Project Management

Address inaccurate estimates before your project begins

While it may be the project sponsor who came up with the lowball figure, you now have to figure out how to deal with inaccurate numbers. Here's how to address this common problem.

Each week, project management veteran Tom Mochal provides valuable advice on planning and managing projects. He first describes a common problem scenario, based on a real-life situation, and then offers a solution, using practical project management practices and techniques.

The dilemma
Chi-ling was just assigned to a project for the finance division that would report and analyze all the taxes paid by our company worldwide.

“The project sounds interesting,” I began. “It will also give you an opportunity to learn about how the company works on an international basis.”

She agreed but said she had concerns about delivering the project within the allocated budget. “This project was a part of last year’s business plan,” she said, “but I think the high-level estimate was too low.”

“That’s understandable,” I said. “During the business planning process, the estimation is sometimes not much better than best-guess. After all, the project may not start for a year or more, or the work may not even be funded.”

“Here’s my problem,” Chi said, lowering her voice. “I think the effort is going to be double what was estimated. However, when I spoke to our client, she said that we needed to get it done close to the original estimate.”

I was puzzled, so I leaned closer. (I thought there must be some intrigue involved.) “That doesn’t make sense,” I said. “Why is she asking you to do that?”

“She really wants to get the project done to help her meet her objectives this year,” Chi replied. “The project barely made it on the priority list, and she is afraid if it costs twice as much, it will be cancelled.”

“Okay,” I said as I leaned back and spoke at a normal volume. “I understand. Let’s see how we might handle this so that everyone has a chance to be successful.”

Mentor advice
Chi-ling is in an uncomfortable position. She is getting pressured by a client to commit to a project under estimates that may not be accurate. Chi wants to please the client and she wants to do the work. Let’s think about what could happen.

If Chi’s team begins the project at this point, and it does take twice the original estimate, Chi will be in trouble, the sponsor who funded the project will be mad at everyone involved, and the project will likely be cancelled. If Chi estimated the project to be only 10 percent more than the client’s figures, she probably would receive the incremental funding.

If the estimate was 20 percent higher, the client might be able to reduce scope enough for the project to continue. However, if Chi’s estimates are correct and the project will likely cost double the sponsor’s anticipated cost, the project cannot go forward.

Chi would be wrong to start the project when it’s unclear just how much more the project will run compared to the rosier estimate. This places her in a difficult position. If Chi brings up the higher estimate, the project may get cancelled. The client doesn't want that to happen, so Chi is feeling pressure to not say anything and to pretend that the original estimate is still valid. This puts the burden on Chi, not the client. Here are some actions she can take to improve the situation:
  • Discuss all the estimating assumptions with the client to make sure she has not misunderstood the deliverables or the project scope. Chi doesn’t want to raise a red flag based on incorrect assumptions.
  • Double-check her estimates. Perhaps she could use a second estimating technique to validate that the work is as much as she thinks. She does not want to panic people if her estimating logic is flawed.
  • Have another honest discussion with the client and ask for ideas that would help reduce the number. Reducing functionality is the place to start. With less functionality, the costs should decrease.
    For example, perhaps some of the project’s tax interfaces can work manually instead of being automated. Perhaps the project will gain most of the value she needs by including the top 10 largest international divisions, rather than all of them, as originally requested in the project. If the scope or the requirements are reduced, this should clearly be communicated to the sponsor and included in the project definition to avoid any surprises.

If the estimates are valid, and the project scope or requirements cannot be changed, Chi has no choice but to give her higher estimate. Her manager can help take the message forward from a political standpoint.

It may be that the value will still be there, and the company will fund the project at the higher level. However, if the project no longer makes business sense, it is better to find that out now, rather than halfway through the project.

Project management veteran Tom Mochal is director of internal development at a software company in Atlanta. Most recently, he worked for the Coca-Cola Company, where he was responsible for deploying, training, and coaching the IS division on project management and life-cycle skills. He's also worked for Eastman Kodak and Cap Gemini America and has developed a project management methodology called TenStep.

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