ABSTRACT
RISK/OPPORTUNITY The factors to be taken into account when gauging the possibility of the Estimator's prediction of cost being inadequate or excessive are given in Part 2. Clearly it is considered in parallel with profit and it is not possible to give any indicative guidance on the level of adjustment that might result. For the purpose of a preliminary estimate, it is suggested that no adjustment is made to the costs generated by the other parts of this book. At the same time as making a general appraisal of risk/opportunity, management will look at major quantities and may suggest amendments to the unit rates proposed. HEAD OFFICE OVERHEADS An addition needs to be made to the net estimate to cover all costs incurred in operating the central services provided by head office. Apart from general management and accountancy, this will normally include the departments dealing with: estimating planning and design purchasing surveying insurance wages and bonus site safety. The appropriate addition varies with the extent of services provided centrally, rather than on site, and with size of organisation, but a range of 4% to 8% on turnover would cover most circumstances. Some organisations would include finance costs with head office overheads, as a general charge to the company, but for the purposes of this book finance costs are treated separately (see below). PROFIT Obviously, the level of profit is governed by the degree of competition applicable to the job - which is in turn a function of the industry's current workload. Again, the appropriate addition is highly variable, but for the purposes of a preliminary estimate an addition of 2% to 5% onto nett turnover is suggested. FINANCE COSTS - ASSESSMENT OF CONTRACT INVESTMENT The following procedure may be followed to give an indication of the average amount of capital investment required to finance the contract. It must be emphasised that this method will not give an accurate investment as this can only be done by preparing a detailed cash flow related to the programme for the contract. The example is based on the same theoretical contract used for the worked example in Part 2 and should be read in conjunction with the Tender Summary that follows. The average monthly income must first be assessed. This is done by deducting from the Tender total the contingency items and those items for which immediate payment is necessary.
