What is a Cost Estimate?

A cost estimate is a price that you have to put to know how you will charge to complete a project. This is created to allow the price to be reviewed. Estimation may be needed in projects in the field of software development, bridge construction, architecture, interior design, video production, engineering, or construction. Your organization may have a professional estimator or an expert to do the job. The cost estimate is needed for anything that you need to complete. It revolves around the client’s parameters. The cost estimate may include the costs of materials and equipment. It includes computer needs, whether it is hardware or software.

If added services are needed, additional quotes may be given. The cost estimate in project management is when you forecast all the costs to have all the resources that you need. You will use a defined scope for you to complete the project. You should ensure that you can provide each element to calculate the total budget for the project. Generally, you must use all the cost data. A good estimate is not only about the cost but about the data that you need to carry out. You need to ensure that you will have the funds for the project lifecycle. So, be sure that data will not be filed away. You should ascertain that you will not forget anything.

In the earlier part of the work, you must use methods so that you can develop a good estimate. You should have the capacity for factoring. You should use the right parameters. Before the execution phase, be sure that you have picked the best path. Choose the path that you have envisioned to create the best budget. You should use a software tool for your project cost management system. Be sure that it will encompass all the project controls. Do not ignore the changes in execution. Have a baseline for the estimated data. The software can give you a structure so that the baseline will not be flushed out. Therefore, you can update the cost estimate to keep it accurate.

Having cost estimates is one of the most important factors in job management. It is key so that you can execute the project successfully. It is necessary to make a winning business. By determining the project budget and the work schedule, you will be able to manage all your resources. But do not underestimate the essentials of a job estimate. Be aware of all the pains associated with the costs. Be good at predicting the quantity and the price of all your resources. You should be perfect in this in the budget planning process. Break the scope of the project into manageable parts so that you can use all the available information. This is how you can arrive at a total expected cost.

Principles of a Cost Estimate

Whether you are going to create a cost estimate to build a house or a cost estimate in project management, you need to know the principles that surround this kind of work. You need to know how you can make a cost estimate properly. The principles can guide you so that you will know where to start. Read and consider the following principles of a cost estimate:

Cost Estimates Predict the Quantity and Price: Through the cost estimate, you can tell the quantity and price of the resources that you need. These resources will fit the scope of the project. They are the assets needed to perform work activities. If you want accuracy for the cost estimate, rely on the level of the scope of the project. Consider its design and conditions. You can have an estimated value after defining this.Provides Decision-Makers: With the cost estimate, you can have investment decisions. You can pick an alternative so that you can set up a good budget. For every contractor, the client should validate the cost estimate. In the project phases, you should utilize a baseline to examine the performance of the project. So, you need to gather a great amount of the cost data. It can help you how you can make good decisions. Analyze the cost data so that you can make it meaningful. Use a dashboard for a better representation of the project. It can give the decision-makers a great overview of the progress of the project.Break Down the Scope of the Project: Divide the project into manageable parts. You can easily assign costs for every resource. Use a standardized way to break down the project scope. This may depend on the needs of the team. Implement multiple structures to align the cost data with reporting.Cost Estimate is Not Just a List: The cost estimate is more than just a list. It is an accurate Basis of Estimate (BOE). It explains the assumptions, exclusions, and inclusions. It can give a good interpretation of the total project cost. If not, everything will be meaningless. The BOE communicates to all parties in decision-making. It may be overlooked but you should know that it can make you learn from your mistakes. A cost estimate is not simple. You should use a method that can make you have a successful plan.

What Should Be Included in a Cost Estimate?

Have you seen a cost estimate sample? Have you been wondering about all the things that are included in it? Maybe you want to be familiar with all of them. The following discusses the things that you need to include in a cost estimate:

Cost Breakdown: All the costs that are involved in the project should have a breakdown in the cost estimate. This has two main categories which are direct costs and indirect costs. Direct costs are the costs that are involved in the job. It includes the costs for materials and equipment. It also includes the labor costs. The indirect costs, on the other hand, are the costs that are involved in your business. This includes the costs for utilities, insurance, or rent. Other elements of the cost breakdown are costs for facilities, costs for vendors, costs for software or hardware, and contingency costs.Project Information: The cost estimate should contain relevant information about the project. It should give the context for the project deliverables. You should include the job description. Describe the work that needs to be completed. You should state the work schedule. Include the dates when the work will be carried out. State your company information. You should tell the details of your company. If possible, include your letterhead and company branding. Do not forget the information about the client. Give the details about the client, including his or her address. You should also provide a cost disclaimer. The client has to know that they are going to have an estimate and not a quote. Then, have an expiry date for the cost estimate. This is the date when the cost estimate will be valid. Then, you should state the applicable taxes. The customer should be aware of all the relevant taxes. At the end of the project information, you should state your terms and conditions. This includes payment terms and things about deposits and penalties.

