major parts:

• Cost estimation
• Effort estimation
• Resource estimation

It’s critical to strike a healthy balance between these three as they’re intertwined and can’t be completely isolated from one another. If you fail to do so, you may render your estimate ineffective.

For instance, when quoting for jobs, you must consider the prevailing hourly rates for the region you’re working in. The pay also depends on the level of expertise of the worker. Certified professionals usually demand higher wages than average workers. Regarding resource estimation, factor in items like transportation costs for the team of workers to the job site.

7. Consider task dependencies

In any given project, there are activities that can only be done after others have successfully been completed. For instance, you can’t roof a house until the columns and beams or walls are done, but you can pave the driveway before or after roofing. It’s such task dependencies that would help you determine the critical path for your project.

For the activities that fall within the critical path, you wouldn’t want to compromise your efforts. Otherwise, the project will surely fall behind schedule. But for those activities that aren’t part of the critical path, you can exercise some bit of flexibility in handling them.

8. Involve the actual workers

One recipe for failure in your projects is failing to involve the relevant stakeholders in the planning phase. Don’t assume to know it all simply because you’re the business manager. The staff member who does the actual job may know a lot more than you do.

In this same sense, engage your team in preparing detailed estimates and take the time to detail what is within and out of the scope of the job. You may want to itemize optional extras that come at an additional charge if required.

Tracking the effectiveness of your quoting process should form an important part of your business strategy to ensure you are charging the right amount and achieving your target profit margin. You may decide to take on a bookkeeper or accountant to help you do this.

9. Use multiple approaches

The goal of project estimates is to come up with as accurate a figure as possible. On this account, make it a point to use multiple approaches to estimate the costs, time, and resource requirements for any given item.

Here are some of the most popular estimation techniques you can use:

• Parametric estimates: This involves using independent measurable variables to quote for jobs, for example, stating the cost per square foot when building a house.
• Three-point estimating: This includes finding the weighted average of the optimistic (most likely) and pessimistic estimates for a given piece of work.
• Analogous estimates: This involves referring to a similar project done in the past and correlating the figures with the project at hand.
• What-if analysis: This means hypothesizing possible outcomes of variables like time, costs, and resources and doing an impact analysis to develop the best estimate.

Using a combination of any of these techniques and other strategies helps you generate more informed estimates.

10. Clarify assumptions

There’s no denying you’ll make several assumptions when estimating costs, time, and resources. To make the client trust you, even more, you’d want to clarify these assumptions in the quote you prepare.

For instance, to justify why you’re adding some time margin to the project activities, you can state it’s meant to cater for unforeseen delays in the delivery of materials and equipment needed for the job, unexpected traffic snarl-ups, or incidences of workers getting sick or just exhausted.

Such clarity portrays you as an honest entrepreneur, and that eventually leads to customer loyalty.

Conclusion

Accurate project estimation calls for a thorough analysis of the job at hand. So take your time to get all the details correct. As one of the initial phases of project management, it helps ensure you don’t chase away your potential client with exaggerated estimates. Also, it saves you from untold losses due to underestimates. For best results, consider using sophisticated project estimation tools that bring out your professionalism.

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