We have been preparing and reviewing a number of project estimates lately and it has reinforced the importance of the estimating process in defining a project and setting it up for success.
In my many years of working as a project estimator throughout Australia as well as internationally, all projects have had a one thing in common; each and every one of them progresses through some sort of study and if the results meet the business needs it will move on to execution phase. But without fail, before we hit that gate and have all the information, we are asked “So, how much will it cost?”
“How much will it cost” is an incredibly loaded question when asked during the study phase of a project! The cost of the project is to be determined by questions not yet answered:
• What is the scope?
• How much engineering has been done, what is the equipment list and what are the quantities?
• What is the site layout?
• What are the unit rates for labour and materials?
• What margin does the contractor want to earn?
• Etc, etc.
When working on a study it is not just the project team that has input; we must interact with Owners, study and project managers and contractors since all of them have different requirements and needs from the estimating process which will generate even more variables to be considered.
• A contractor bidding a lump sum contract needs to have a defined scope to bid against and an insight into the quality of the drawings and bill of quantities. The contractor will need to take a risk on how much effort and time it will take to deliver the project.
• A study manager will need to prepare an estimate that the Owner can consolidate and take to the Steering Committee/Board for approval to proceed. A statement of accuracy and a risk register is essential.
To combat these complexities, our simple answer is transparency. What does this mean? There will always be a variety of stakeholders in the estimating process, all of whom require an understanding and ownership of what is in the estimate. Who is the customer of the estimating process? Is it the business analyst, the steering committee, the bid manager, the independent reviewer, the planner? How the estimate is prepared and presented is just as important as the content.
When you deal with these stakeholders transparently, you tell them what you know, what you haven’t yet finalised and what you need from them. Having all stakeholders on the same page, all knowing where they are up to and what is pending will ensure that the entire process is simpler.
One of the core principles we teach in our training is that transparency breeds understanding. More often than not, I’ve been finding on our projects that we are having to show that an Estimate is not just about finding out “how much will it cost?”. In the end, that is definitely a part of it, but an effective Estimate also needs to reflect:
• What is the scope and project quantities?
• How will the work be executed? and
• How long will it take?
Throughout my career I have reviewed far too many estimates that don’t have for instance a clear quantity definition and workup or don’t have clarity of how the unit hours, unit installation and unit materials prices were built up.
When these are missing, the Estimate will still give a project value, but more often than not it will be significantly off. Something from the critical path will have been missed and the project will suffer. It is not just about finding the price.
The final product of a well executed, transparent estimate process does show the total cost, but this cost shows the total number of hours, the total quantity and volume of materials as well as the price for each, prepared and presented in a way that the stakeholders can take ownership of the data and the assumptions on which the estimate was built.
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