Investor Newsletter ISSUE N3 Fall 2007

COPYRIGHT 2012 THE HAMPTON GROUP, INC. ALL RIGHTS RESERVED. MAY NOT BE REPRODUCED WITHOUT WRITTEN PERMISSION 1
The Reality of Estimating
Estimating a projects duration and
cost is a high stakes game. The client
or executive wants accurate numbers
and they also want a rock-solid
commitment that you will hit them.
PMs have 4 response choices when
asked to do an estimate:
1. Im 60% condent that we can
nish the project within a duration
range of 3-8 months and a cost
between $50,000 and $250,000.
2. Well be done in 5 months or so
and the cost will come in at about
$110,000, but thats just a rough
guess!
3. I will have no idea until we
detail the deliverables, estimate the
work and nd out how many
people I will have to do that work.
4. When do you want us to nish
and whats the budget?
Lets evaluate each of them
5. Is truthful but enrages
executives.
6. Executives quickly forget the
rough guess and are happy.
7. Is the whole truth but is useless
for executives.
8. Is very ingratiating but a project
deathtrap.
Most project managers use choice
#2. It deals with the reality of the
situation but its a noose around their
neck.
Four Estimating Steps
You can make this situation a little
better for everyone with a four-step
estimating process that you announce
during the initiation process. You
explain the estimates executives will
receive in each of four stages in the
project lifecycle.
!Initiation: Project-level analogous
estimates based on similar projects.
! High-level Planning: Project-level
and major deliverable analogous
estimates based on similar projects.
! Final project plan: Bottom up
estimates from the team members.
By Dick Billows PMP
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How to Estimate
Summary: Estimating is tough for every project manager and doing it well is
often the difference between consistent success and frequent failure. Lets look
at four of the best practice estimating techniques for initiation, high-level
planning and each week while you are executing the plan.
Investor Newsletter ISSUE N3 Fall 2007
COPYRIGHT 2012 THE HAMPTON GROUP, INC. ALL RIGHTS RESERVED. MAY NOT BE REPRODUCED WITHOUT WRITTEN PERMISSION 2
! Weekly status: Rolling
estimates weekly until
completion.
Lets look at a four stage estimating
process that you might use on a very
simple project.
Order of Magnitude Estimates
An executive invites you into the
conference room and says, All these
weekly reports from the branches
come in with different data in
different formats. I want you to
develop a consistent template, pronto.
This is a high priority for me and
youll get everyones cooperation.
Listen, I have to run to a meeting
right now but come back at 3:00. I
want to know when you and your
team can get it done.
So you access the project archives for
similar projects and meet with your
team and another PM to get their
estimates of how the current project
compares to the previous effort.
They come up with a consensus on
the adjustment factors for cost and
duration. Then you do some
calculations.
Previous
Projects
Adjust
factor
Estimate
$42,000 1.1 $46,200
65 days 1.3 83.5 days
Because these are order of
magnitude estimates done early in the
project, you use a condence range
appropriate for this rst
estimate, 1.75 to 0.75 range. At
3:00 you meet with the
executive and start by explaining the
estimating process, During the
project I will give you 4 different
estimates. The accuracy will get
better and better as I know more and
more. The best I can do now is give
you an order of magnitude estimate
which is a range. Based on prior
experience, the cost will be between
and $34,650 and $80,850 and the
duration between 62 and 146 days.
The executive gives you a poisonous
look and says, Okay, proceed with
detailed planning and come back
when you can give me a better
estimate.
High-level Planning Estimates
A week later, you meet with the
executive who asks, Now, how long
will the project take?
You look over your notes on a yellow
pad and say, At this point, I can give
you a better project-level estimate.
