Estimating Principles
Y1W2 The dangerous estimator
An estimator is the most dangerous after a few years of work experience. At least I was. The attitude comes up like: I am getting the hang of this. I can do it. I will show them I am not stupid! And then (s)he proceeds energetically with typing away and making a beautiful estimate.
I have made some painful mistakes in this period. I remember that on a tender I thought installing a one point anchoring system on a rock loading barge should be the thing to do because it was like that on tenders before. Well, after we won the job it appeared that specific circumstances determined a 4 point anchoring system was required. That was a 500k Euro mistake. (Or as another much more senior estimator tried to cheer me up: this mistake might have won us the job!). The thing is, as an estimator you are a generalist, who knows some of most aspects of most types of jobs. However, you will never know as much as the individual specialists!
So you have to talk to the people who really know, even when things seem obvious for you. And for the ones who supervise a ‘potential dangerous estimator’, don’t just check the beautiful spreadsheet — check who they talked to and what they talked about.
This is applicable for all estimators though. Quality of the estimate improves by every person you talk to. Another post I will talk about contradicting information you are bound to get if you ask more specialists the same question…
Y1W4 The 1‰ rule
The amount of time you have for an estimate is always limited. You need to be a master in time management; to be ruthless in deciding what to give attention and what not.
One of the principles I use to prevent me wasting valuable time is what I call the 1 ‰ rule. If a cost item is less than one per mille (0.1%) of the total project value, I won’t spend more than five minutes estimating it.
That means I will insert a reasonable number from experience and will leave it like that. That number might be 20% off, but even then its impact on the total project cost is almost negligible, also when there are many of these small numbers.
On a project where I had oceans of time I detailed the costs much further. That showed clearly it was a waste of time, the cost impact of this further detailing was negligible.
It can need quite some mental flexibility. I was doing a €1+ billion tender where anything below €1 million barely deserved attention. Meanwhile, I was working on a €100,000 project, where I had to spend real effort into the type of sea fastening we needed for the vessel mobilization! Giving both projects the appropriate level of attention took real mental discipline (I am afraid I did not fully succeed though…).
Y1W6 Costs should always go down
One of the first things I do when I get a new tender is to quickly calculate the ballpark costs. Useful as a benchmark for myself and for the commercial manager so (s)he knows who to inform and what procedures are applicable.
Keep in mind though: when you quote a number to a Commercial Manager, they have a tendency to forget that the numbers are rough and that they could go up/down quite a large percentage. Especially that they could go up significantly…
Another principle is that Commercial Managers and higher management tend to get nervous or even upset when the estimate creeps up during the tender process. This also tends to erode their confidence in the costs / estimator.
The above 2 principles can result in unnecessary managerial anxiety and consequently unnecessary extra work for you as the estimator when the costs indeed tend to creep up. How to prevent this? Give them a high initial number to start with. If you are honest you can call it an expected ‘non exceedance’ figure (but this introduces further dangers if the tender prices rises even above this number!).
During the tender slowly go down to the final number. Keep some money in the pocket till the end to cover for a possible price increase of a few % in the last few days.
Nobody benefits from unnecessary excitement during the tender.
Y1W9 Demotivation by Micromanagement
When guiding junior estimators I am of two minds.
My natural tendency is to give them free range. I like to give them a task they can properly put their teeth in. I think that it is more rewarding for them and learning goes faster. Of course I am always available for questions and I keep a close eye how things are going.
The problem is that an estimate is build up of thousands of cells with information which all have to be (as) correct (as possible).
When I check an estimate from a junior, we start with the broad picture: work method, planning, productions and so on. But then we go to the thousands of cells… And here the micromanagement starts.
I want to discuss all cells and want them to be correct. Thus the estimate will be discussed till the highest detail and an extensive action list will be made. This action list will then be checked and rechecked till the estimate is good enough. Micromanagement to the letter! And highly demotivational for the junior!
But I can’t just let it go, because we need to produce a good estimate.
The above can – in my opinion – only be avoided when we guide the junior slowly towards being responsible for a tender. Start with having them as an assistant to a senior and let them sort out interesting chunks of the tender. Then, when they are ready after a year or so, give them a simple low pressure tender and build it up from there.
Hurrying this process will inevitably demotivate many of the juniors
Y1W10 Fuel Costs Small Craft
Fuel usage of vessels is a significant cost element in most marine estimates. Fuel usage of large vessels is normally estimated properly.
However, the fuel usage of the small vessels is normally estimated way too high. Why is that?
