Best Practices for Estimating Projects
When it comes to estimating, it comes down to one word: accuracy. Estimate too low and you’re committed to a situation that is unprofitable at best; too high and you probably won’t be awarded the job. Employing best practices will result in the best possible outcome.
Estimates fundamentally answer two questions:
- How much will it cost?
- How long will it take?
It’s tempting to rush through an estimate, but doing so can result in loss and missed deadlines. To reduce risk, keep the following in mind.
The Project Scope
"We’re gonna need a bigger boat."
Remember that famous line from the move "Jaws"? When the actual size of the shark is revealed, the characters were far out to sea in a boat smaller than the massive great white. How does that relate to your project? Understanding the goal, dependencies, and all details of the project is critical. Be sure your expectations for the budget and deadlines line up with reality. Once the project scope is determined, confirm the details with the client to ensure nothing is overlooked. Then you will also know whether the project exceeds your agency’s limits.
Have a Process
Every project is unique, but following a process will keep you organized. Start with a simple checklist that includes any internal approvals before the estimate goes to the client.
Include a contingency
Even the most accurate of estimates is not exact. Allow for uncertainty with a cost contingency proportionate to the scope and size of the project.
Methods of Estimating
Choosing the best estimating method will depend on the type of project and the types of costs involved. Here are some methods to consider.
Look at the actual hours and costs for similar jobs, by type and delivery window. It can be a lot of work, but the pay-off is accurate estimates. It requires you to track your job history, organized by type. This can be accomplished by holding a post-mortem after each project and storing the information in a spreadsheet or file. Some systems have a feature that will do this for you, allowing you to easily filter quote vs actual data by client, job type and other criteria.
PERT or 3-Point Method
Is time a major factor in the project? Using the PERT method (Program Evaluation and Review Technique) will help produce an accurate estimate because it breaks the project down into tasks. By looking at the step-by-step timeline, it is less likely to miss a step and its duration. The PERT method also provides information on the other question: the delivery date. Create a schedule that includes tasks, the duration of each task, the hours it would take to complete them. Quantify the hours by multiplying them by a rate, and you’re most of the way to an estimate. If your project management software is integrated with accounting, you may be able to create an estimate from the schedule without entering everything into another system or document.
So where do the three points come in? Once you’ve determined the expected hours for the project, figure the optimistic number (less hours) and the pessimistic number (more hours). This considers uncertainty and will help formulate your contingency.
Bottom Up Method
This takes the most time, but if you have no historical data on the type of project being estimated, this is the best method to create the most accurate estimate possible. It’s a team effort. After confirming the scope, all team members participating in the project are involved in estimating the time it will take to complete their part of the project.
Sometimes all you need is a quick and easy estimate. If a deliverable is one that has been done many times before or is very low risk, these shortcut methods are the answer. For example, copying a previous estimate is very convenient and the fastest way to prepare an estimate. But if the original estimate was extremely inaccurate, then you’ve just repeated a mistake. A practice of copying estimates can mean perpetually repeating the problem of under estimating actual costs. Estimate Templates are another great method. Be sure templates are organized by job type and periodically reviewed to ensure they align with current estimating needs. Keep in mind that shortcuts are great, unless they're not.
In summary, taking the time to understand the scope of the project, having a process and considering uncertainty will result in a fair and accurate estimate. This can be tedious without the right tools. Advantage Software is purpose-built for full-service advertising agencies, creative teams, public relations firms, and marketing firms of all sizes. Over 850 agencies use Advantage for Accounting, Project Management and Media. With features like a built-in document management repository, schedules, agile boards and a training video library, it has everything you need to manage your business. We’ve been helping our clients maximize productivity, efficiency and profitability for over 40 years. Find out how we can help you by contacting us for a demo. If you simply would like to learn more, sign up for our free Newsletter.