The Most Important Steps for Estimating a Project

In project management, the most carefully laid plans can be disastrous without an accurate, initial estimate. However, estimate procedures vary heavily from project to project. Fortunately, you can minimize errors in project estimation by following these steps.

1.  Determine the Needed Accuracy of the Estimate.

Accuracy is highly subject to the type of project. Some projects may require a minimal degree of accuracy during estimates, and others may require extensive scrutiny of potential factors, risks, and costs. Basically, intensive project estimates tend to reflect higher accuracy, and fast estimates reflect significant deviations from accuracy.

2. Determine the Effort Hours.

Effort hours are the hours spent actually working on a project. This includes the amount of hours needed in construction, planning, implementation, and adjustments as the project evolves.  

3. Determine Hour Cost by Resources.

Although effort hours refer to total hours of working hours, hour cost by resources allows you to gain a more accurate view of the project. You may need to estimate specific costs for welding, plumbing, electrical work, digging, foundation, and many more factors. Furthermore, your hour cost should also include the cost of renting equipment on a fixed-rate, such as $X per day.

4. Consider the Cost of Your Skills.

Project management is a labor-intensive, constantly-evolving process, and you need to think about the value of your time in a given project. Think of your cost as a commission on the project. In most cases, you can assume a 15 percent cost of project management time. However, you must be willing to change this number, especially if your job duties as project manager change after accepting an estimate.

Furthermore, you must include the cost of your project management team in this aspect of an estimate. While your skills play a large role in project management, your project management team will also incur a cost to their skills. Your estimate should reflect the absolute cost of your project management team plus the cost of your personal skills.

5. Consider Risk in Your Project.

Risks will impact the course of your project, albeit at differing degrees of impact. Some risks are highly likely to occur while others pose a minimal threat. Unfortunately, minimal risks can still affect your initial estimate. Include additional time in your estimate to reflect what risks may occur and how likely they are to impact the overall cost of the project.

This will help ensure your budget and deadline estimates do not fall short of expectations. If you end up overestimating the impact of risk, you will finish ahead of schedule and budget, which further builds your reputation as a project manager.

6. Review Your Estimate.

Estimates are subject to change, and you should always revisit all of the key steps in project estimates at least once, if not several times.

There are dozens, even hundreds of small steps to estimating a project. However, these six steps represent the most significant and critical parts of estimating a project. By maximizing your time on these steps, your project estimate will be more accurate and likely to win the bid.

Key Takeaway

• Identify the accuracy needed in the estimate.
• Effort hours are working hours.
• Include hours by resource for increased accuracy.
• Give yourself a commission for your skills.
• Think about risk costs.
• Review and adjust the estimate as needed.