The first reason is that the individual fuel costs per small craft is just a small amount. We don’t give it too much attention. It only becomes a big amount because there are often many small craft on site and these craft tends to be on site for long durations. But this cumulative big amount normally doesn’t catch the eye.
The second reason is that when giving individual vessel fuel usage due attention, the calculated amounts seems so small that we tend to put a bit extra in ‘to be sure’
On top of that we tend to overestimate the active hours of small craft. They are surprisingly inactive and tend to be moored alongside a quay or barge for long times, only springing into action so now and then.
And lastly, fuel did not use to be a big cost element so nobody bothered. When I started estimating in the 90ies nobody cared about fuel costs, because it was so cheap. This attitude is still lingering.
But, what are we talking about? What difference can optimizing of fuel use of small vessels make? Is it worth the effort? I checked a few old estimates from the last years and found that the optimized fuel costs of small craft is between 0.5% and 2.0% of the total calculated costs. When we assume a non-optimized fuel use is around double of this – which is my experience on some projects – then a sharp look at the fuel use of these small crafts can optimise overall costs to the same percentage: 0.5 -2.0%. Which is significant !
Y1W11 If you can’t solve the problem, change the problem
Y1W12 Don’t Give Subcontractors Eight Weeks if They Need Two
For me this post falls squarely in the category “open door”. The principles seem so obvious to me that I regularly get surprised when other people don’t operate according to these principles.
So, maybe it is a good idea to put them on paper, or at least try to.
Principle 1: don’t give a subcontractor, ( In this post I just mention “subcontractor”, but it includes suppliers and colleagues) more time than they need to do their job.
This means also that if you have 8 weeks for your tender and the subcontractor can do his job in 2 weeks, just give the subcontractor 2 weeks.
Principle 2: The subcontractors who need the most time to do their job, need to get the relevant information they need asap. Make it a priority.
Principle 3: Keep sufficient float in your own schedule for late supply of tender submissions, evaluations of the bids, meetings with the subcontractors and their resubmissions
Principle 4: It could be that one or two subcontracts need more time than you have available. Don’t cut in your own float unless you are with your back against the wall (principle 3 above). Try to solve it in another way. You could 1)“pre chew” the solution for subcontractor so he doesn’t have to consider various methodologies. Give them starting points so they don’t have to worry about assumptions and qualifications. You can also 2) simplify the scope and provide various elements yourself. Especially transports and import duties are difficult for some subcontractors. Then just don’t ask them. Furthermore you can 3) allow subcontractor to price all or some elements on an indicative basis. This can then be communicated to Client as well – if the amounts are substantial. You can also go in the direction of 4) promising a subcontractor exclusivity or any other encouragements.
And keep close contact to these subcontractors. Try to prevent any delays. Ask what WOW elements take them a lot of time and see whether you can take these elements away from them.
A disadvantage of giving subcontractors a lot of attention is that they start to feel that they are important to you which is not so good for the price levels.
Uncertainties
Y1W7 Last minute changes
With last minute changes I mean all changes which have a significant impact which can’t easily be digested in the time still available.
Procedures are bypassed, but generally for a good reason. Because why do we tender? To win the darn job of course!
However, this comes with a considerable risk. When you don’t have the time to properly digest the changes, you can easily miss or misjudge important cost elements. On top of that an average Tender Manager does not fully realize this risk!
How to limit this risk? Even with the limited time you have, estimate in such a way that you give yourself a few “free” hours at the end (don’t tell your manager you have a few spare hours!). Spend even less time on number crunching and reporting; these precious few hours are better spent contemplating whether you have properly costed all elements.
There are occasions you really need all the time available to update your spreadsheet with no time to spare for reflection or double checks. Make sure to let your manager know and spell out the risks. Putting that in an email as well could be advisable depending on the situation.
Note:
I notice there is often the unrealistic expectation that estimators just need the time to put the numbers / new situation in a spreadsheet, and the outcome will be 100% correct. Estimating is much more messy though. There are normally lots and lots of dependences, so a considerable change of scope or execution method can have effects far beyond the direct SOW or execution method change.
Y1W16 Risk management – back of sigar box method
Risk management developed into a science in itself. Monte Carlo methods with large spreadsheets and various factors being multiplied with each other ending up in a number. Ta ta! The amount to be added to your estimate as risk allowance.
This irritates higher management because it is not clear how input becomes output.
So what happens (can happen) is that higher management, having in their mind the risk percentages required for a low, medium and high risk job, adjust the input for the Monte Carlo calculations till the outcome is in line with their expectation.
