One of the most important tasks in project management is to properly estimate the work needed to implement and fulfill requirements in scope and this way to correctly evaluate and forecast the effort and cost to meet the defined goals for the success of the project. Although being a key part of the project planning process, the estimation exercise is often not receiving the required attention which ultimately is one of the main causes for poor project planning and the potential failure of a project. As per a recent research conducted by PwC (“Insights and Trends: Current Portfolio, Programme, and Project Management Practices”, 2015), poor estimates during project planning are the main contributor to project failure.
Several estimation techniques are out there which are often straight forward and easily applicable. The most commonly used methods are:
- Analogous Estimating – makes a comparison to past similar projects
- Parametric Estimating – used for quantitatively based estimates, e.g. software installations per day
- Three-Point Estimates – uses a weighting of an optimistic (best case), most likely, and pessimistic (worst case) value
- Bottom-up Estimating – work is broken down into smaller manageable items (WBS) for estimation in order to achieve highest accuracy
- Expert Judgment – uses the input from an individual expert or subject matter expert
When providing an initial estimate at an early stage of the project, relevant details usually are still unclear, yet it still requires a certain precision by applying adequate estimation techniques in order to predict as accurate as possible the project constraints related to schedule, cost, scope, resources, risks and dependencies.
Due to the fuzziness of detail for an initial estimate, it is usually expected by the project stakeholders that the estimates will vary over the lifetime of the project as required work items are becoming clearer, however, estimates should be credible and within a certain range depending on at what phase of the project the estimates are provided and re-visited. The concept called “cone of uncertainty” describes the evolution of an estimate throughout the lifecycle of a project. For example, a first estimate in the project initiation phase could have an expected variance in accuracy of plus or minus 50% before the variance should decrease in following phases of the project.
How to overcome uncertainty?
An estimate is a rough calculation of project cost and therefore bares a certain element of uncertainty. However, to increase the accuracy of project estimates, it is recommended to choose not only appropriate estimation methods but also to use a mix of techniques. Each of the traditional estimation techniques has known advantages and disadvantages – by combining all or several estimation methods, errors in the estimates can be reduced.
For instance, the three-point estimation method could be used in combination with analogous estimation technique as well as expert judgment.
To decide on the right combination of estimation techniques and also the number of methods to use depends mainly on the type of the project as well as the time and budget available to conduct those estimation techniques. For instance, the bottom-up estimation technique is known to be the most time-consuming and expensive form of estimating and therefore may not fit into any project’s budget and schedule.
The exercise of estimating project effort is a critical element in the project planning and therefore requires significant attention, especially when it comes to the right choice and mix of techniques to be used. No method is the best or only one to use since some are known to provide highly inaccurate results while others are very time and cost consuming. To achieve highest accuracy in the estimates, all or several of possible estimation methods should be used.