Entrepreneurs Need To Produce A Costing Model To Assist You In Estimating Or Bidding?

Estimating is a very important part of business.  It is also one of the hardest things to do.  You also need to cost bids and proposals.  Estimating and costing is made much easier with a Costing Model.  So how do you set one up.

Costing and estimating are sometimes the “win or lose” activity. Without a solid, correct, Costing Model you could be losing business and profit. Your Costing Model should be used to define and manage your costs during an proposal or when you are asked for an estimate for a project.  Using this method, you have a fair chance of winning and making a profit.  There are many mediums you can use including a pen and paper for the simpler jobs. Most companies use a spreadsheet based software programme.  Your Costing Model should include:

-        All you cost elements.  As you produce your proposal make a note of all the costs that make up your bid. If you are producing an estimate then make sure that all the components of the work to be done are included in the model. Include costs of borrowing money whilst you are waiting for your payments to be made.

-        Calculation of your costs. Using a spreadsheet makes this easier. You should use your Costing Model to calculate such costs as: your hourly costs by hourly rates, material costs by amount and processing costs by time.

-        Uplifts for profit: Decide what percentage/amount you want to charge for project and do not forget to include costs or managing your sub contractors.

-        Uplifts for risk: Decide how much each increment of risk you will be undertaking will increase your costs and include this.  This is an area that many people forget.

-        Adjust to win: Use your understanding of your potential client to make the appropriate adjustments to that you so not price yourself out of the market.

-        Add extras: Such as Taxes, Delivery, Insurance etc.  This are best itemised separately in any proposal.

You should remember that if you are estimating for a lengthy period you should use NPV (net present value) calculations to take into account inflation.  If you are working in more than one currency, you should take hedging against major currency value shifts into account.

Lastly check it over more than once to ensure that all your calculations are correct and reasonable.  You want to use this Costing Model more than once after all! 

Good luck.