Methods of a Project Estimate

Do you know the types of cost estimations? Do you know the methods that you can use to create a cost estimate? If that is what you are looking for, we have got you covered. We can provide you with some methods that you can use to create a project estimate. They are the following:

Three-Point Estimation: In a three-point estimation, you can calculate the costs even if they are the most favorable or least favorable. You can have a variance on how you can estimate the costs. This estimate is good if you are going to prepare a cost that will be more than your ideal budget.Parameter Estimation: In parameter estimation, you will use data to have the cost that you need. You will estimate how much you can spend on a particular task. Then, you should multiply that with the hours of work. You can also collect the numbers from your past projects. Or know the figures from key players of the tasks.Ballpark Estimation: The estimate will be based on assumptions in ballpark estimation. So, you have to look at your past projects to have an estimate. Find a similar cost that you can spend. Taking a range will be the course that you can do. You should compare past projects and consider your project plan in every project.

Tips on Cost Estimate

Are you looking for a cost estimate example? Do you need it because you want to have some tips on cost estimates? If you are looking for tips, we can help you. We can give you some tips that you can use. Have the following tips:

Know Your Priorities: You should know the project priorities for you to be able to give a good cost estimate. Discuss your priorities with your team. You should be able to come up with a solution for how you are going to create a good estimate. Know what you have to prioritize so that you can finish the project successfully.Have Good Negotiation: You should know how you can negotiate properly. Make negotiations over and over until you can come up with a good cost estimate. As a project manager, make sure that the numbers that you will give will be appealing. Be careful with the risk factors. Be sure that you can create a proper estimate. Remove all the hassles that you can encounter. Find a solution for a limited budget. Use software so that you can be better with the digits.Consider Risks: Have a risk assessment when having a cost estimate. Consider the risk that you can have for the project. Know even the hidden risks. Have good risk management so that you can provide a good project estimate. Conduct a risk mitigation plan. You have to know the dangers that you have to encounter when you are completing the project.Make a Detailed Breakdown: Make sure that the breakdown will be detailed. This is needed so that the client will understand all the costs that are needed for the project. Be as detailed as possible. You must not forget a single cost in the breakdown. You have to enumerate all the costs that you need for the work.Have a Planning Process: You need a good planning process in having the cost estimate. Break down smaller components so you can analyze the scenarios on the project. Consider the worst and best scenarios. This can help you plan so that you can create a good estimate. Plan according to the risks that you can foresee on the project.Include Common Activities: You should give information on your work activities. This is for the client to assess if you are having the right cost estimate for the project. The activities will tell how much you will likely spend on the project. The client can assume the total cost by assessing the activities.

How to Create a Cost Estimate

Do you need a cost estimate template? Are you about to create a cost estimate? Maybe you are looking for steps that you can use in creating. Well, we can give you some steps that you can use. They are the following:

1. Know the Needs of the Project

The first thing that you should do is understand the needs of the project. You must know all the needs for the project. From materials to labor, you must know the resources that you need. This can make you give the right estimate that can support all the needs of the project.

2. Give a Target Budget

Before having a cost estimate, you must have a target budget. Make a budget plan that can give the right budget for all the things that you need for the project. After having the target budget, you can decide on the cost that you can have for the cost estimate.

3. Have an Estimate Format

Have the best option for the format of your cost estimate. You can have an individualized choice for your estimate. You can choose between three-point and parameter estimation. If your company has a format to use, you must follow it. Have the best guideline in creating the cost estimate.


Why is a cost estimate necessary?

A cost estimate is necessary so that you can assess the costs that you will need for the project. If you do not know the actual cost yet, you need to provide an estimate that can assess how much you need.

What are the benefits of a cost estimate?

The benefits of a cost estimate are you can determine the budget, you can provide a good work schedule for the project, and you can manage your resources.

Planning for the budget means that you have to consider risks and have a mitigation plan so that you can create a good estimate. A cost estimate is needed so that you can know all the expenditures that your project can have. This way, you can have all you need to complete your project. Well, do you need a template for a cost estimate? This post has 20+ SAMPLE Cost Estimate in PDF | MS Word. You can create the best estimate with the help of these templates. Download now!