What Is an Estimation Template? (With Steps and Tips)
By Indeed Editorial Team
Published June 10, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
When undertaking projects such as engineering or constructions projects, professionals typically estimate the material, time, and cost the project is likely to consume. Estimating these parameters enables professionals such as engineers, contractors, and project managers to plan adequately for the projects they're undertaking. Knowing more about estimation can help you excel in your projects. In this article, we discuss what an estimation template is and why it's important, review the methods of estimation, outline steps of estimating a project's cost, and share estimation tips for your projects.
What is an estimation template?
An estimation template is a tool used to determine whether to proceed with a project and typically includes a project timeframe, terms and conditions, projected cost, and a payment plan. Before commencing a project, a client typically wants to know project cost. An estimate template is a document that details the project's approximate cost. A job estimate, also known as a work estimate, gives clients and project stakeholders a detailed breakdown of the expenses of a proposed job or project.
Work estimates are crucial in a wide range of service industries, such as building and construction, engineering, and software development. Templates enable project managers to generate professional estimates easily, while also saving time and money. Regardless of the industry, here are the major components of an estimation template:
Date of estimate
Cost of material
Suppliers and subcontractors' names
Project start date
Estimated completion date
Why is estimation important?
Here are several reasons why estimation is important:
Improves client relationships
An estimate aids in the development of stronger customer relations. An estimate incorporates all work specifications and ensures that you and the client agree on various elements of the project, such as start date, cost, and completion dates. When you and your client agree, there's less likelihood of conflicts later on. Happy clients can lead to referrals and higher revenue for the business.
Allows a better understanding of the project
Estimation enables you and the client to gain a better understanding of what a project involves. For instance, a client benefit from an estimate because they know exactly what they are paying for. As a professional, estimation enables you to take a deeper look at what resources the project requires, what steps you require taking, and if there's any portion of the project, you may require subcontracting. Estimating project time and cost enables you to brief employees and other project stakeholders.
Helps you decide whether to proceed with the project
The project may sound attractive, but without an estimate, you can't really tell if it's likely to be viable. It's through an estimate that you are likely to determine what to charge a client. Drawing estimates allows you to avoid pricing your project too low or too high.
For instance, when you estimate project expenditures, you might realize that they may be so high that you are likely not to earn a profit. Alternatively, you may make a profit, but other projects may be more profitable. An estimate allows you to say no to a project before investing any time or money.
Determines if you have enough funds
Estimation enables you to determine whether you have the resources, financial and non-financial, to successfully complete the project. Estimating project costs allows you to have a hint of how much money each project phase requires. If you don't have the money, you can plan how to raise, such as taking a bank loan or enlisting an investor. In this scenario, an estimate can enable a potential investor to determine whether the project is worth their time and money.
Helps estimate a completion date
By providing reasonably realistic timelines, you avoid being surprised by a project that takes much longer than expected and adversely affects your cash flow. A good estimation template typically includes considerations for any delays, including terms and conditions describing how a client is to be charged if they request more work. By closely or accurately estimating project completion times, it enhances client satisfaction.
Methods of project estimation
Here are methods you can use to estimate project costs:
Expert judgment: This method entails using an expert to estimate project costs and time. These experts typically have hands-on experience having undertaken similar projects in their careers.
Comparative or analogous estimation: This method involves taking data from previous projects and extrapolating it to the current project. This method can be useful where projects are similar and where the previous project was successful.
Top-down: This method uses previous project data together with updated estimates to establish the overall project cost. The top-down approach doesn't go into much details, making it ideal for a rapid estimation of a project's viability.
Bottom-up: Bottom-up uses a detailed work breakdown structure to estimate project costs and time. You require estimating each task separately, which yields more precise results than top-down and can be a more suitable estimation method for long-term projects.
Parametric model estimating: This is a more scientific approach to estimation that auto-calculates estimates by analyzing extensive data from past projects. It's a quicker method, but which requires a lot of data for it to be useful.
How to estimate project cost
Follow these steps to understand how to estimate project cost:
1. Compile a list of tasks and the resources
The first stage in estimating project costs is determining which tasks and resources are required. Breaking the job down into smaller, separate tasks is the simplest method to do this. Break the project down into smaller jobs, so you can figure out how much each one will cost when you allocate them to team members with hourly rates.
2. Identify and allocate resources to tasks
The second step entails identifying and allocating resources to the list of tasks. Ensure you've enough skilled personnel to execute the tasks. If there aren't enough right people, you may require outsourcing externally. This may have an implication on your costs because getting external capacity may be lower or higher depending on the project you're undertaking.
3. Estimate the task length
At this stage, you require estimating how much time each task is likely to take. Keep in mind that some tasks can proceed concurrently, while some tasks may require other tasks to be first completed. It's advisable to overestimate the time rather than underestimate, as this allows you some buffer to cater for unexpected events. Also, take care not to overburden project staff with unrealistic demands, as this may influence the project turnaround.
4. Calculate the project cost
Use one or a combination of cost estimation methods to calculate the project cost. If you have data of comparable projects in the past, you may use it to calculate the time each activity requires and corresponding cost. Without data, you may require making assumptions or consulting other professionals who might have undertaken a similar project. Again, it's safer to cost higher than lower to cater for factors such as inflation and other unforeseen occurrences that may affect the project duration.
5. Track budgets in real time
Once the project gets underway, it's important to track costs in real time. You can do by comparing what the estimate states and what you've actually spent on a task or item. Doing this allows you to determine degree of disparity between the anticipated cost and the actual cost. Huge disparities might affect project delivery time and profit margins. You may also require going back to the client for renegotiation.
Estimation tips for your projects
Here are tips you can apply when estimating cost and time of your projects:
Know your team's expertise
Solid working relationships are the foundation of good project estimation strategies. The basis for this is because the more you learn about someone's job and processes, the simpler it is to estimate their task. Your projects are more likely to get closer to the budget if you have a better grasp of and collaboration with your team.
Use historical data to create better project estimates
You can use past information to enable the development of projects. When you have detailed historical information, you can examine it to allow you to generate better estimations. Begin by encouraging coworkers to track time spent on various tasks. This can help you get a better idea of a project's overall intensity level. Each project is distinct, but knowing how long your team spent on a specific job or deliverable can help you estimate the time it can take to complete a similar work on a new project.
Ask detailed project questions to improve cost estimation
If you're working on a client's project, ask detailed and pointed questions that can provide detailed answers to help you in better estimation. For instance, you can ask what their goal is or what they consider to be a successful project. The more information you have, the higher the likelihood of getting your estimations correctly.
Embrace continuous learning
A profession in project management requires constant awareness of industry developments, trends, and expectations. Read journals and other publications that apply to your industry. Join networking and educational programs. Learn about several ways to project estimation, so you can determine what works best for you.
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