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In my last column, we discussed the value triangle as it relates to developing a cost estimate. This month, let's talk about another form of estimating: the ubiquitous "budget estimate." As contractors, we all have been asked to provide this type of cost, which can also be termed a "ballpark estimate." Before we go into more detail, let's define the term; and, as always is the case, the definition is in the eye of the beholder.
One formal definition comes from BusinessDictionary.com: "Budget estimate - an approximation of the cost of an activity, job, program or project, prepared for budgeting and planning purposes only. Not accurate enough to provide a basis for a firm commitment, it represents only the budget maker's understanding of the scope and expense of what needs to be done."
If you are the project owner, your definition of the budget estimate is: The absolute maximum amount of money to allocate for the project, regardless of any upfront data gaps and/or changes in scope during the work.
As contractors, most of the time our definition includes various four letter words (SWAG comes to mind), but it usually goes something like this: A request by our customer, usually at the last minute, to provide a cost for work, which will be started some unknown distant date in the future, on a scope that has not been defined; and, by the way, if we do not provide the budget estimate, we will not get the chance to bid on the final scope of work.
Based on the definitions, what is the best way to manage the...