Project Management in Practice

Beyond the alphabet soup of PRINCE2, MSP, MoP, PMBOK, ITIL, Agile

Tag Archives: estimate

How much do you think it’ll cost?

How many times have you heard that? “Oh, I’m not going to hold you to this, but just a ball park figure?” Sounds even more familiar? And now the clincher, “You know our systems, surely you have an idea.” Trying to answer this sort of question from the client too soon causes enormous headaches in projects.

Cost is something that is never a black and white answer. Cost of the same project will differ markedly depending on what technology and process choices you make, what functional and non-functional standards you sign up to, how much of the subject matter expertise your clients are willing to provide to the project team and even some mundane things like what time of year you want the project to be implemented. A cost estimate therefore must accompany the scope, assumptions and conditions that it is based upon.

Many times you will have technical staff working with clients that will be put on the spot by these kinds of questions. They will have the best interest of the client and their own organisations by trying to answer the question. Unfortunately, this sets the expectation of cost from the client’s point of view. Some of the technical staff may be very skilled in their own responsibilities, but may lack the full project life cycle knowledge. Therefore the risk of underestimating or completely missing required activities is high.

In all likelihood the client has not had the time to frame what it is that they want. If they have a figure to go by, they will form the scope in due course and wrap that around the figure. This happens inevitably, even if there is significant gap between any cost figures you may have provided and when they had the time to form scope. There may not be any malice involved at all. This is how we as human beings operate – piece together bits of information to build the picture.

If you try to reset the expectations of the client at this point, it is tricky. There is always a chance to give the impression that now that they are interested, you are trying to squeeze them. Chance to set the correct expectation has long gone. By trying to be helpful, you have a situation on your hands.

You may come up with the same situation with your sales staff as well. They may be the ones that are responsible for communicating costs to your customers. Your challenges will be equally as pronounced if they miss the caveats. There is a fine balance between the cost appetite a customer has and the benefits they wish to gain from a project. In the quest of landing a sale you should not set a project up for failure. If the project is a keenly desired one for which your organisation is happy to make a loss on, then your management must be in a position to knowingly take the risk on. This should not come as a surprise during the project.

How can you go about ensuring the correct expectations at the outset? The first thing I make a policy on is to never provide estimates on the spot. I have only seen bad outcomes in trying to do that. Have standard estimating methodologies that you follow. The methodology may be different depending on the type of project you are managing – i.e. software development, construction, policy development etc. But there must be a methodology. Document the risks, assumptions and constraints that accompany the particular estimate. This way once the customer has had the time to think of the whole solution and the cost is different than the first one you provided, you can have an open and honest discussion on why that has transpired. This must extend to the whole team. Train them to tell the client that they will take the information back and follow up with an estimate.

First impressions do last long with customers – especially when costs and timelines are involved.

How do I know if my project is going well?

Cost Variance

What is the main job as a project manager? If you go by the PRINCE2 manual, it will tell you my job is to control the 6 parameters in a project – time, cost, quality, scope, risk and benefit. Let’s look a bit deeper.

Schedule Variance

In most cases, unless you are part of a portfolio of projects, most likely you as a project manager won’t be responsible for the benefits realisation. This is there to ensure the project is always concerned with delivering to the business case as closely as possible. With risks you can plan and have management strategies and specific budgets. If it is outside your tolerance levels, you have the project board to get direction from. You can tightly control scope through the mechanism set out for your project – either the project board itself or a designated change authority. Quality management is one area where PRINCE2 is quite prescriptive and actually provides a mechanism.

When you think about it closely, the two things that will set you apart as a project manager is on time, on budget delivery. Usually most project boards are willing to consider some amount of off-specification or compromise on quality. When time is impacted, you cannot bring the project back to equilibrium without compromising one of cost, quality, scope or quality.

Cost Performance Indicator (CPI)

Schedule Performance Indicator (SPI)

Where you or the project board may need to compromise may depend on how far the project is likely to be delayed and what the projected cost will be under the current scope and quality. It is very easy to know that the project is 2 weeks behind. Does that mean that the project will be delivered only 2 weeks later than scheduled? If you delve down into the reasons for the delay, the most likely causes are underestimating efforts or risks. It is more likely rest of the project will follow the delay pattern you’re seeing than what you had originally planned. So how do you measure the most likely completion date and cost?

Project Health

This is where Earned Value Analysis (EVA) plays a huge role. In your role in monitoring project progress, reviewing this pattern is critical. Say you are part of the way through a project. So far you have completed work that you had planned 758.55 hours to complete. In fact it has taken you an additional 34.70 hours to achieve this. This is your schedule variance. It is obvious that you’re spending more than what you planned. This on its own does not necessarily indicate the project is in trouble. In fact, the reason you may be producing the additional output may be because you are significantly ahead of schedule. Using less hours is also not necessarily an indication of being on track. You may be burning less hours than planned and as a result falling further behind in your project.

Project Health Over Time

To get a better sense of this, compare how much of the schedule you expected to be through at the current date. In the project I am using to illustrate, I had expected to complete about 786 hours of earned value (completed tasks). This tells me I am also behind on schedule. How far ahead or behind schedule and cost I am can easily be calculated by calculating the SPI and CPI indicators. If you multiply the two, you get an accurate reflection of where your project is. In my case here, I’m slightly behind on both cost and schedule.

CPI is critical to forecast what your likely final cost would be, based on current status of the projects. The fact that the estimates in the project so far has been slightly less than what it has taken to implement them, means the other estimates are also out. Plot the project health indicators each time you monitor progress. It will very quickly give you a feel for the status. Any single week’s assessment may not give you an accurate reflection of where you are.

Estimated Final Cost

Project estimates, especially in software development, is an art rather than science. If you get within 5% of time and cost, I think you have been successful. Therefore, I consider anything around 0.95 x 0.95 = 0.9 to be around the low side of acceptable result. Ideally you are not out by 5% on both counts. A project health score of 0.95 would be an outstanding achievement. How do I calculate what the likely final cost is? Divide the original planned cost by the current CPI. Based on current rate, this is what the final cost will be. Estimating final scheduled delivery is slightly more complex, as you have to consider the critical path. If the progress is ahead of schedule in tasks outside the critical path, in reality you won’t gain any schedule reduction.

The most crucial part of a project manager’s job is to ensure professional management of the project itself. The key to achieving this is ensuring anyone responsible for making decisions about the project is fully aware of how the project is progressing. Something running behind schedule and cost should not come as a surprise near the end of the project.

%d bloggers like this: