Items to Include in an Estimate
An estimate should include all of the following items:
- The scope of the work that is included in the estimate
- The assumptions that were used, such as whether the tasks should be done contiguously or whether they are interruptible at an additional cost
- Resources, such as staff, facilities, and material. Consider the duration. How quickly can the task be done with the skills available? What skill level is required to do the job? Project management should be included.
- Expenses, both direct and indirect. Direct expenses are labor, material, equipment, services, and fees. Indirect expenses are overhead and administrative costs.
- Risk and the cost of managing it to acceptable levels.
- Documentation, which is critically important. If an estimate is not documented, it exists only in the head of one person. The written estimate must contain the assumptions made when the estimate was developed.
An estimate must include all of the items in the previous list. If you are asked to lower your estimate because the price is too high, what are your options? To lower the price, you can reduce the scope, reduce risk and associated contingency, or possibly reduce resource at the expense of schedule. Or, management can decide to lower the profit margin.
An estimate is just that--an estimate. The only perfect estimate is the one done after the work is completed.
The degree of accuracy of an estimate depends on the phase of the development cycle that you are in. In the concept phase, the estimate has a lower degree of accuracy than in the planning phase.