There have been countless articles written on why many projects go over budget and beyond their implementation date. We tend to blame familiar issues with communication, requirements, skills, project management and scope creep among other things. But there is a key assumption slipped into the argument that is often missed. For a project to be over budget or past due, an initial estimate had to be created and this estimate was wrong.
This simplicity is complicated by the differing understandings of how to answer the question, “What is the project’s estimate?” There are many project managers that will immediately provide a dollar amount. Others will provide a time range. Neither of these common types of answers provide a true estimate or the context required to know if your project has been estimated properly.
An estimate is foundationally a level of effort. How that effort is resourced (cost) and sequenced (time) are two downstream questions that are predicated on determining the correct level of effort. This is fundamental regardless of your approach to delivery.
To determine the work effort required, the scope of the project must be defined using objective estimating factors. These factors are key assumptions providing a factual baseline. For example, it is not enough to know that interviews will be conducted. How many interviews are needed? If a system will be built, how many modules of code are expected and how complex will they be? Work effort is assigned to each of these factors across all relevant phases of the project. A high level estimate considers fewer factors than a detailed estimate. The more granular and well defined the estimating factors, the better the work effort estimate will be.
Once a work effort has been determined, only then can a cost and timeline (schedule) be attached. The labor price requires careful resourcing and knowledge of the cost of the resources, a key assumption.
Similarly, the time line should be based on the availability of resources and the critical path of known dependencies.
Finally, a list of all critical risks should be created. These risks will directly affect the project’s effort, cost and schedule. While a blanket 15-20% contingency can be added for unplanned tasks and inability to meet budget, a factual way is to assign specific effort, cost and schedule contingency to each risk and add this to the overall estimate. For example, a critical risk might require a team to complete200 hours more work (effort), be an additional external expense (cost) and create a two week delay (schedule). This real effort, cost and timeline impact is part of the core estimate.
It can’t be ignored that an initial project estimate is often viewed by leadership as costing too much and taking too long. Project managers are consistently asked for a lower a cost and/or a different delivery date. A justifiable effort based estimate, using estimating factors should facilitate a factual discussion on scope or specific mitigating actions versus attempting to cut an estimate based on a gut feeling.
Estimating is as fundamental to delivery as is the disciplined use of a methodology and effective project planning and management. The next time you wonder why a project is over budget or missing its delivery date, start with a detailed review of the estimate. You may be surprised at what you find (or don’t find).