Demystify Project Estimating with 3 Simple Steps
How many times have you been asked the question “It’s going to take you how long?” when you present a basis of estimate for a given project? Regardless of whether it is your customer or a fellow manager, the conversation is often the same. As the expert who is scoping the project, your expectation is that it will require a significant amount of work and a variety of specific tasks to be performed. From the perspective of the other party – the non-expert – the tendency is to oversimplify the effort down to about 30% of your initial numbers.
In order to produce a robust financial model of costs, it is necessary to accurately predict the level of effort required to do the job. We recommend using a very simple sequence of 3 steps to help you generate more accurate and reasonable project estimates.
Step 1: The Gut Check – Once all requirements and deliverables are understood, the first step in the process is to make a high level guess for the effort you believe the project will require. For example, as the project manager, you may estimate that the project will demand four people for six month as a first estimate. Why is this guess important? The initial guess serves as a means of helping you determine how well you truly understand the project and deliverables. If you cannot come up with a reasonable explanation for what you expect the level of effort to be due to a number of unknowns, you may need to review the project goals and requirements.
Further, if you find yourself speculating over a variety of scenarios that may or may not occur, revisit the requirements to ensure you understand what is being asked of you. Speak with the customer if you need clarification. The value of the guess in Step 1 is not so much important as the confidence with which you feel your estimate is notionally correct.
Step 2: The Data – Data driven decision making is a project manager’s best friend. The underlying rule in estimating a project’s level of efort is to recognize that a project is comprised of a series of tasks. By deconstructing the project into smaller tasks and the steps, a more accurate prediction of costs is possible.
The goal of this activity is to create a bottoms-up approach that forces you to systematically think through the required activities so that you can arrive at an estimate. As shown in the figure below, list out all the various activities and consider the amount of energy and costs each activity will take. By summing the various pieces, a total cost can be computed. A full sample template for project estimating can be found on our tools and templates page.
As a simple example, consider a project for which you anticipated a required effort of 3,000 hours from Step 1. When presenting this basic number to a customer, for example, it can easily be challenged and questioned if there is minimal data to back up your number. As a result, you may settle on 2,000 hour based on some quick negotiation.
In contrast, if you create a simple yet comprehensive list of activities such as that shown in the figure above, your estimate may arrive at 2,862 hours. When you meet with the customer in this scenario, you are still likely to be challenged on your estimate. This time, however, having the data to substantiate the level of effort forces others to critique the individual tasks, and not the work package of work as a whole.
Continuing, a customer may take issue with 125 hours of work you estimate is required to create a final project report. You may agree to get it done in 100 hours. In doing so, though, you are getting the other party to acknowledge that the work is required and must be accounted for as part of the total estimate. A comprehensive review of tasks helps all parties remain objective.
Step 3: The Calibration – The final step in putting together a sound project estimate is to calibrate the effort and hours you compiled against historic examples of similar projects. Find an example of a comparable project to which you can compare your estimate. Are they reasonable? Can you rationalize the differences?
To this end, even if you do not have a previous project that is close in magnitude, you can still calibrate the estimate you have just created in Step 2. Consider the scope. If the effort you are planning is less in hours and costs than what was actually required for the last project, you may want to verify that the scope is in fact less than before. Conversely, if the previous project was significantly less in terms of effort, verify that your estimate for the new project exceeds the prior effort.
Calibration is the activity where you use historical data from other projects as a means of grounding your bottom-up estimate. It is typical for others to ask how this project compares to prior efforts, so it is good practice to have already addressed the question yourself. Step 3 will ensure you are using a robust data-driven decision making process for outlining the required level of effort and costs with a new project. Once you have completed all three steps, you will have confidence in your estimate and will be able to back it up with supporting data.