The system in itself is good. What I like is that proper attention is directed towards mitigating actions to reduce the chance on a certain risk and the consequences.
The system I used in the past – before Monte Carlo – was similar: identify risks and take mitigating actions where deemed necessary.
But then I just quantified the top 5 or 10 risks in a neat simple list. This list I discussed with the tender team. In my opinion this list gave more insight in the major risk induced cost fluctuations. On the basis of this simple list we could have a high over discussion about scenarios where risks could occur simultaneously and whether or how we wanted to cover this combination of risks.
I miss this discussion nowadays. Nowadays it is much more about individual risks – large and tiny – which then disappear in the risk grinder after which an answer is spewed out. I think this results in a loss of insight by the tender team and later the project team.
How to get Information
Y1W3 Make people happy (to help you)
Sending someone an email or chat out of the blue rarely brings you very far. If the recipient has the time, you’ll probably receive a polite correct but not very inspired answer
Following up with real conversation, in person or by phone/Teams is already better. You will probably get what you want.
But what you want is that people are happy to help you. Then they will be happy to think along with you and the quality of their response inproves dramatically. The number one way to accomplish this is to tell them more than they strictly need to know.
Tell them about the tender. Show your enthusiasm! Explain where their contribution fits in and why it could make a real difference.
This can backfire though. I once phoned a supplier of SS bolts for a quote. For me a small cost element, for him a few months turnover. So my usual motivational spiel drove him to overdrive. He kept peppering me with options which were a few hundred Euro cheaper and happily explained the pros and cons in great detail. I didn’t really have the time, but didn’t have the heart to dampen his enthusiasm. The unexpected side effect was that became a bit of an expert in SS bolts as well 😊
This way to approach people helps getting high quality answers. But for me it is as important that in this way I can contribute in people feeling seen and appreciated. Satisfaction of one of the major needs of any human being.
Y1W8 Are you worthy of my knowledge?
When the UK was still part of the EU I got involved in a tender where a 3 m diameter pipeline had to be installed on the seabed before the area had to be reclaimed. A price had been made already, but it had to be updated due to scope changes
So I checked the price and the design. One thing jumping out directly was the enormous quantity of gravel required to surround the pipe and the high costs to buy this rock and get it at location.
It seemed to me that the design could be optimized, so I called the – very senior – design engineer and asked how he had arrived at the current design. He started to laugh and said that the design certainly could be optimized – depending on certain conditions – , but nobody had asked him!
This phenomena I have encountered a number of times when dealing with the most senior engineers and works managers. For some of them “you have to be worthy” of the information. That means you have to ask the right questions, they have to judge that you have sufficient knowledge to appreciate their answers, and they feel that you approach them respectfully.
As a young estimator you are at a disadvantage here. The only thing you can do is to be respectful, listen carefully and be as prepared as you can before approaching them.
Y1W13 Know the answer first, then ask
Before I approach an engineer for productions or other calculations I calculate it myself using rule of thumbs and/or info from old projects.
Why do I do that? There are 3 main reasons.
Firstly I use the rough numbers to build up my planning and estimate. I like to start with a high over understanding of how to execute the works, so that I know where to concentrate my efforts in the tender phase.
Secondly by roughly knowing the outcome of the calculations, the request to engineer can be finetuned.
And thirdly, when the engineer comes with the results you know directly whether the outcome is in line with your expectations. If they do, it improves the confidence that the numbers are correct. If not, then you have to dive in deeper to understand why the ballpark numbers and the conclusions after detailed engineering differ to a too great extend. You would be surprised to know how often large mistakes have been found in this way.
This irritates a number of engineers to no end. They see it as double work. They mention a senior engineer has checked their calculations already. But I don’t care. Before I put something in my estimate I want to have the confidence that the numbers are correct enough. This confidence I can then show to higher management, which can influence the final price level as well (more details see a later post)
Y1W14 Engineering and Estimating – it takes 2 to tango
The title is misleading, because operations should join the dance as well. It take 3 to tango?
Describing an Engineering Question is half of the work. All 3 – Operations, Engineering and Estimating – have a different angle to a situation. Operations put emphasis on a solid and risk free execution method. Engineering puts emphasis on calculations with a sufficient safety margin and Estimating is looking for an economic “good enough” solution.
The engineering starting points determine the final costs. Here the estimator is the one trying to squeeze out all conservatism from operations and engineering. Squeeze till they start to squeak, or even better, till they start to get angry 😄. At the end the starting points should be acceptable by all 3 parties.
