“Measure twice, cut once” is an adage used by many of my friends in the building business. There’s wisdom in these words. They are basically saying that it’s important to spend more time up front to ensure something is right, rather than having to go back and fix a mistake that was made from a hasty measurement.
That principle holds true for project management as well. It’s important to spend the necessary time during the due diligence and up-front work needed for a project to save lots of time down the road. Nowhere is this more important than when it comes to estimating a project. This is important for a number of reasons:
- Maintains Your Bottom Line: If your company does work for clients on a fixed fee basis then it will be important for your estimates to be accurate in order to maintain your profitability.
“Fixed Fee” Budgets and their close relatives, “Not To Exceed” Budgets are when you scope out the size of the project and then commit to a certain fee or highest amount for the work to be complete.
Regardless of the project management techniques you use, it’s up to you to keep the time that is spent on these projects within these agreed amounts.
What if you can’t? Then typically your company will have to absorb the additional time and expense that is incurred on behalf of the project.
- Few Clients Have Open Checkbooks: It’s important to use project management technology for the sake of the clients budget as well. In the past, you could find a client that was willing to pay on a Time and Materials basis for a project without a clear end in sight.
Those days have changed. Clients no longer have an open checkbook that you can bill time against. They expect an accurate estimate of the amount of money they can expect to pay on this project before they decide to move forward.
- Time is of the Essence: It’s also important to use project management techniques to create accurate estimates, even if funds between companies are not involved.
Let’s say it’s a project that is being done within your organization. There’s no real money that swaps hands, so the budget is not so much of a concern. However, there are very real costs to the resources that will be consumed for such a project. Also, people make their plans around certain dates and commitments around each project.
It’s important to be as accurate as possible when it comes providing these timelines and project delivery dates.
Three Types of Estimates
Estimates are obviously important when it comes to project management. But, all estimates are not created equal. There are basically three major types of estimates. The following is a brief description of each along with its associated pros and cons:
- The Ballpark Estimate: As the name suggests, the ballpark estimate allows for a substantial amount of wiggle room. Think about the size of a ballpark. Then think about your estimate is the baseball. All you need to do is keep that baseball in the ballpark. That means you could throw it as hard as you want and it will most likely stay in the ballpark. You could even hit that ball as hard as you want and it will still stay in the ballpark.
There are very few things you could do that would cause that ball to go out of the ballpark. It’s the same way with a ballpark estimate. The amount of wiggle room could be up to 80%-90% off the original estimate and the estimate would still be in the ballpark!
Why would anyone ever use a ballpark estimate based upon the blatant inaccuracy of using this type of estimate? Because it’s fast. It’s lightning fast. It’s so fast you could be asked how long something will take as you get into the elevator… and by the time it reaches the next floor, you could have generated a ballpark estimate!
But, what good is a ballpark estimate if it is so inaccurate? It may be just enough to give the person an idea that they are in the wrong ballpark. It’s not the fanciest project management technology to use, but it will at least let someone know if something is in the $100,000 ballpark or the $10,000,000 one.
- Order of Magnitude Estimate: The second type of estimate is the order of magnitude estimate. This is where you look at a new project in the context of projects that have already been completed and then say “this one is going to be half as large or 3 times as big.” You would then factor in any areas of complexity, such as using a new technology or integration with an existing system.
This is a useful estimating tool to use. While not as fast as the ballpark estimate, it will allow you to get more of an accurate estimate in a short amount of time…perhaps within a couple of hours. Again, this will not be a rock-solid estimate, but it will at least let someone know if they are in the infield or the outfield, based on the results.
- Detailed Estimate: The detailed estimate, as its name would suggest is just that…detailed. This is where project management technology really can come into play. A detailed estimate is created from a WBS and started from the ground up. You look at every piece of work that has to be done, assign an amount of time to it based upon conversations with Subject Matter Experts… and then add it all up.
This will give you the most accurate estimate possible using project management technology, but, it will also take the longest time possible out of the three types of estimates.
You want to be sure to factor in other time to the detailed estimate including project management work and administrative tasks. Client responsiveness is also something that should be taken into account if you are looking to associate a date with the amount of time that was generated from the bottom up exercise.
Project Management Technology for Creating Estimates
There are a number of project management technology tools you can use for creating estimates.
- WBS Generator: Many packages come with the ability to create a Work Breakdown Structure generator. This will help you get an idea of the scope of the project along with how long you feel each task will take to complete.
- Timesheets: Another project management technology tool you can use to create accurate estimates is to compare timesheets from the past. Pull these time sheets and spend some time analyzing the numbers to see how long a similar project took to complete.
- Review Past Projects: It is good form to archive past projects along with their associated notes and lessons learned. Take the time to pull these old projects out and see what went right, what went wrong, and how close their final number ended up being to the estimate. Use this as a basis for putting your accurate estimates together.
Measure twice, cut once. No truer words have been spoken when it comes to house building. Plus, you can use this principle in estimating your projects to ensure your projects are complete in scope and on a budget.