Why First Principles Estimating Is the Only Reliable Method of Estimating

By Community Team

Q&A with Pronamics: First Principles vs Standard Rates, Ben Townsley discusses why one is better than the other

Estimating is about accurately predicting the cost of the project. Tendering is about taking that estimate and molding it into a winning bid. If you don’t do the estimating soundly, tendering is then based on uncertain numbers which can lead to disasters.

So how do you estimate accurately?

Direct costs plus overhead costs plus profit equals sales total. This holds true for small trades all the way through to billion dollar works. And the best way of determining your direct costs is to break every part of the job into the smallest cost units possible, then build them back up again to price all of the specific components.

Ben Townsley
Managing Director of Pronamics

If you use standard rates estimating, your calculations make assumptions rather than use accurate data. This would be great if every job was just like the last one, if the ground conditions were always the same, if the price of material never altered and labor was always consistent. The time saved with standard rates estimating is considerable, but can come at great cost.

But time is money? Surely saving time is important?

They say an ounce of prevention is worth a pound of cure. Saving time on a tender is important, but not as important as getting the figures right.

Let’s say you submit a tender that is way under what it should be. You win the work, huzzah! Now you have the huge problem of project costs that will blow out, which can damage reputations, relationships and bottom lines.

Or, the opposite situation, you submit a tender that is way over what it should be, you may very well not win the work.

Isn’t it better to have accurate costs so you can put forward the bid that works best for you?

So how does Expert Estimation make things easier for first principle estimators?

Expert Estimation is a first principles estimating system. The workflow and layout are designed to make it easy for users to build up their schedule of costs (sometimes known as a bill of quantities) from base resources.

You can run a library project and keep it up to date with current rates, then link that library to other projects and be confident the correct pricing will flow through.

You can create template projects for different types of work: bridges, roads, rail, marine, renewable energies works, etc.

When updating the prices for base resources, you can then pull those up-to-date rates for your current project’s schedule items.

Features like quotation comparisons and subcontractor comparisons allow you to easily price up any materials or items from external suppliers, and even determine if self-performed work will be more economical.

Then there are the reporting and analysis features. See exactly where your direct and overhead costs are in the project summary and drill down to inspect. Add margin and spread it across your costs in a way that is of most benefit to you.

What if I do have a project that is identical?

Just clone the existing project, rename and away you go. Expert Estimation can save time on tenders that use standard rates, but will certainly save time on tenders built using first principles.

Your productivity is based on the amount of work you can get done in a measured amount of time. So why not be more productive?

And if you don’t know your overheads and profit goal, then no matter how accurate your direct costs are, you won’t price correctly. First principles estimating is the only real way of achieving that.

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