How to create cost estimates for digital projects?

One of the many questions that I get regularly asked, especially by junior project managers is how to create cost estimates for website projects. Why is estimating so important? Well, if you don’t estimate correctly, you are putting the project at risk for going over budget which makes the project less worthwhile to do; especially if you’re working in a small digital agency. This article isn’t about how to create an actual estimate to give to your client, this article focuses on the thought process of what a project manager requires and what you should be doing to estimate costs correctly.

In my experience, estimating comes from a number of factors and over time as project manager you do become more resilient and accurate on these things. Most companies and agencies associate cost with time (ie it costs £100 per hour for a developer), so it’s a clear calculation if you can understand what is required to be done and what’s agreed for the scope of the project to estimate the time and then the cost. There is a simple process you need to think about in the overall process of cost estimating:

  • Determine the scope for the project.
  • Try to break the scope into smaller tasks so it’s easier to cost.
  • Estimate these smaller tasks in terms of time and then total overall.
  • Thing about tolerances/contingencies/overages of the project.

The key action you need to do here as project manager is to work out how much these smaller tasks within the overall project will take, and there are a number of methods you can use here:

  • Estimating from experience – If you’ve already delivered a similar project on various occasions you should be able to accurately estimate the project. This is where experience counts.
  • Acquiring estimates from each department – If the design team need to be involved, then make sure they understand the scope of work so they can estimate their time. You then should get this agreed in writing or through meeting to make sure the scope has been understood and the work can indeed be carried out within the time given.
  • Check previous projects – Have you delivered a similar project before and what were the lessons learned from that project? If that project went over by 20%, then think about that for the cost estimate you provide in this estimate.
  • Allow for tolerances – You need to allow for some tolerance/contingency in any project. It needs to be reasonable if challenged by your client ie allowing 80% extra on the overall project seems excessive once costs/profits have been taken into account.

Remember you can only estimate fairly based on the scope of work you are delivering to and if that changes throughout the process, then time and cost will have to change. Some agencies argue that an estimate is purely that, it’s never definite, so if you follow that theory then make sure your client and key stakeholders understand that’s your policy.

I hope you found this useful, it’s always interesting to know the methods you use to create your cost estimates?

2 thoughts on “How to create cost estimates for digital projects?

  1. To your point in your second bullet “Acquiring estimates from each department “, I think a great opportunity to acquire that departmental input is during a project kick off meeting which ought to occur in the discover/planning phases of the project. At this time your team is discussing scope, timing, and beginning to make the commitments necessary to execute on the work effort needed to fulfill the business requirements.

  2. Great article, you’ve got some good points in here, especially with regards to the approaches to take when defining how many hours to allow for each smaller task, totally agree!

    I’ve also written about developing cost estimates on my blog, The Digital Project Manager which your readers might find interesting. I’ve written about 10 tips when creating cost estimates:

    Define the idea
    Identify all the constituent parts
    Do your research
    Estimate the hard way
    Prepare for the unexpected
    Cost only what you know
    Allow for AM & PM time
    Check it
    Caveat it
    Be transparent

    You can read the intro here and in it you’ll find links to all the articles:
    http://www.thedigitalprojectmanager.com/10-top-tips-for-creating-cost-estimates-an-introduction/

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