In last week’s blog on estimating complex projects, I discussed the first three conversations that are important to have when you are estimating projects or activities. This blog covers the other three conversations. These conversations may be somewhat iterative. You may learn something as you progress through them that might cause you to circle back to an earlier question to make sure you aren’t missing something.
Who is the best person(s) to do the estimating?
There are multiple options on this one that depend on the kind of project you’re working on and what your team is like. One option is to have the person doing the work estimate how long it will take. This works well when you’re looking at a small amount of work that one person can do in the foreseeable future.
Another option is to have the team do the estimate. One major benefit to having the team do the estimate is that it increases commitment to any agreed upon timelines and budgets.
A third option is to have a professional estimator do the estimation. This is often used in construction work, though law firms seem to be experimenting in this area too. Professional estimators typically have years of experience and perspective. It should not be an entry-level field. If you’re the client, you might want to ask about the experience of the estimator.
The right answer depends on a number of things, including the size of the work package, whether one person can actually do the work, and the price and schedule sensitivity of the client.
What process should be used to do the estimating?
This may be one of the best questions to discuss, particularly in a larger project that must be completed in its entirety. After all, we can talk about adding value in every sprint, but what good is a new house without the roof, walls, wiring, and appliances? In construction work, we simply must complete the project, and cost overruns and schedule delays are rarely received well.
What are the options for estimating a project? Many teams will combine aspects of the following approaches to create something that works for them. Don’t be afraid to have this conversation, particularly if you have limited resources and are relying on the estimate.
- Expert judgment – This is certainly used frequently, and often times quite successfully. I’m cautious when this is the first answer I hear and when no other useful guidance is provided. The outcome depends entirely on how much of an expert the estimator is.
- Parametric estimating – This refers to the use of formulas to calculate estimates based on historical data. A simple example might be that new construction in a particular neighborhood typically runs $200 square foot. So, a 3,000 square foot house would cost $600,000. Parametric estimating is often a starting point but depending on the type of project, it may or may not be very accurate.
- Analogous estimating – This is typically a high-level approach for estimating a project based on the historical experience with a similar matter.
- Bottom-up estimating – Bottom-up estimating starts at the activity or work-package level and estimates the cost or duration of each activity in the project. Typically, estimating smaller blocks of work is more accurate than estimating larger blocks, but it does take more time. I have written before on how to break a project down. The goal is to break the project down into discrete blocks of work that provide value.
- Three-point estimating – Three-point estimating is often used to improve the accuracy of a single-point estimate. The most often used technique here is the PERT formula – (MPE + MOE + 4*MRE)6 – where MPE is the most pessimistic estimate or worst case scenario, MOE is the most optimistic estimate or the best case scenario, and MRE is the most realistic estimate.
- Group decision-making techniques – The Agile community has introduced a number of new group decision-making techniques in recent years, for example, planning poker or the bucket system. Many of these techniques have been designed to reduce gridlock caused by multiple opinions and cut the time spent estimating.
How does complexity impact the estimating process?
There is no question that some estimates are more complex than others. To start the conversation, it is important to understand the scope and quality of work desired, and the number of people involved in the activity, including the number of people who have to sign off on the ultimate product.
If the project or activity is to create an onboarding process for new employees, and the deliverable is a manual that describes the process and a training video, it is imperative to understand what that means and how many people will need to approve the final deliverables. Does the training video require test questions that are scored? Is the work being outsourced to a media production company or done in-house with Powtoons? Is the manual simply a PDF file that will reside on the company server, or is it a fancy book that will be given to new hires? The larger the number of people, the longer this activity will take.
Another facet of complexity is whether there is any logic that can be applied to the estimation process. If you are creating a new drug to treat a recently identified disease, there will simply be less historical precedent, and few algorithms that can be used to logically predict how long the different pieces of work will take.
If your organization is undergoing a new strategic planning process, you may have some data on the time that the process took the last time, but is that data valid with the new team and the changes that have taken place in your industry and organization? The challenge is to understand when it is valuable to use historical data and when starting over might be a better approach.
Consider the time complexity of the project. We work in an environment of increasing and rapid change. This makes longer projects more complex. Estimates have a finite lifespan, though no one can say for sure what that limit is. Be careful about relying on estimates for work that is too far into the future.
Every organization has to decide what its cost and schedule sensitivity is. Governments and large enterprises often have very stringent procurement policies for new projects. The time spent on estimating a project needs to be commensurate with the size of the project and the sensitivity of the client. No two clients are alike. So, ask the client how sensitive they are to price and schedule variances and come up with an approach that makes sense. You will need to weigh the benefits of the team commitment that often comes with team estimating against the cost of utilizing an entire team for that task.
Need help estimating complex projects? I’m happy to chat with you. Give me a call, or sign up for the Smart Projex weekly newsletter.