Types of Estimates
Providing estimates for customers is a critical part of any contracting or construction project. Whether your estimate will determine the project budget or you're competing with other companies, it can set your project up for success. From preliminary estimates to project management estimates, the type of work you provide and where you are in the project will determine what type of cost estimate you provide.
In this article, we'll go through each type of cost estimation, detailing why you might want to use one. We'll also review how each estimating technique can be used in conjunction with your expert judgment. Finally, Skynova can help with a free estimate template to get your business moving.
What Are the Different Types of Cost Estimates?
There are a variety of different cost estimates to choose from. Your project will determine the estimating method you choose. However, a few main types of estimates include:
- Preliminary estimates: These are typically used very early in the process before the details are complete.
- Detailed estimates: This type of estimate provides a deep dive into the details and costs of a project.
- Quantity estimates: This estimate includes the amount of each material needed and the costs associated with that quantity.
- Bid estimates: A bid estimate is usually a competitive process where accuracy and expertise are paramount.
- Project management estimates: Project managers can pick from four types of estimates for their projects.
Whichever you choose, remember that your estimate is often how the project budget is set, so detail and accuracy when it comes to the estimated cost is very important. If you have to change orders or encounter other surprises during the project estimate, you'll likely need to provide a revised estimate.
A preliminary estimate helps you determine the project's feasibility, the budget to complete it, and what to charge the customer. Preliminary estimates should use the most accurate estimation techniques available to approximate the total cost of a project. This is not always easy, though, as there are often many unknowns early on during the initial stages of a project's life cycle.
When putting a preliminary estimate together, make sure to include as much information as you can. You will need the costs you'll incur, such as materials and labor, and information about items like change orders or what might come up during the process, such as environmental mitigation or purchasing additional right of ways.
Preliminary Estimate Example
A contractor who is remodeling a home bathroom would use a preliminary estimate for the customer. The estimate would include the materials that the contractor needs, any additional services the contractor might need to subcontract to additional team members, and the hourly labor rate for the contractor and other on-site service providers.
As its name suggests, a detailed estimate provides all of the details on every item necessary for a project, including quantities, costs, rates, and more. You'll frequently include specifications, drawings, or calculations with a detailed estimate. Additionally, you'll provide justification for any rates you use in the estimate.
Not every project requires this level of detail. More often, detailed estimates are used for technical projects like sanitation or contracts requiring administrative approval.
Detailed Estimate Example
A local government might require a detailed estimate on a road or sanitation project. When a company submits a bid, they would include a detailed estimate for the government entity to approve the project, including information on the rates used to calculate their costs and additional project estimation context, like potential drawings or renderings.
A quantity estimate — often used in construction — puts together a list of the materials needed, how much of each material will be required to complete the project, and how much that amount will cost.
Typically, a quantity surveyor — or evaluator — will complete this estimate. Your estimator should have experience with the type of drawings you provide. They will need to read applicable drawings and specifications to complete their estimate.
Quantity Estimate Example
Quantity estimates are useful in construction projects. For example, a road construction project would need to estimate the quantity of asphalt and other materials used to complete the project.
A bid is more detailed and specific than a traditional estimate. When you submit a bid, you're providing an official offer to the customer and affirming you know how much a project will cost them. Bids are typically pretty competitive, with multiple companies providing bids that the customer can select from. You start your bid process by carefully reading the requirements the customer provided and then putting together a proposal that responds to those requirements.
Bid Estimate Example
Bid estimates are not often required outside of government or corporate projects. For example, a national corporation would accept bids for the construction of its new headquarters.
The complexities of creating a bid don't have to be daunting. Skynova has a free bid template that can help you get started.
Project Management Estimates
Project management estimates can be done in four ways. Which one you choose to aid your project plan will depend on the type of project you are undertaking and who your stakeholders are. We'll break down the differences between historical estimates, parametric estimates, top-down estimates, and bottom-up estimates below.
If you've done a similar project in the past, it's often easiest to look at that project to create an estimate on your current project. The accuracy of a historical estimate, also called analogous estimating, will depend on how detailed your data collection was for the previous project. You will also need to take some additional time to account for fluctuations in costs and any differences between the scope of the projects. Historical estimates are often combined with other tools to ensure accuracy.
Using parametric estimating means that you'll take historical data and create a relationship with variables. For example, a construction company has built three identical stores for a retail corporation. The fourth store will be similar but have a larger square foot. The construction company would then use that relationship to create a parametric estimate. Parametric estimates can be used to look at entire project costs or small parts of a project.
Top-down estimates are typically used early in a project before necessary details are known. They are most often used to provide decision-making and strategy sessions and then replaced once the details are known. With a top-down approach, take the final goal of the project and break it down into smaller pieces — often called work packages. That will help you estimate the time and overall costs to get started.
Bottom-up estimating means you put together all the components for a project. Then, add in the costs with each component. This type of estimating can also be used to put together the work breakdown structure (WBS).
While this is a process that feels natural for most, it's important to remember a few things. Compiling all the costs will take time and effort. Putting together an accurate bottom-up estimate will also require a lot of decisions — particularly around designs — to be finalized before you have enough details.
Let Skynova Help You Create a Professional Estimate for Your Small Business
Cost estimating can be tricky, so taking the time to create the right kind of estimate for your customers will help them know what to expect. It will also help with your cost management since an accurate estimate will mean fewer surprises. Skynova's free estimate template can help anyone from large contractors to small businesses create accurate estimates easily.
You have a lot of responsibilities when it comes to your business. Skynova has the solutions to simplify the paperwork. Our software can help you keep up with accounting while providing various business templates, including templates for quotes, invoices, and work orders. Take advantage of our software products and learn more about how we can simplify the process of earning business and help get you paid faster.