Friday, 16 May 2014

The Pitfalls of Project Estimating and How to Avoid Them

Estimating is undoubtedly one of the most complex tasks in project management. There are various, damning statistics published on the failure of projects to deliver within time and/or cost and suffice to say they don’t look good. This fact remains despite the various tools and techniques at the project manager’s disposal. The list of pitfalls below is neither exhaustive nor a panacea to answering all of your estimating challenges; rather, it’s a checklist that you should keep in mind when planning and estimating.

One scenario that cannot be reconciled by the advice below is where a high level guess is made by management and expected to be adhered to without more detailed scoping and activity planning. This top-down approach can often be aligned to the "just do it" (JDI) approach – "here’s your budget, JDI". You reply, "But what about, but what about, but what about..." At this point you receive some great advice: "work harder, work smarter, work faster" Sorry, but I can’t help you there. Just remember: if any of your constraints are not balanced, then something’s gotta give.

Pitfall 1: Uninformed or partially informed Guessing or Ball parking. How much will it cost to build a five-bedroom house? The answer is, it depends:

  • What is in scope?
  • What size does the house need to be?
  • Does it include landscaping the garden?
  • Does the project include decorating and light fittings and, and…?"

Whilst all of this may seem obvious, accurate estimates are reliant upon sufficient understanding of the requirements. Be especially careful when you hear the words, "give me a ballpark now, I won’t hold you to it" – get this in writing!!! I must admit to having asked for ballparks on many occasions both for projects and in home life. I recently asked several builders how much it would cost to build a 2-storey extension of X square feet. However, when I ask for a ballpark, I accept that this is based on a very loose specification but at least it provides me with a range of figures to enable me to make an initial decision on whether to investigate further. Let’s be honest, it is also not easy to hold a builder to an estimate.
As Pitfall 2 points out, one peril of project estimation can get down to not just the customer's explanation of what they want, and the project manager's true understanding of what they actually need.

Pitfall 2: Failure to help the customer define what they want and how much they are willing to spend. Many customers have a high level understanding of what they want but are not always able to articulate the detail of what they want or more precisely what they need. It is one of the project manager’s responsibilities to help the customer to define what they want/need. The definition of requirements needs to be coupled with how much the customer is willing to spend. It would be nice to hear, "money is no object" but this is extremely rare if not non-existent. Therefore, there is no point defining the building of an ocean liner when the customer is only willing to pay for a dinghy. I have seen the results of a detailed tender which took many man hours, only to discover that the customer’s budget was a fraction of what the scope covered by the tender would have cost.

Pitfall 3: Misunderstanding quotes and estimates. A quote is a fixed price whereas an estimate is an approximation. Where a customer asks for a quote, it is essential to ensure that you fully understand what you are quoting for. In the example of the five-bedroom house above, we would need to know, amongst many, many other things, if the quote should include the decorating, landscaping of the garden and much more. So often, fixed-price contracts are agreed without sufficient investigation and definition of the requirements. Significant caution should be applied especially where you or your organisation are keen to win business. In this instance it is imperative you spend a little more time detailing and agreeing the scope at the start. The additional time spent up front could save you from a loss making project later. I have been involved in projects where the scope was not sufficiently defined and ended up costing us considerably more than it should have.

Pitfall 4: Not identifying the activities/tasks. Larger projects are very difficult to plan in detail at the start. Where this is the case it is important for all parties to understand that the margins for error are greater and therefore, the more change control and wiggle-room or tolerance that is required. Remember, the more you can break down the activities the more accurate your estimates will be. One of the biggest mistakes made is in failing to identify project management activities required to deliver the project. This includes not only the Project Managers activities but those of the teams such as reporting progress, meetings, phone calls and emails. Consider researching Maximum Available Productivity (MAP) to get a better understanding of how much of a day is spent on project work and how much on other tasks. I was involved in a project where the customer was a global organisations and the business we did with them very important to the company. Prior to joining the project a fixed-price had been agreed. The deliverables had not been sufficiently defined and so what may have been initially envisaged and what the customer wanted were a little out of sync. In addition, whilst the key stakeholder was great to deal with, they were very particular and would ask for multiple minor changes after the initial review rounds. Some would only take an hour or so but when you add in the emails, phone calls, meetings, reformatting and other activities, it adds up to quite a significant number of days.

