A project consists of a sequence of different phases that all involve careful planning. During one of these phases, you need to find out how to calculate viable and accurate estimates. Many simply pick an unfounded number that ‘feels’ apt, hoping it will yield profitable results. Instead of relying on luck, we will outline the fundamentals of estimating so that you can be fully prepared before drafting your next project.
1. What are estimates?
2. Estimate vs. guess
3. Estimate vs. prediction vs. forecast
4. Estimate vs. quote
5. Estimate vs. invoice
6. How to estimate how long a project will take
7. How to estimate how much a project will cost
So what is an estimate? It is defined as an informed assessment of an uncertain event.
When estimating the costs of your project, you consider factors such as the number of people working on it, their hourly rate, and the time tracked.
An informed assessment means that you have an identified basis for the estimate. An uncertain event means that there are multiple outcomes possible.
What makes the difference between an estimate and a guess, is having enough information. If you have enough information to make an informed assessment, you are able to make an estimation. When you do not have enough information to make an informed assessment, you are merely taking a guess.
An estimate can be considered more of a prediction based on the available information.
Projects will rarely require you to take a wild guess. Usually, enough information is available in order to make a reasonable estimate.
This is a tricky one.
Estimating is using one set of numbers to obtain information about another set of numbers.
Thus, an estimation can be made after the occurrence of one first event.
For example, a software programmer receives a request to build a webshop for a client. He usually builds other types of websites but has completed one webshop in the past. Looking back, he remembers how many hours he put into the project, and what the process was like. He is able to make an estimation based on his past experience.
A prediction is in essence similar to an estimation, except it takes place before the occurrence of the event.
For example, a young ad agency receives a request to produce a television commercial. The team has a lot of experience creating print ads, but has never shot a television commercial before.
They know they will have to hire a film crew and know what their hourly rate is, but they have no idea what the process is like. They can try to estimate a timeline based on the storyboard, but they really don’t have enough information to base it on. In the end, it’s a pretty reasonable guess.
Forecasting, on the other hand, is a time-based prediction. It uses this method to obtain information about future events.
An estimate is a good prediction of how much the project might cost, while a quote is more exact.
A quote can be provided to your client as an estimated cost for a certain job. Your client can decide to either accept that quote or not. Once they've accepted a quote, you have to complete the work for that price.
At first, estimating and invoicing almost seem like the same thing.
The key difference between estimates and invoices is simple: invoices are a formal statement of a balance due, whereas an estimate is not an amount owed by your customer.
Estimates are usually used at the start of a project when details are still being determined. This gives clients a chance to review costs, supplies, or services needed to complete the project. Invoices, on the other hand, are issued at the end of a project when money is owed by the client.
You can find out more about invoicing here.
The first step is to ensure you have a time tracking system in place. Make sure you can track time to specific projects, tasks, and employees. You also want to make sure that this data is accurate and that it is stored and compiled correctly.
There are a few best practices for how to approach estimating in project management. If you have any, start by looking at previous projects first. Find a somewhat similar project and look at the number of hours that went into it and the timeline. This will give you a rough idea of the timeframe you are working with for the new project.
Secondly, identify how many employees with certain skill sets were involved with the project and how many hours each of them put in. How many hours did the video creators need? How many hours did the project managers need?
Keeping in mind that every project is different, you will at least have a good indication of how your project may potentially evolve over the next few months.
Once you have an indication of the number of hours needed, you can match this with the availability of your team. Using an all-in-one tool such as Rodeo, you will have insight into your team’s availability while also being able to track their hours worked.
Last but not least, by knowing your team’s capacity, you will have an idea of how long the project is going to take.
Naturally, there might be unforeseen circumstances that cause the project to be delayed. So for this reason, don’t make your estimations too precise. Always add in some extra time just in case.
A large part of the heavy lifting is over once you have estimated how long a project will take. Now that this is outlined, you can estimate how much your project will cost.
It all ultimately depends on how much it will cost you to get the work done. However, you want to charge your client more than the cost of completion in order to make a profit.
Taking a step back, this means that you need to factor in all the expenses and variables that allow you to complete the project. This includes fixed costs such as rent, insurance, and phone bills as well as costs relating directly to the project such as salaries, raw materials and/or tools.
Once you know the exact number of hours your employees will put into your project, you can calculate the total cost of staff relating to the project too. This can be done by multiplying their hourly rate or calculating the portion of fixed salaries that relates to the project.
After you have done this with all the costs and expenses, all that is left to do is add the profit margin you desire on top.
Estimates provide a rough calculation and prediction of a project cost, often used to pitch a product or service to a client. They play a crucial role in ensuring your projects will turn out to be profitable.
Estimating can be a daunting and tedious task, especially if you are starting from scratch. This is why using a project management tool is a really good idea. It makes collecting accurate data a relatively simple process.
With Rodeo, for example, work is streamlined, tasks are automated, and much of the work is done for you.
With one click, your approved estimate becomes your quote, ready to be sent. The quote is complete with pre-selected documentation, including your companies’ layout and logo.
Do you want to save time by letting Rodeo take care of all of this for you? Start a free trial now, or request a free demo with one of our experts.