5 reasons why production estimates are too high

Contractors get new projects through a tendering process, most of the time. Depending on the type of contract this often means you have to provide a total price for the project. Your dredger’s production rate is the major price driver of your complete project. And often it is the most difficult to estimate.

Why is it so difficult to predict how much production a dredging vessel is going to do?

Several contractors and projects I have visited had their production estimates different from realized productions, and most of the time in the negative sense. They overestimated production, once even more than 50% too high. This means serious money is lost and the project is going to take twice as long. When you look at reasons for over estimating, there are several and, frustrating enough, not all of them can be solved.

1. Wrong soil data

Soil investigations are expensive, which is the biggest reason why they are not always undertaken. When they are done the amount of information is always insufficient, or so it seems. There are a few examples where a client left out very negative results on purpose, thereby setting you up to estimate too high.

Some ways to limit your risks when tendering is taking conservative soil data, putting conditions in your offer or execute your own soil investigation.

2. Lack of historical production data

All dredging companies have daily reports. But I have seen quite some examples where it was impossible to get the production data from a project 5 years ago. Reports are either no longer there, only in paper form which makes them next to useless for estimates, or they are impossible to get out of the digital system in a usable form.

Your historical data in the form of daily reports is a gold mine, when it comes to estimating. You can gain so much information from them. When you look at them over a longer time frame you can even derive your own empirical estimating formulas. I can’t stress enough how important it is to have your daily reports available in an accessible form for years to come. A digital database is the best method.

3. Mixing of commercial and production estimating

For smaller dredging companies this is a tricky one. When you are making both the cost estimate, production estimate and the commercial bid you have conflicts of interest. Because the production is such a big influence of the cost of a project it is very tempting to increase your production estimate, thereby lowering the cost of your project, at least on paper.

Your estimate, both production and cost, must be as close as possible to the reality. What a commercial person does with the bidding price is up to him. If you are going to bid for a project at a loss (which sometimes is necessary for strategic reasons) you have to know in advance how big the loss will be, wouldn’t you want to know?

It doesn’t mean you can’t have a healthy discussion on your production estimates, but make sure the person making the commercial bid is not the same one as (or manager of) the person making the production or cost estimate.

4. Lack of theoretical knowledge

This is one of the big reasons for the founding of Strategic Dredging. Many companies don’t know how to calculate the impact of a soil type on the production, or the effect of a longer pipeline on the pumping production and so on.

I often get asked for either simple formulas or graphs for CSD production. The question itself makes clear there is a lack of the theoretical knowledge of dredging.

It is not easy to obtain this information as dredging is a very small niche, so there are few universities or companies where you can follow courses and even on the internet you can’t find a lot of theoretical information with actual calculations. At Strategic Dredging we are changing this, for example with our CSD Production Intensive training.

5. Differences in the soil

Even if you have all soil data, all formulas and all empirical data you want, you are still not able to estimate with 100% accuracy.

Every cubic meter of soil is different from the one next to it. You can’t know the properties of each individual cubic meter.

The reality is always going to be different than your estimate, why do you think it is called an estimate in the first place. Even with a lot of data and detailed calculations your accuracy will be plus or minus 10%!
That’s right, even with everything there is to know there is a huge margin of error.
It doesn’t mean you shouldn’t make an estimate, you still want to know the expected productions. Include a risk margin in your financial bids.

Of course, you don’t have any of the above problems, right? If true, then congratulations, but I challenge you to look behind your first response and see in what way you can help to make your estimates of your company more accurate. Remember, even if all is in place, you are still going to be wrong most of the time. Take this into account when bidding for a project. You must include some margin for risk.

Why were estimates too high in your company and how to prevent it the future? Please let me know in below comment field.

To your long term great results,
Timon Vinke

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