The Real Estimating Challenge Isn’t Calculating the Cost

 

By Lynda Bourne

Calculating a project cost estimate is the easy bit. Having the estimate accepted by either a client or your management—or both—and then delivering your project on budget is far more difficult.

The technical processes involved in developing a realistic and achievable estimate are well-defined in standards and guides such as the Practice Standard for Project Estimating - Second Edition. But, after the development of this cost baseline, every project faces two challenges: The first is dealing with the uncertainty associated with every estimate and developing an adequate (but not excessive) contingency to cover the known uncertainties. The second is having the estimate accepted to allow the project to proceed.

There are three interlinked issues that can lead to non-acceptance of the estimate:

1. Unrealistic expectations about what the cost should be on the part of the person paying, which is usually linked to a lack of trust in the person presenting the estimate.
2. Unwillingness on the part of the person paying to accept the fact that every estimate contains a degree of uncertainty and placing undue emphasis on a “guaranteed” price without any form of contingency.
3. A lack of confidence, skill and/or communication ability on the part of the person/team delivering the estimate.

Over many years, I have found any idiot can produce a winning bid or cut costs in a business case to get the project accepted, and then lose money doing the work. The work of Bent Flyvbjerg, professor of major programme management at Oxford University's Saïd Business School, would suggest that this is almost traditional in the accepted costs for megaprojects. But, under-pricing work to get the project started is hardly ethical, and likely to be career-limiting in the long run.

I’ve also noticed smart clients understand that an unrealistically low bid will cost them dearly in the long term due to diminished quality, excessive claims and/or the cost of dealing with a failed project. Unfortunately, smart clients are in the minority. But if it were your money and project at stake, would you want a client who puts the short-term expediency of a cheap price ahead of achieving value? Starting an under-priced project and attempting to cut costs to meet budget constraints almost always drives down quality and drives up costs over time.

There’s a well-known business quote, often attributed to John Ruskin: "There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey. It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money—that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.”

The antidote to these challenges is having the skills needed to develop a sound estimate that has a reasonable prospect of allowing the project to be delivered on budget, having the confidence to stand by the estimate and to justify the costs, and, most important of all, having the communication and stakeholder engagement skills needed to sell the estimate to either your client or your manager. 

The factors underpinning your engagement and communication capabilities include:

• Your credibility. The people you are communicating with need to know you are competent, honest and reliable. Their perceptions are vital.
• Your stakeholder assessment skills. Determine who is really important in the decision-making processes and what their real objectives and interests are. This understanding is vital in helping you develop a proposal that can be accepted.
• Your ability to communicate complex information. There is usually a lot more to a project proposal or business case than just the cost. Decision makers need to understand the benefits of the proposal and feel confident you can look after their interests. You must be able to communicate this plan effectively to different audiences.

Each of these elements work together to help you get good project proposals accepted. They also help you help your managers abandon projects that do not add value. If the project does not stack up at the proper price, it should not be funded.

How do you go about selling your good project proposals?