Were still working top-down based
on similar projects, but I can give you
a somewhat tighter estimate and also
apply some ratios to that so I can give
you estimates on each phase. The
overall duration estimate is 70-108
working days and a cost of $39,000
to $57,000. Those are based on the
following estimates of high-level
deliverables:
Investor Newsletter ISSUE N3 Fall 2009 Online TRaining the Way It Should be Delivered http://www.4pm.com
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Investor Newsletter ISSUE N3 Fall 2007
COPYRIGHT 2012 THE HAMPTON GROUP, INC. ALL RIGHTS RESERVED. MAY NOT BE REPRODUCED WITHOUT WRITTEN PERMISSION 3
!Branch ofce managers
signoff on requirements:
14-17 days
!Development test - Test group
can complete the template in <
60 minutes: 15-18 days
!Training- Users can complete
the template in 45 minutes: 14-15
days
!Rollout and enforcement - 95%
compliance: 20-45 days.
The executive scowls again and asks,
When will I get better numbers?
You answer, As soon as I detail the
work estimates with the team and get
commitments on the people assigned
to the team at headquarters and in all
the branches. Then, I can give you a
bottom up estimate which will be
more precise because Ill be using 3-
point estimates from the people who
will be doing the work and
aggregating them into the overall
numbers.
3-Point Estimates
A few days later, you return to the
executives ofce and say, Heres a
sample the estimate I mentioned.
Each team member made 3 estimates
of the work in their task based on the
uncertainty they face. Here are the
results:
Opti mi sti
c
Pessi mi s
ti c
Best
guess
50% Est 60% Est
5 15 9 9.3 10.6
35 37 36 36 36.6
10 25 20 19.1 21
Notice the estimates for 50% and
60% certainty. You can decide what
level of condence you want me to
use. You see that 60% is takes longer
so is more expensive than 50%. I
have the numbers all the way to 99%
which is real expensive.
With the work breakdown structure
done and the resource commitments
Ive noted, Im 60% certain we can
nish within 24-28 working days.
The executive gives a slightly less
venomous sigh and says, Okay, this
is getting better and well stick with
the 60% condence level.
You nod and say, The fourth type of
estimate Ill be giving you is a rolling
weekly estimate. As we progress
further into the process, the
uncertainty will decrease and Ill give
you new estimates. We call these
rolling estimates. As an example,
once the requirements are approved
the uncertainty in the development
work will go down a lot and that
estimate will get much tighter.
Investor Newsletter ISSUE N3 Fall 2009 Online TRaining the Way It Should be Delivered http://www.4pm.com
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Investor Newsletter ISSUE N3 Fall 2007
COPYRIGHT 2012 THE HAMPTON GROUP, INC. ALL RIGHTS RESERVED. MAY NOT BE REPRODUCED WITHOUT WRITTEN PERMISSION 4
Statistical Hocus-Pocus?
The simple four-step process
weve gone through illustrated how
you use 4 different techniques as the
uncertainty about the project
declines. In the example, the PM
initially used analogous estimates
based on information about
previous projects. Next working top-
down, the PM estimated by major
deliverables using ratios from
previous projects. This information
could have come from an
organizational project databank,
from commercial estimating
methodologies or from elaborate
statistical analysis of previous
projects. Whatever the source of the
data, the top-down estimates
provided relatively broad ranges in
the overall estimates.
In the third and fourth estimating
techniques, the PM used the work
breakdown structure and duration/
work estimating techniques at the
level of individual assignments.
Then the numbers got a lot better
because the PM could use a bottom-
up, 3-point approach and aggregate
the estimates from the project team
members to develop the overall
project estimate. In this bottom-up
approach, the PM based the
estimate on the team members own
estimates for their individual
assignments. The fourth estimate
type was the rolling estimates. This
was also based on a bottom up
approach, with the team
members making regular weekly re-
estimates of their work/duration.
As they completed tasks, the
uncertainty decreased each week
and the estimates became more
accurate.
Enterprise Processes and Data
A major step to consistent project
success and vastly improved
estimating comes from a modest
investment in archiving the data
from every project. This whole
estimating process becomes more
effective when the organization stops
playing fantasy games with project
estimates and adopts a consistent
methodology for developing the
kind of better and more accurate
estimates weve been discussing.
To learn more about these
estimating techniques consider our
one-on-one courses over the
Internet as well as in-person
seminars for organizations.
Investor Newsletter ISSUE N3 Fall 2009 Online TRaining the Way It Should be Delivered http://www.4pm.com
PROJECT LINKS
Be a Project Manager
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CERTIFICATION
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Free Subscription
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