With many unique factors at play, project cost estimation is an acquired skill. For many businesses, understanding the scope and constraints of a project may be easier said than done. After all, these estimations can include cost forecasting, scheduling, planning, and general monitoring needs.
Unfortunately, that skill is one that not every entrepreneur or growing business can quickly master. Project cost estimation can often delay, derail, or even cancel a burgeoning project, leading to lost time and resources.
Developing a cost estimate for project planning doesn't have to be as complicated as it often sounds. Elorus offers beneficial tools to help business owners in all markets more accurately list tasks, track hours spent, monitor timetables, and track business expenses. So, if you're looking to take greater control of your cost estimation, here are a few things you should keep in mind.
What is project cost estimation?
In many ways, project cost estimation directly correlates to your business's scope of work on any project. For example, examining the scope of work required for an upcoming product launch, an internal restructuring, or a new development makes it easier for entrepreneurs to more accurately budget and predict the overall cost of their projects.
There are a few categories every cost estimation should feature.
You'll include information based on your brand's specific needs when developing your project cost estimations. Many business owners across various industries find it helpful to focus on a few common threads, including labor costs and licenses.
- Labor Costs: The cost of labor can vary greatly depending on the location and skill of the workers. To calculate the labor cost, divide the hourly wage by the number of hours in a workweek. Then, multiply this figure by the number of weeks in the project. This will give you the rough cost of labor for the project. If the cost of living in the area is high, consider adding a surcharge to the cost of labor. This will help to cover the higher cost of living.
- Equipment and Materials: Between office equipment, production machinery, and general supplies, several regular expenses fall under equipment and materials. You should also factor in ongoing maintenance costs that will come into play for the project's duration, as these can drive up total budgeting requirements.
- Facilities: Facilities expenses can include monthly leases, rent, or mortgages, depending on your company's physical presence. Digital companies often have lower facilities costs.
- Licenses: Depending on your industry, you'll need to maintain proper licenses or certifications to ensure that you comply with regulatory bodies and local lawmakers. You can often contact your local Chamber of Commerce or other business authority to find out more about regulatory compliance and required administrative fees for licenses.
- Traveling: If your business requires an in-person presence for components of your project, this can drive up overall expenses. Ensure that you include these estimates in your comprehensive project cost estimation.
- Indirect Expenses: These costs include anything that doesn't fall under the scope of the other categories, such as management and administrative expenses, security, insurance, and more.
As you become more confident developing a cost estimate for a project, you'll likely find other specific categories you'd like to include in your forecasts alongside these standards. Again, the more experienced you are, the easier it'll be for you to create meaningful estimates that help drive business performance.
What are common cost estimation factors that could impact your project?
While every project has its quirks and complexities, there are a few common factors you should look out for to help ensure they don't influence your project's success.
For starters, a lack of experience with similar projects can make you that much more likely to go under or over your planned budget. The more familiar you are with a given project type, the more accurately you can forecast costs.
Second, many business owners begin projects assuming that everything will proceed smoothly. Several even need to pad their budgets or include flex spending potential along the way. But, then, the budget can fall apart at the first sign of a hiccup or issue.
Lastly, a project scope that lacks appropriate specificity can severely hamper your plans. When developing your project scope to get the cost estimate, be as detailed as possible. Remember that the categories we outlined earlier are a starting point and that your specific projects will likely include further information. By doing so, you're more likely to account for rare scenarios and identify opportunities for cost savings.
Follow five steps to estimate your project costs accurately.
In many scenarios, you can follow existing guidelines to ensure you get the most accurate forecast possible for your project. The following steps should get you off to a good start, regardless of the job's specifics.
- Make a list of all tasks needed until project completion. Be thorough during this step, as some functions that seem inconsequential can add up in price.
- Delegate tasks to the right people on your team. Proper delegation can save you both time and money.
- Estimate the project's length based on your experience. Use time logs, timesheets, and previous project data to determine how long you think this new endeavor will last.
- Add extra money to your budget for emergencies and unexpected expenses. Adding some padding to your budget can more capably protect your cash flow.
- Use a project monitoring tool like Elorus. Automating some of your project monitoring can reduce human errors and provide more accurate, streamlined data.
With these tips in mind, you're much more likely to develop project cost estimation that protects your business and your bottom line.
Practical project cost estimation is a net gain for your business.
Though project cost estimation can initially seem like another time-consuming step in your business processes, it will benefit your efforts across the board. Whether you're gearing up for a new initiative, releasing an exciting product to market, or breaking ground on a development, you should invest time and energy in the cost estimation process.
If you're looking for tools that can help you with time tracking, project monitoring, and invoicing, Elorus is here to help. We offer feature-rich business software that empowers entrepreneurs and provides them with the necessary intelligence to make impactful decisions. Reach out to Elorus today to learn more about our software suite and how it can help your business.