1. Define Quantities
Contractors need to estimate the volumes and quantities for all items of the Scope of Work to determine the resources required to execute the work. These resources include the labour effort required, the materials to purchase, items of plant as well as subcontractor prices.
2. Labour Histogram
Contractors then utilise the estimated quantities to calculate the total manhours with the required productivity to drive the schedule. The total manhours (and therefore total labour force) is required to determine the supervision to manage the job, as shown on organisation charts.
3. Requests for Quotation
Contractors invite tenderers to provide quotations based on the estimated quantities, such as the supply price for bulk quantities for procurement or a schedule of unit rates for installation.
4. Proposals
Estimated quantities can help Contractors to visualise the scope and obtain competitive offers from experienced construction contractors. This includes getting a fair price, a best value submission, optimal schedule and whole of life costs.
5. Exploring Alternatives
Estimates costing various options or alternatives can help uncover a winning execution strategy, which in turn generates higher net income. For example, if your alternative execution strategy means you can save millions of dollars, you can present this to the Client for a cheaper price overall but perhaps with a higher profit margin for yourself as Contractor.
6. Schedule
Estimated productivity, volumes, quantities and duration determine the best schedule.
7. Creating Project Budgets
Estimating is required initially to be able to price and win a job, but after award this estimate becomes a project budget against which to track and forecast actual costs.
Any variations in the project will need to be estimated (using rates agreed in the contract or from first principles) for the purpose of submitting a potential claim to the Client.
8. Finance and Cash Flows
Estimating defines total project costs including contingency and the time required to execute the scope. From this estimate the Contractor forecasts the amount of money expected to flow in and out of the business (projected income and expenses).
Funding to start the project could come from the Contractor’s own money or borrowed funds to cover the project cash flow for the first six months or until the project becomes cash positive.
Cash flow is the net amount of cash and cash requirements transferred in and out of the project. Cash flow is positive if the closing balance is higher than the opening balance, otherwise the cash flow will be negative.
9. Cost Control
The estimate produces the Work Breakdown Structure (WBS) and budget. This forms the basis of forecasting work to complete, earned value and schedule control.
10. Reporting
Based on the estimate, Key Performance Indicators (KPIs) are developed and reported against internally or externally. KPIs could relate to achieving estimated productivities or other metrics that management want to track against a project.