Estimate, Bid, Quote, Ball Park figure, budgetary numbers; which is it???
Updated: Nov 20, 2020
In our day to day business we get to hear many terms like this, but many times the terms are misused or are not appropriate for what is being asked. Not a big deal, but since a simple work or phrase when using these terms can lead to a misunderstanding, I thought I would clear up my interpretation.
Let me start off with a quote. A quote is a number that is given out that is known and specific. For example, a customer asks for 4 widgets and we price our widgets at 100 dollars, so our quote would be 400 dollars. A quote is pretty fixed, and in my opinion mostly related to commodities, but that is my opinion. A quote once signed becomes a binding contract. Quotes tend to expire as they do come with deadlines.
Estimates, my favorite. Estimate tend to be really misunderstood for some reason, and can mean different things if they are material only, services only or a combination thereof. Many times, there is no way we can provide anything else, as we may not have all the details, we may not know the contents of a contract that follows etc. etc. The estimate serves a preliminary number that may/will be adjusted depending on further information or contracts. In my opinion and in our documents, an estimate is not an offer in anyway and is only an offer to negotiate. I say negotiate because we may not know all the details; we may not have seen the contract yet. So to be clear, an estimate is not a binding document as it is just a good guess. In our case signing an estimate may guarantee we will hold that price for you.
A bid is really official and is used is competitive process leading to a contract. What numbers you put there is binding and you will be held to it. This process is used when you go after a contract. Not sure what to say here, as everything you do will be within a framework provided to you.
The proposal is interesting as well, it is also misunderstood. The proposal is a detailed plan of what you will do including detailed costs. A proposal can be a binding contract if it is signed. The process of doing a formal proposal can be lengthy and time consuming. Someone asking for a real proposal may be privy to information on how to accomplish something or other details that may be useful to them. It is really putting yourself out there in a very exposed manner. Some folks charge to have these done and I tend to agree on this for some projects because if you put your time and effort into this, the person receiving this should be serious about it as well. On the other hand a proposal gives you the opportunity to really show your stuff and explain the benefits you offer. Proposals around here are gold and really are for relationships that are trustworthy of the effort.
Now that that is explained a little, the other part of this the types of price accuracy estimates we we are looking for. I will talk a little about these below.
Coming from a project management background, any price estimate really is not a fixed number; it is a range of numbers. As I explained above, we really cannot provide a fixed number in an estimate; that is a quote. With that said, lets address each type according to real project management.
The Rough Order of Magnitude (ROM) is a very broad range of numbers; it is also called a 'Ball-Park' figure. Here is what's funny to me, when we get asked for a ball-park number and we give them exactly that a range of numbers and find out they want something more fixed. That is fine, but that is something else. The ROM is established as a range of -25% to +50%; it truly is an estimate, so it cannot be taken as final and fixed. Every time a ROM is asked for you will get this range, for example, we may estimate that a project will cost ~$1000, but we are not really sure. Our price to them would then be $750 to $1500 range.
The next level is the Preliminary Estimate which is defined as -15% to +50%. This is a bit more narrow and should be used when a project is initiated with us. This estimate usually means other options or details are being decided upon.
The third level is is a Budget Estimate and is getting more serious. This range is defined as -10% to +25% and is given out when a lot of the details are finalized. This is definitely where both parties are really collaborating together. If whoever is asking for this kind of number and they are not forthcoming about details, they are not serious and are probably 'fishing' your numbers.
The fourth level is the next to last stop in a estimate, the Definitive Estimate. We can narrow this range down to a -5% to a +10%. This is where ALL the costs are known and you are ready to enter a contract.
The final stop is a Final Estimate at 0% variation; not really an estimate anymore. It is technically a summary of the entire costs to do a project. It is usually your contract price.
I look at all these types as important in conducting business and protecting your position.