How to build a project estimate
Estimate effort, add costs and hold back a buffer.
1
Estimate hours
Break the work down by task and add review and handover time.
2
Add direct expenses
Include licences, travel, subcontractors and materials.
3
Set contingency
A buffer protects the margin when estimates are optimistic.
What does this tool do?
A project estimate combines labour hours at a billing rate with direct expenses and a contingency for uncertainty. The effective hourly rate at the end shows what the project really earns per hour after expenses are included.
The Formula
Total = (Hours × Rate) + Expenses + Contingency % × (Labour + Expenses)Frequently Asked Questions
How much contingency should a project include?
Five to ten percent is common for well-understood work. Use more for new technology, unclear scope or dependencies on third parties.
Why does the effective hourly rate differ from the billing rate?
Expenses and contingency are spread across the project hours, so the revenue per hour after cost recovery is not the same as the labour rate.