Experienced contractors will immediately be dubious if someone tells them that a «perfect» project estimate will definitely get them the order. And we believe they are right. Does this mean that cost and quality estimates are meaningless? Of course not! They are very important, but they are not the only deciding factor. Below I will explain why.
Before Receiving the Order
A project estimate is only one source of information for determining the cost of equipment and labor. An experienced salesperson does a considerable amount of homework before preparing an estimate. The company's available resources and knowledge are compared with the project requirements: how well does this project fit with the company? The client may have unrealistic expectations about the project budget, time frame, or technology used, and some projects are doomed to failure from the start. Your competitors may have advantages that will only waste your time, in which case leave the cost estimate to other companies for the client. An estimate should only be done if you are willing to participate in the project and it is economically feasible for you.
BadEstimating contributes to bad decisions: setting the price of a project too high can result in losing the project, and setting it too low can be even worse — you'll get the order, but it will only become a source of losses for the next couple of years. Without a «good» project estimate, management does not have an important piece of information needed to make a decision on setting the contract price for the project. For example, just because someone has set an unrealistically low budget for a project does not mean that your company will be able to meet that budget. Not having reliable information about the actual cost of the work contributes to bad decisions. If the contract price for the work is based on a poor estimate, your company is unlikely to avoid losses, no matter how hard the technicians try.
«Good»the estimate can serve as a basis for the company's management to decide on the correct contract price for the project, so that if the company is awarded the contract for the project, it will be properly compensated for the risks it has taken and the resources it has invested.
As for orders that have gone to other companies…
You might wish that your company could win all the contracts for work that are offered to it, but… this is simply unthinkable. Such orders can be divided into two categories:
(A)Orders that you could have received, but did not. A «good» estimate will help you avoid setting an inflated price for the project and, as a result, losing a possible order for its implementation. Of course, this price is not the only factor for making decisions, and sometimes other factors can lead to you refusing to implement a project, or that it will go to your competitors. However, these factors rarely lead to you consciously taking on projects that are clearly unprofitable for you.
(B) Orders that you had no chance of winning. A good estimate can also help you set a threshold below which you should not lower your proposed project price. If your estimate is reasonable and your competitor offers a significantly lower price, then you can simply step aside and let your competitors sort it out among themselves.
As for the orders that your company got…
Again, you might wish that your company could win all the contracts offered to it for work, but again, this is impossible. The orders you receive can also be divided into two categories:
(C)Orders you received that were successfully completed. Many factors could have contributed to this. Your representative analyzed the client's needs and compared them with your company's capabilities. A good estimate was made, good decisions were made to determine the contract price, and the order was won. The executive team received a project with the necessary potential, they identified the list of works required to complete this project, made their schedule, and these works were successfully completed. The result is «success.»
(D) Orders you received that became a nightmare for you. Receiving such orders can be due to one or more typical mistakes. Your representative could have incorrectly estimated the project offered to you, although his capabilities and/or proposed solutions were poorly suited to the project. This happens quite often. The executive team could have «screwed up» their work and turned a promising project into a loss-making one. You may have just been unlucky (under the influence of circumstances you cannot control, or the consequences of which you cannot avoid).
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