Pitfall 5: Good Padding and Bad Padding. Before you shout, "no, padding should be allowed, it is always bad", let me clarify what I mean. Good padding is taking into account activities that do not easily sit on a projects schedule and that these need to be allowed for when estimating. Bad padding is where a PM automatically adds time so as to come under budget knowing that the quote is excessively padded. Whilst this may work on one or two projects you will eventually get caught out. I am usually a cautious PM as previous experience has shown me that to immediately agree to time and cost estimates without fully understanding each deliverable and the tasks, is at best poor and for experienced project manager's, dare I say it, unprofessional. This pitfall should be considered with almost all of the other pitfalls in this post.

Pitfall 6: Failure to learn lessons. I think it is fair to say that there are many project managers that research lessons from similar past projects. However, in my experience, sadly these are in the minority. It is imperative that you look to lessons learned from similar past projects to ensure that you learn not only estimating errors but other issues that you may be able to avoid and that will save you time and money. Learning lessons is equally important during your project, especially if it is a long and/or a multi-staged project. Lessons from earlier work can be applied to estimating future tasks to ensure improved accuracy. I have worked for companies that make the same mistake time after time and wonder why there projects are always over time and budget.

Pitfall 7: Not knowing a reasonable cost. There may be elements of work on the project hat are unfamiliar to you and your team and that require the services of an external supplier. Where this is the case, you need to ensure you do your homework and know what a fair rate is. I was looking on eBay recently for fuel containers, and was amazed at how the price differed for precisely the same container. The lowest price was £9.99 and the highest £29.99. I am serious, this was for exactly the same product.

Pitfall 8: Failing to include the subject matter expert (SME). It is essential to include the SME when estimating. After all, they will be the ones that know the work or managing the work and therefore, their invaluable experience is a crucial input when planning and preparing estimates. I have experienced both the good and the bad. In one organisation I worked for, bids from sales would include input from the experienced project manager and SMEs to ensure an accurate quote was provided. In other organisations, the sales and other management have decided on a time and cost without full consultation with the SME. This actually resulted in the deliverables taking longer and ultimately costing the supplier more money. One reason for this may be that their ego dictates that they should know. Why should they know? A manger will not always understand the minutia to create a deliverable and should make the use of the experience of their team. Good managers and leaders understand that no one has a monopoly on ideas and utilises and publicises ideas from within their team.

Pitfall 9: Failing to allow for bias, pessimistic and optimistic. The project manager needs to be aware of their own bias and that of management and the project team. Pessimistic bias is where an individual tends to add additional time as they always consider it will take more time or something will go wrong. Let's not malign this character too readily. They often have valid reasons for this approach, most likely gained form the experience of the JDI approach mentioned above or they can see vast chasms in the detailing of the scope. This needs to be balanced against the Optimistic bias or "rose coloured spectacles". This happy-go-lucky character tends to believe that everything is easy or simple and that more can be achieved than is realistic. An example is where an SME is asked how long it will take to perform a number of activities. They quote based on them performing the task and in perfect conditions, without considering the experience of the individual(s) involved in performing the task. The most dangerous of the optimists are those that want to be seen to have a "can do attitude". A "can do attitude" is essential for a project manager, but as with many of these thrown-around terms, it needs to be balanced with realism. I recall one particular colleague that would always say, "Oh, I can knock that up in a couple of days". Whilst this was occasionally achieved, it was rare for the original estimate to be met. They also had a high sick rate without having any specific medical condition. There is also the poor soul who wants to impress and so underquotes with the intention of working almost 24/7. Invariably, this person will burn out and again watch their sick record.

In conclusion, estimating is a tough challenge. This post is not intended to cover all potential estimating pitfalls, but does provide you with a list of what I have found to be some of the main problems in estimating. Keep these in mind and with the use of this advice and the right estimating techniques and tools, I am convinced your estimating will improve.

Derek Bland is Project Management Consultant & Trainer at p3m global. His experience includes consultancy on design and delivery of bespoke Project Management methods, conducting Project Audits and advising PMs on best practice improvements. As a trainer, Derek has worked in PRINCE2 and MSP environments and delivered on a variety of project management courses.