Project estimates. What are they? More importantly, do you need them?
You’ve heard people throwing the word “project estimates” around. They keep telling you how crucial they are for the planning and success of your projects. Maybe you’ve had a client ask you for an estimate, and you’re not sure what to give them?
But you’re still not sold on the idea. You’re thinking: “Creating an estimate only adds to the growing pile of work I have.” And so, you ignore them. You do nothing and continue with your day-to-day.
But what if I highlighted some compelling reasons why you need them? Reason like: They help with allocating budgets, kickstarting a project on a solid footing, and projecting cash flow. All of which contribute toward a better bottom line.
Would you be interested? I bet you would.
In this post, we’ll explore all the benefits of creating accurate estimates and highlight the risks if you don’t.
But first a quick note on what project estimates are.
Project Estimates: What Are They?
Project estimates provide a breakdown of services, costs, and project length. You shouldn’t confuse them with project plans or project schedules.
Sure, provide a high-level overview of the plan and schedule in the estimate, but exclude finer details. An estimate should support the plan and schedule. It’s the foundation.
But creating one and sending it to your client isn’t enough. Clients will often agree to something without going over it with a fine-tooth comb. Later they’ll discover there’s something they don’t understand or are unhappy with.
You don’t want that. You must engage them.
Make a phone call or meet clients face-to-face to discuss the estimate. Explain the details and prod for and answer questions.
It boils down to this: If you want to build a project and the relationship on the back of a good estimate you must invest the time upfront.
Admittedly, it’s impossible to create an estimate that’s 100% accurate; the words “accurate” and “estimate” are at odds with one another, and any estimate will never be accurate by its very nature.
But the below benefits suggest that we should at least try to come close.
7 Compelling Reasons to Use Project Estimates
1. Kickstarts Good Practices and Relationships
The estimate is the document that ensures both parties are on the same page when the project starts.
It kickstarts good practices and relationships. It details check-points, outlines services, specifies cost, and much, much more. It allows you to iron-out unwanted surprises that can cause relationships with clients to sour.
2. Ensures You (And Your Client) Grasp *All* the Work Involved
An estimate allows you to document the steps, components, and deliverables of a project from the start. This means you really wrap your head around all the work and also that:
- Everyone in your business understands what’s expected of them
- You don’t undersell yourself by “ballparking” it
- You’re able to identify services you’re less comfortable with, will take longer to complete, and may need outsourcing.
- You know what resources you need and when to assign them
- You have a “skinny” project plan to work from. You know why and what you’re doing and can eliminate any gaps.
- Your client understands what they’re paying for
3. Determines How Viable a Project Is
Is the potential return greater than the cost? Estimates let you highlight the costs of a project and help you assess whether a project is worth pursuing.
Some projects will fail from the start because the costs outweigh the benefits. Estimates provide you with the ammo to decide whether to “can” a project early on. This saves you time, money, and effort.
4. Helps With Budget Allocation
By understanding how much the project will cost and the different project stages, you’ll know exactly how much money to allocate to each stage.
5. Helps Determine Cash Flow Needs
You know the project is viable. You know your budget. The next question you should ask yourself is: Do I have enough cash?
By using your estimate and comparing it against current cash flow, you can see if you have a shortfall.
Let’s assume you do. Now, you could apply for a bank loan, but the high-interest rates wouldn’t make it worthwhile. The better option would be to look for outside funding from a sponsor.
6. Helps Get Sponsors on Board
Any investor will analyze the payoff vs. the cost. An accurate estimate will provide the investor with the information they need to make an informed decision about the project.
7. Helps Determine When a Project Will Completed
The high-level overview of the project schedule gives stakeholders a rough idea of how long the project will take. It helps answer the common question that clients ask: “What is the estimated completion date.”
It also keeps top-level executives (such as CFOs) happy because they’re able to assign a specific dollar value to a particular project length.
The Bottom Line
There’s no denying the power of project estimates. They kickstart the project, build relationships, and ensure all stakeholders are on the same page.
Beyond that they also assist in determining:
- How viable a project is
- How much money to allocate
- What your cash flow needs are
- Whether there is a shortfall and if you need outside funding
- Timelines and the estimated completion date
Failing to create an accurate estimate only exposes you to the following risks:
- Burning bridges with clients because of surprise costs.
- Underestimating how long the project will take. Extensions will put pressure on cash flow.
- Running over budget and losing money.
- Underestimating the resources needed to complete the project which puts a strain on employees.
That’s not to mention the worst-case scenario: Project failure.
So, I leave you with one simple question: Are you ready to create your first project estimate?