Project estimation in contracting is the process of predicting the costs, resources, and time required to complete a project.
This process involves the estimation of direct and overhead costs, as well as markups added to the total estimated cost to ensure the company makes a profit on the project.
Project cost estimation and markups are crucial for preparing accurate and competitive quotations.
There are two ways to create project estimates:
- You can create project estimate directly form the project by click create/edit current estimate button or by clicking Generate > Project Estimate
- Go to the Project Estimates document list, open Project Costing > Project Costing Documents > Project Estimates and click
Creating a Project Estimates document. The Main tab
On this tab, you can enter general information about the project's estimate: the project, customer, project type, entity, and the employee who is responsible for the project. Also, you can specify whether you need to split estimates by planning period.
If for any method, the Estimates by Period check box is selected, one more tab, Estimates by Period, appears.
Figure 13: The "Project Estimates (create)" form. The Main tab
<Auto> in the Number field indicates that a number for this document is assigned automatically when you save the document. The From field is populated automatically with the current business date. You can select another date, if necessary.
In the Type field, its weather this estimate is a initial version or revision or variation, it will be populated automatically by the system.
In the Entity field, select the legal entity of your company for which this document is being prepared.
In the Project field, specify the project for which you want to create estimates.
In the Company field, specify the company for which this project is being planned.
The Contract field is auto-populated with the default contract of the company; select another contract if needed.
The Estimates by Period check box is available. If you need to create estimates for each planning period within the project duration, select the Estimates by Period check box. This brings up the Estimates by Period tab.
In the Responsible field, you can select the employee who is responsible for this project.
The Version field is auto-populated with the version of the project budget.
Notice the hyperlink below the Version field – VAT Applied* Prices include VAT on the screenshot above (can be different in your document).
By clicking the hyperlink, you can open the Prices and Currency dialog box and change the price-related and taxation-related settings to be used for the project estimates. For more details, refer to The Prices and Currency dialog box.
In the Comment text box, you can enter any information related to this project's budget.
Creating a Project Estimates document. The Revenue and Costs tab
This tab is used for building the project budget using the Calculation of Revenue Based on Costs calculation method. The tab contains the following two panes:
- Revenues (upper pane)
- Tick Use Different Currency checkbox, if your invoicing will be done in different currency.
- Costs (lower pane)
Figure 14: The "Project Estimates (create)" form. The Revenues and Costs tab
The Revenues pane
For each revenue listed in the upper pane, you can create a list of costs in lower pane.
In Project Task, select the project task for the revenue estimate.
In Item, select the item (revenue item/service) for the specific project task.
In Content, give detailed information for item (revenue item/service) it will populate by default when you select the item but it’s an editable field.
In Quantity, provide the quantity for the item (revenue item/service)
The UOM column (available if the Item is selected as the project revenue analytical parameter) is populated with the unit of measure used for the item.
If you don't need to specify estimates by item, you can type the revenue estimate amount in the Amount column.
In the Overhead column, enter the other costs and expenses related to the item. Generally, this column is auto-populated from the overhead amount allocated from the Overheads tab.
The Total Cost field shows the cost of the specified quantity of the item with the allocated overhead amount.
In the Markup, % column, you can specify the percentage of increase to be applied to costs to get the revenue estimation. Generally, the revenue amount can be calculated based on markups specified for related costs in the lower pane.
In the Markup Amount column, you can view the added amount for the specified percentage or you can enter the amount directly if no percentage is specified.
The Amount column shows the amount for the specified parameters.
The VAT,% column is auto-populated with the VAT rate applicable to the revenue.
The VAT Amount column shows the amount of VAT calculated for the revenue.
In the Price column, you can view the resulting revenue item price. If the Markup is specified, the price is calculated based on the cost and markup.
The Total Amount column shows the revenue amount.
The Cost Pane
For each revenue, you can specify multiple costs in the Costs pane.
Click Add to add a new cost for the revenue selected in the upper pane.
Project Task will come automatically based on the revenue line..
In Expense Item, select the type of expense you want to add (for ex: Cost of material, labor Cost etc).
In Cost Elements, select the Cost item to be able to view project costs detailed to cost elements which you can select from the Items, Employees, Positions, Fixed Assets lists.
In Qty per unit, select the quantity required for 1 revenue item, so whenever we change the quantity in revenue line, it will automatically change the quantity on cost side.
Quantity field will be populated automatically based on Qty per unit field, or you can enter manually also.
UOM Field will be populated based on item. We can change that also.
In Price, enter the cost price for the selected cost element.
In the Price column, you can enter the item price.
The Amount column shows the total amount for the specified expense or cost with the VAT amount added if applicable.
In the Markup, % column, you can enter the percent of increase to be applied to the cost to get the revenue estimate related to this cost or expense.
The Markup Amount column is auto-populated with the amount of markup. Alternatively, you can enter the amount and the markup percentage will be recalculated.
The Amount Incl. Markup column shows the cost with markup for this cost/expense.
Creating a Project Estimates document. The Overheads tab
This tab is used to enter the estimates of overhead costs for the project. This tab is available if the estimation method is Independent Calculation of Costs and Revenues.
To allocate the overhead costs, use the Allocate Overhead Costs button on the toolbar of the Revenues and Costs tab.
Figure 15: The "Project Estimates (create)" form. The Overheads tab
Click Add to add a new overhead cost associated with the project or you can fill overheads cost by project tasks.
Select Expense Item to categories the expense item (i.e. Overheads)
Select Cost Element, Quantity, UOM. They are optional fields.
Enter Price of the overhead cost.
The VAT,% column is populated with the percent of VAT applicable to the overhead cost. You can change the rate if needed.
The Amount Excl. VAT column shows the total amount of this overhead cost without VAT amount. This amount will be allocated to project estimates.