andrew smithPMO Project Manager| Dimensional Fund AdvisorsAustin, Tx, United States
I've been taking a PMP training course, and one of the points on cost estimation is that projects very seldom get simpler and cheaper as you find more out about the requirements. I've definitely found that to be true in my experience working for software implementation consulting groups. Why is that? Is there some logically compelling reason that projects must grow in complexity and cost? I know that sales people want services to be cheap as possible, and to some extent customers want to be lied to about the cost. But you would think that smart customers would always pad vendor-provided estimates. Why do customers and vendors collude to underestimate projects so consistently? Saving Changes...
Wow! What a deep topic! This is something I've also fought for numerous years. Up to last September I worked for a software vendor, and now work for a large insurance company.
In my previous position, not only did I do a lot of PM'ing, but Customer Account Management as well. This meant I was the one who had to sit down with customers, and sell them on a estimate,and get them to agree to and sign-off on the estimate. I hit all the issues related to this, including your mention of a sales perspective.
My approach was to yank apart the estimate from the price. The reason for this is:
- estimates cannot be negotiated, to deliver the scope identified it will take just so long, and there's no way around that - price can and often is negotiated. So if your sales department would like to give customer X a break all the time, you may automatically discount 10% from total cost everytime. Presumably there is profit margin built into your per hour price, so you need to know and understand that. Set some limits to what kind of discounts you can work with without going to upper mgmt for approval.
Now on to the point of "grow in complexity and cost". In your studies make sure you learn and know the three levels of estimates. They allow for ranges of accuracy...when you give out estimates ensure the audience KNOWS what level of accuracy your assigning to the estimate.
Moving forward, ensure you document EVERYTHING. I had one customer, we danced with for months before we got to a signed quote. The quote was 3x the original estimate...at which point the customer got all upset, and questioned me why it changed so much. That's when I pulled out the original document, and showed him how things grew and grew and grew. End of story. You want this much scope....it will cost this much to build.
Above all....follow what all your learnings are saying!
- don't allow gold plating by anyone on your projects - use formal change management procedures - document - document - document
and above all:
- BE BOLD! Don't back down on what a project costs as you are not doing anyone a favour....especially yourself. Keep reminding yourself and those around you...costs don't change! Only prices can change!
Good luck with your PMP studies!
Mike E
Saving Changes...
andrew smithPMO Project Manager| Dimensional Fund AdvisorsAustin, Tx, United States
Michael -- Thanks for the encouragement. I read your post after everything played out, and I thought the outcome might be of interest. I did a pretty good job of sticking to my guns on my estimate, and several colleagues I respect reviewed how I arrived at my numbers. The issue the customer hammered home was that we should have done a better job of estimating. I had thoroughly documented where the additional scope had come from, but to little avail. The final project cost was about 60 percent more than the original estimate. In the end, I got the hours I needed to complete the work, and we heavily discounted those hours. So the customer is happy, we make a little money on the project, and I have the resources I need to increase the likelihood of success.
One follow up question: I'm still not sure I understand why projects seem to always get more complicated? You would think that, at least once in a while, a customer would come to you in presales with something they think is complex, and your product handles that fucntionality well.
My best read on why projects become more complicated as time progresses, is because it is so rare the customer has really thought out what he wants.
As good PMs, with bood analysts, etc behind us we take their concept and start asking all the hard questions. This gets them thinking, and they want something that is new, innovative and going to require a lot of work. I believe that's why they are our customer, that they believe we can give them something they don't have, nor can they buy off the shelf.
Perhaps, much like we will use a rolling wave to plan, our customers thoughts go in the same manner. 10 years ago they wanted the car to have tires and a steering wheel. Then they thought wouldn't it be nice to have power steering. Then they thought.....and so on until we now sell cars with mapping/GPS, TV/DVDs, etc, etc, etc.
