In our previous post, The Estimating Process With Agencies, or Why We Hate RFPs, I compared bidding on a development project to buying a home. I’m going to extend the real estate metaphor a bit more as I dig into the nuts and bolts of developing a project estimate from a time and materials perspective.
Imagine you are renovating your kitchen. You have a long list of features you’d like to incorporate: cherry cabinets, granite countertops, a custom tile backsplash, a six burner Viking stove. Sounds amazing, right? You also have a fixed budget to work with. So, you start asking various contractors how much it would cost to do the renovation. The conversation goes something like this:
You: Can you install 20 linear feet of new cabinets for $20,000?
Contractor: I’ve done projects in that price range before. Here are some examples of my work in that price range.
You: Looks great! You’re on board. Come on over and take some measurements.
This is pretty similar to the RFP process — you ask for a project with some general requirements and a budget, and you select a contractor that can meet your stated objectives within that budget.
Contractor: OK, it looks like you actually need about 25 linear feet here.
You: Can you remove and dispose of the old cabinets? I’m also interested in adding a custom cabinet here on the end with a lazy Susan. What do you think about putting a drawer under the sink? And a trash can pull out over here. I want glass doors instead of solid on these cabinets, and antique hardware on all the drawers.
Contractor: I’m doing some sketches to make sure I understand everything you’re asking for.
The discovery process has begun, and the contractor has started looking into the requirements. The contractor discovers that there is more work needed (an additional five linear feet). You identify some other tasks necessary to the success of the project but not called out in the original RFP (cabinet disposal). Plus, you identify some specific custom items you’d like to have him do on the project.
The contractor captures all of these items and puts them into some sketches, and then provides a new estimate based on this additional information.
Contractor: OK, if you want all of these things my rough estimate is about $30,000. But we can prioritize the items on your list to keep us within your $20,000 budget. What features are most important to you? Is there anything you can live without?
You: Hmm, maybe we can add the lazy susan later. That antique hardware was a nice idea, but let’s just go with something from Home Depot instead. The most important thing to me is that we include those additional five linear feet.
Contractor: Great, I’ll sit down and figure out detailed estimates for time and materials for the items you have prioritized.
Now the contractor knows exactly what you want. The contractor works with his team to review all the details of the renovation — cost the materials, staff the project, and determine how long it will take to do each task. He comes back to you with a second estimate based on this detailed review.
Contractor: Here’s my detailed budget/estimate. I’ve spent time with my team reviewing the site, costing the materials, and planning how to do the work. Here are your costs, broken out by task. The final estimate for everything on the list is $27,000.
You: I see that removing the cabinets is a $2,000 task — I can probably do the removal myself. The glass doors are $5,000 but I really want them, so I’m ok with adding that line item to the budget.
Contractor: OK then here’s our SOW for $25,000. Let’s both sign it and we can get to work.
See how the contractor refines the estimate/budget as he gathers new info? And he works with you to make sure that he stays within your budget while still delivering the features you want?
This is how our discovery process works.