Knowing how to project cost estimates is one of the most important parts of running a small business. Estimating costs involves effective management and an understanding of your budget and resources.
For example, you don't want to commit to a project or sign a lease before you know what machinery or equipment is involved. Here are four steps to take toward effective cost-estimating to help manage risk for your business.
According to the U.S. Government Accountability Office (GAO), keeping a detailed documentation that clearly outlines the estimate's purpose is one of the most vital parts of an accurate cost projection, "Comprehensive documentation during data collection greatly improves quality and reduces subsequent effort in developing and documenting the estimate."
You should supplement any historical data you gather with current return costs, new contracts, and updated vendor quotes. Keeping accurate documentation will help determine how expected funding will be spent on the project, save time from doing unnecessary research, and prove to be an invaluable source for future projects.
This is one of the most common and intuitive techniques business owners use, and it is highly effective for projects of any size. First, take inventory of what you have, and then write down all the resources you will need, including labor or employees, equipment buying or leasing, outside services, and raw materials, and calculate the total estimated cost.
Typically, cost of labor is hourly as opposed to being based on the length or scale of the project. You can also ask for bids to perform the work, and be sure to compare prices for buying or leasing large pieces of machinery. For construction projects, you can often perform cost projection based on cost per unit, such as a cubic foot, work station, or square foot. Determine how large the building or space is for your building or renovating project, and then apply the dollar amount per unit to determine the total cost.