Estimating is fortune telling. When we estimate how long something will take or how much it will cost or how much resource will be needed, we are using the best information available to us and our experience to predict what is required for an event, activity or deliverable before we begin. This is self-evident, particularly when we see it in writing, but it belies assumptions that we usually fail to account for in the way we estimate or plan.
Since estimating is an attempt to predict a future event, it will never be done with consistent accuracy, and yet we often present our estimates to our stakeholders as if they were clear facts. The problem in this situation revolves around management of stakeholder expectations and engagement. We use the best information available, we rely on those who know the most about the work being estimated, we labor to produce the best possible estimate we can, and we deliver it to our stakeholders. The process is correct, but we make the same mistake that we lament during project initiation when the key stakeholders describe the project to us but neglect to give us all the pertinent and relevant details. We assume that all of the work and all of the information we considered in developing the estimate is intrinsically evident in the estimate itself. The problem is that what is obvious to us because of all the effort exerted in the development of the estimate is rarely obvious to others uninvolved in the estimation process.
Usually there is nothing wrong with the processes we use to develop estimates. Problems develop in the way we communicate those estimates to our stakeholders. Everyone knows when directly questioned that it is not reasonable to expect accurate estimates. But when we put our estimates into the project plan, document them in writing, justify and defend them in our effort to get our plan approved, we create a false sense of certitude that leads to stakeholder expectations that the estimates in our plan are fact, and deviations are the result of poor planning, or worse yet, poor performance by the project manager and team. The challenge is to keep stakeholder expectations aligned with the realities we know form the basis of our estimates.
Always talk about project estimates in quantitative terms.
Obviously we estimate a quantity of time, resource or cost, but when discussing estimates, we must also remember to talk about the basis of our estimates in quantitative terms. We should never present an estimate without also describing the context for that estimate, the sources of information used to develop the estimates, and our confidence in the estimate.
Describe the estimating horizon.
The reliability of any estimate is related to the potential unknowns, which in turn is related to how far into the future the estimate reaches. We need to make sure that our stakeholders understand that our estimate for the end of the project and our estimate for the next reporting period are not equivalent quality estimates.
Establish the margin of error surrounding the estimate.
There are many sources of information that suggest general margins of error for various levels of estimates. We should use these resources to help us establish and describe the reasonable level of variability associated with our estimates. For example:
- Rough Order of Magnitude or ROM (Class 5): -50 to +150%
- Order of Magnitude (Class 5): -40 to +100%
- Budget or working (Class 3): -25 to +50%
- Definitive (Class 1): -10 to +20%
Establish the current level of confidence in the estimate.
Though the size of the margin of error range suggests how much confidence we can have in an estimate, we should still communicate a level of confidence to our stakeholders. Obviously the broader the range of variability, the less confident we are about the estimate. Common levels of expressed confidence include 10 percent (applicable to ROM or order of magnitude estimates), 50 percent (applicable to budget or working estimates) and 90 percent (usually reserved for definitive estimates).
We should review and update our estimates systematically, which means we should continuously refine the estimates within the near-term planning horizon to ensure that class 5 estimates are not used as the basis for work that is well known and well understood. We should also communicate frequently with our stakeholders about our current estimates: how they have changed, why they have changed, and an explanation of the updated basis for the estimates. Providing this kind of information will help stakeholders better understand what impacts the quality of project estimates, why they will necessarily change over the life of the project, and improve the comparison between our plan estimates and actual performance. In estimating, as in all of project management, communication is the key to effectively managing stakeholder expectations, and ultimately delivering results that meet expectations.