Enough Guessing: 3 Tips to More Accurate Project Cost Estimation

by Curt Moreno
- Oct 11 2013 - 3 min read
project_cost_estimation

When you are in the business of offering creative and intellectual services, it quickly becomes apparent that not all projects are created equally.

Some are quite simple and done very quickly, while others are a bit more complex and require extensive outlining and communication efforts before the job can even begin. In either case, there is one step that is almost universal in every project: the estimation.

Because you are in a business producing designs and solutions that are specifically conceived to meet the needs of your clients, it only makes sense that pricing on these projects will vary. It is also quite reasonable to expect that a client will want some idea of what a project will cost before engaging your services to see it through.

For some small-business owners—and some not so small—the estimate represents the most dreaded of all work phases, but it does not have to be this way. The secret to making estimates that are more accurate and less painful is to stop guesstimating, and start estimating. That is to say that you need to not rely on assumptions of the cost of time and materials, and instead have a basis of verified project data on which to build a reliable estimate. Sound hard? It really isn’t if you follow these three tips on accurate project cost estimation.

1. Accurate Reporting. Before you can correctly analyze cost data for better estimating, you first must have accurate data. The source with the most abundant cost data will be your employees’ timesheets. However, in order for them to be accurate, they must first reflect actual time spent on each phase of each project. Policies like “zero non-billable time” and “minimum fifty hours per week” build environments where employees are forced to enter inaccurate data on timesheets in order to satisfy non-production-related policies. Be sure your small business has policies in place that encourage accurate reporting on timesheets.

2. Postmortem Accounting. To make use of any representative collection of cost information, you have to analyze it. This can be a daunting task if it is done for several projects at once, so take the time and conduct a review of costs and procedures at the end of each project. This will help to not only keep your data tables current and make sure there were no errors in accounting for time, but it will also help you take short-term effects of planned changes into consideration when creating your new, more accurate estimates.

project cost estimates

3. Manage Up. One of the most overlooked aspects of preparing cost estimates is that they are very often prepared by people who are far removed from actual project production. This creates a common “ivory tower” effect, in which the estimates reflect assumptions that do not necessarily represent current production practices in an accurate light. That can lead to cost estimates that are too low and cause cost overruns. More troubling still, it can lead to cost estimates that are too high and projects that should have been won end up going to competitors.

To avoid this pitfall, take the time to involve senior production staff in the estimate process. Ask for their input on areas of the estimate that are germane to their role in the actual project. You may find the differences in your cost estimates to be substantially more accurate.

Creating estimates that accurately represent costs and win projects is the darkest of the arts in the small-business world. It takes a great deal of experience and knowledge to master this skill, and it is an ever-evolving task. Following these three suggestions will help you on your way to creating winning estimates.

Should you find that your new, more accurate estimates still do not win projects, then you may have discovered the ancillary benefit—the benefit of identifying areas of project management and production that are ripe for review in order to cut costs, improve your return on investment, or possibly involve new technology to replace out-of-date assets that are moving too slow. Whatever the result, your small business cannot help but to benefit from more accurate data, ultimately turning guesstimates into estimates!

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