Estimates, or guesstimates?
15 Jan 2000
It is normal for industries to base their selling prices on estimates, others establish sales prices through the use of `guesstimates'. But guesstimates are too often influenced by the price quoted by the competition (more often than not to the same scope or time scale), which may also themselves be based on guesstimates.
It goes without saying that estimates must be supported by reliable cost data from a reliable source, especially when used by a concern with no data of its own.
{{Broad methods commonly used to generate estimates include:
(a) cubic content - usually cubic feet or cubic metres;(b) square - again, square feet or metres;(c) linear measures - feet or metres;(d) weight - tons or tonnes;(e) percentage of main plant items;(f) quantities;(g) computerised.}}
The first four are approximates only, to give an idea of cost before going into detail estimating.
Percentage of main plant items (MPL) is a quick method of producing estimates which are surprisingly accurate since they take into account the various materials used in the main plant items. They do, however, require experience to be applied.
Quantities or take-off methods are laborious and are dependent upon complete specifications and engineering drawings being available (unlikely at the pre-estimating stage of a project) but it is the most accurate method to determine materials and construction costs.
Computerised estimates fall into two sections. The first is automatically generated by computerised drawings, isometrics or general arrangement drawings. The second are programs which generate approximate quantities from main plant items. This type of information can be invaluable for planning purposes and resources before detailed engineering data is available.
When data is not available, then the estimator must resort to a combination of approximate methods. Where take-offs are available these may be made by disinterested parties such as quantity surveyors. In smaller organisations, though, the estimator usually makes his own survey or take-off.
Accurate costs are, of course, of prime importance when competitive bids are being made. The contractor who underbids on the basis of fault estimating not only bankrupts himself but also his sub-contractors - not to mention the effect on the client who can lose any advantage in bringing a new product to the market.
The process of estimating involves engineering, construction, cost knowledge, experience and mature judgement. If the estimate is too high, the work will not be awarded or will go to a competitor. If it is too low, it can be the demise of the business.
Where time permits, the estimator may be able to obtain quotations for the supply of equipment (such as pipes, fittings, valves and so on) or rely on the company's cost data bank (assuming one exists). The estimator, however, normally has to generate his own estimate of the labour required (labour manhours) for the construction elements, as listed in the adjoining panel together with other factors to be considered when estimating. PE
Estimating labour and other costs
It is generally considered desirable to distinguish between direct and indirect labour.
Direct labour - the labour that performs the fabrication and construction requirements; it does not include supervision or non-manual labour.
Indirect labour - the labour which is subsidiary work done in connection with the fabrication and construction, or that portion of labour that is not directly part of construction, but that cannot be definitely assigned to a tangible item in the estimate.
Supplies - the term `supplies' is often used and is interchangeable with `indirect material'. Items such as fuel, oil, welding rods, gases and small tools are often classified as consumable supplies.
Overheads - a cost or expense inherent in the performing of an operation such as design, engineering, construction, operating or manufacture, which cannot be charged to or identified with a part of the work; these are often allocated on some arbitrary base.
Contract cost and selling price - prime cost has been identified as the sum of the cost of direct labour and direct materials; contract cost is defined as the sum of prime cost and overheads; contract selling price is the sum of contract cost and profit.