It can be helpful to be outrageous with the initial question. I remember a project where we had to install 12 km of pipeline somewhere in very shallow water. The plan was to fabricate the pipe onshore, then launch, tow floating and sink. In the past 500 meter pipe lengths were the ‘standard’, till a colleague estimator wondered what was against launching, towing and sinking the pipe in 1 length of 12 km. We expected engineering to move from 500 m to 1 km with some sighing and complaining, but they came back with the message that from an engineering point of view it was actually quite well possible!
When the engineering results become clear often a finetuning round is necessary. Again, operations, engineering and estimating should be in agreement. And again, the task of the estimator is to squeeze out conservatism.
Y1W15 pre-chew or not, that is the question
When asking input from others you have to decide whether you pre-chew the request or give the other party full freedom. In this post I’ll try to come with a few principles helping making a decision. Let me know whether the list is complete 😊.
Principle 1: the less you trust the other party, the more you pre-chew.
The extreme is that you calculate something, send it to the specialist, and only ask his/her comments. In this way you won’t get useless information, which takes a lot of energy to reject and not use. Also pre-chew when the other party is very unreliable timewise. The effort you ask is tiny, so there is actually a chance the other party will do their part.
Principle 2: the less time you have available, the more you pre-chew
This is obvious. When time is limited you want the other party to spend their time effectively. So you define a certain solution, define the starting points and exclude all time consuming elements which you can calculate yourself as well.
I think there are 3 instances where giving a lot of freedom to other parties can work. Firstly when you have lots of time available. Secondly where you work closely together during the tender process and can steer the other party away from undesirable directions. And thirdly where parties are pricing scope of work which is rather independent from other scopes.
In general I like to keep tight control on all parties to prevent surprises at the end of the day. A face to face introduction to the problem helps a lot as well. Any bright ideas can than be incorporated in the RFQ.
I am curious how you approach this issue. Do you use different or additional principles? I know that some colleagues of me give the subcontractor/internal departments much more reign. Maybe personality is a big factor here as well?
Y1W17 Challenging people
Challenging people tend to make them defensive. And when they get defensive they are not willing to change their pricing or engineering results, or only willing to change them a token little bit.
Even when you know they are wrong, it is very hard to do something about it. They are the specialists, so you can’t just overrule them. It will take tremendous energy to get the right answers. And time is short on tenders, so you have to let it go most of the time. This defensive behaviour makes you less competitive.
How to smoothen the process? I have no “1 size fits all”.
It firstly depends strongly on the individual I am dealing with. They run from people who are totally open for criticism till people who can’t bear criticism at all and easily fly into a rage. The further the individual is on the “full rage” ladder the more careful I need to craft the “asking process”.
There are 2 ways I see to get the answers I want from the more difficult people.
- Where possible pre-chew the request in such a way that the answers can’t be wrong. Like sending a cost evaluation from an old project adjusted to the new tender and asking for comments (ideal situation).
- Create a close working relationship with the other party. Sit together and agree on the starting points. Create intermediate chats where “information can be shared” (read, where you can influence the way of thinking of the other party / emphasize the importance of not padding the price). And then finally a meeting where the answers are being challenged by the – agreed by both – starting points and pricing / engineering philosophy. But this last meeting won’t change a lot anymore. The close working relation ship is the key. It is also advisable to have a highly respected colleague in the talks.
No guarantee for success though! When you are worried that a certain party will strongly negatively influence the tender price and you think your massaging efforts will have only minimal impact then it can be prudent to involve higher management. They can attend the meetings and/or on a higher level some phone calls could be exchanged.
The Zen in Estimating
Y1W5 Staring out of the window
A famous Dutch comedian once said “the most difficult part of my work is to explain to my wife that I am actually working when I stare out of the window”
My former colleagues know a characteristic pose of mine is feet up, hands on the belly and indeed staring out of the window.
So when do I use ‘the pose’?
I use it when the mind is tired of intensive activity and needs to cool off for a bit. Then ‘the pose’ is solely for relaxation and consciously enjoying the pleasurable sensations in the body for some time. There is a chance I drop of for a few minutes, but that only heightens the pleasure 😊.
I use it to consciously withdraw from the continuous bombardment of hundreds of small decisions to be made, go back to the big picture and plan the things to do the coming hours.
The highest enjoyment comes from assuming the ‘pose’ and thoroughly visualise/run through possible solutions to technical/schedule problems. It is highly satisfactory to spend a more prolonged time in full concentration and repeatedly play a story from start to finish in the mind. Blissful actually, comparable to a good meditation.