Categories: Business
A junior project coordinator in my team raised this question some time back – “How can I provide an accurate estimate of the project cost when I don’t have much information on the project?” This seemingly simple question had actually gotten several old-timers in the room dumbfounded. Not that it is hard to find an answer to it, but the fact that we are trying too hard to find the answer is where the problem lies. We need to learn to make appropriate assumptions and set the right expectation, and communicate out appropriately. It is not uncommon for us to receive a call or email from someone in another department requesting a cost estimate on a project initiative (consider yourself lucky if you do get a half-page description on it). Some of you would probably rush in immediately spending hours and days using some of the most complicated tools to get the right figures for the cost estimate only to find yourself stuck with the question above.
During the early stage of project initiatives screening, we want to provide senior management with cost estimate that is as accurate as possible to avoid overestimation that often results in the project being dropped or underestimation that causes overblown of budget during project execution. The fact is we can’t provide accurate estimate on the cost if the information we have in hands is limited. Yet, it is not justifiable for us to invest too much time and effort into gathering information that we need for cost estimation if the project has not been approved. Isn’t this ironical? I believe many of you should have encountered this awkward Catch-22 experience before while managing your projects. Below are a few tips to help you to get along if you are caught in a similar situation again.
- Avoid analysis of paralysis: Let’s be realistic. You won’t be able to get an accurate cost estimate if you don’t even have the detailed requirements of the project scoped up. You need to understand and work around the constraints. There are various types of cost estimate that you can provide, each targeted at a different precision of accuracy, depending on the amount of information you have on the project requirements. It just does not make sense stressing yourself and burning your nights to come up with a cost estimate that will become outdated the moment it leaves your outbox.
- Make appropriate assumptions: Just as you have to avoid analysis of paralysis, you need to learn to make a few valid assumptions to move on. There is nothing wrong in making assumptions when you are working on the cost estimate with the limited information you have as long as the assumptions made and associated variances are clearly stated. Here is the catch – do not assume that your stakeholders are aware of the assumptions you have made.
- Set the right expectation: Make sure your stakeholders are aware of the differences between guesstimate and estimate. Let them know that guesstimate is just a ballpark figure on the cost of the project and they should not take it as the final amount as it will be adjusted when the project requirements are finalized with more information becomes available. It is also a good practice to associate your estimate with a validity date so that people will know when and what to look for.
- It is a continuous process: Many people say that you will never know how much a project will cost until it is completed. Quite true, but this should not give you a reason not to get your cost estimate earlier even if it is just guesstimate. Both you and your stakeholders should understand that cost estimation is never a one-time activity and the initial estimate will not last you till the end of your project. It is a continuous process that needs to be conducted iteratively at different stages in the project lifecycle and reviewed together with the stakeholders.
- Buffer is nice, padding is bad: Someone once told me that it is common to have buffer but not padding in cost estimation. Not bad, we are playing with words. The problem is we keep using these two words interchangeably in projects when they actually represent different things altogether. Paddings are usually added by task estimators ‘illegally’ without the knowledge of the project manager that will eventually float up and bloat up the entire estimated cost. Buffers, on the other hand, are ‘legitimately’ added by the project manager after considering all possible costs in order to provide allowances for unforeseen changes. Let’s admit it. When tasked to give an estimate on something vague, most people are tempted to add extra allowances into the calculations to secure themselves a bailout card in case the actual cost turns out to be more. Make sure you eliminate all those hidden paddings before they eliminate your project from the selection list due to overblown cost.
