Estimate costs
Before you decide to commission a particular product or service, you should estimate the costs
Why it's important
Doing detailed research to estimate the likely costs of the procurement is an essential part of planning. Estimating and sharing your budget will:
- help determine what your organisation can and can’t afford
- enable suppliers to suggest the most appropriate technology or service
- encourage competitive bidding and avoid price fixing
- reassure the public that money is being spent appropriately
Doing detailed research to estimate the likely costs of the procurement is an essential part of planning. Estimating and sharing your budget will:
- help determine what your organisation can and can’t afford
- enable suppliers to suggest the most appropriate technology or service
- encourage competitive bidding and avoid price fixing
- reassure the public that money is being spent appropriately
What it means
You can estimate the cost of delivering a product or service by:
- looking at available data on procurement and contracts
- asking buyers what they paid for similar product or services
- forecasting how much a service should cost a supplier to provide
- calculating the ‘whole life cost’
For example, if you wanted to use an external supplier for your IT helpdesk you could forecast the expenses they would incur for office space, technology and salaries. This should then give you an appropriate figure that will help you evaluate bids.
Calculating the ‘whole life cost’ should include:
- the initial outlay in buying a product or service
- the time, costs and expertise required to switch from one technology or provider to another (at the beginning and end of a contract)
- ongoing subscription or licence costs
- additional technical support services
Forecasting can be sped up significantly by using electronic procurement or ‘e-Procurement’ tools which store available data on past and current procurements.
Once you have a firm idea of the what a product or service should cost you will be able to:
- verify that funds are available from budget holders
- consider combining or splitting up procurements where appropriate
- share your budget openly with suppliers and the public
- spot uncompetitive bids during the evaluation phase
You should avoid significant delays between estimating costs and sharing them with the market. This will help ensure that they remain accurate and are not affected by changes in currencies or market rates.
You can estimate the cost of delivering a product or service by:
- looking at available data on procurement and contracts
- asking buyers what they paid for similar product or services
- forecasting how much a service should cost a supplier to provide
- calculating the ‘whole life cost’
For example, if you wanted to use an external supplier for your IT helpdesk you could forecast the expenses they would incur for office space, technology and salaries. This should then give you an appropriate figure that will help you evaluate bids.
Calculating the ‘whole life cost’ should include:
- the initial outlay in buying a product or service
- the time, costs and expertise required to switch from one technology or provider to another (at the beginning and end of a contract)
- ongoing subscription or licence costs
- additional technical support services
Forecasting can be sped up significantly by using electronic procurement or ‘e-Procurement’ tools which store available data on past and current procurements.
Once you have a firm idea of the what a product or service should cost you will be able to:
- verify that funds are available from budget holders
- consider combining or splitting up procurements where appropriate
- share your budget openly with suppliers and the public
- spot uncompetitive bids during the evaluation phase
You should avoid significant delays between estimating costs and sharing them with the market. This will help ensure that they remain accurate and are not affected by changes in currencies or market rates.
Do's and don'ts
Do
-
forecast what a product should cost before money is spent
-
share budget data openly to promote competition and transparency
-
consider using e-Procurement tools to plan budgets and control spending
Don't
-
do not allow significant delays between estimating costs and advertising an opportunity
Do
- forecast what a product should cost before money is spent
- share budget data openly to promote competition and transparency
- consider using e-Procurement tools to plan budgets and control spending
Don't
- do not allow significant delays between estimating costs and advertising an opportunity