At the heart of every contractor project is a job costing estimate. An estimate is the beginning of the client relationship and is crucial to getting a project off the ground. An accurate assessment of costs is needed to verify the financial viability of a project—it’s also a prerequisite to a successful bid. Project planning details are all based on the original estimate, including:
- Budget for materials and laborers
- Direct and indirect expenses expected
- Material delivery schedules
- Timeline for completion and productivity targets
- Progress invoicing schedule and milestone markers
- Cash flow required at each stage of the project
In addition to serving as the foundation for project management, a job costing estimate also plays a vital role in customer satisfaction by setting the expectations for budget and timeline.
Without an accurate estimate, you can lack visibility into project costs—if your bid is too high you won’t win the project, and a failed bid represents sunk costs and resources. If your bid is too low, you will end up with a loss at project completion.
Accurate estimates shared with the client are also key to the proper management of invoicing and cash flow. Since invoices are typically based on project completion percentages or milestones laid out in the estimate, both the client and the contractor need to be in agreement on what those percentages or milestones look like. If there is an invoice dispute, it could delay payment and interrupt cash flow, and temporarily or permanently stall the project, resulting in losses for the contractor.
To keep a project on schedule and on budget, set yourself up for success with proper estimating processes.