Effective Project Management

Section E Estimating and Contingency

An estimate should comprise of the following:

• A description of the project scope
• A list of information on which the estimate is based
• The proposed contract strategy
• The assumed installation techniques
• The project schedule milestones
• The currency exchange rates used and estimated inflation
• The assessment of project risks and contingency
• The base date of the estimate and its estimated accuracy.

The principles of estimating are the same for all disciplines, and it involves a number of distinctly different components:

• A database
• An algorithm
• The effect of people's attitudes
• Definition of scope
• Definition of method of execution
• Identification of the risks.

The estimating approach depends on:

• The status of the estimate basis (see 2c below)
• The end use of the estimate:
  • funding of the project
  • preparation of tender documents
  • tendering for project
  • finalizing project funds
• The need for details
• Previous historical data
• The tools available
• The time and budget available for preparing the estimate.

This last item is perhaps the overriding determinant. If a senior executive asks for an ‘off the cuff’ number, it could be anything from +/–50 per cent to +/–100 per cent, depending on our experience and ability to interpret the crude project description. The problem is that the first number quoted is always remembered. Consequently, one should quote a range. However, if we are allowed to spend £500,000, and have three months, we could probably ...