Project managers need to become very adept at developing estimates and even more adept at presenting them. The reason that presentation is so tricky is that every estimate ever made has uncertainty.
Because of that uncertainty, project managers need to be able to present estimates in ways that communicate the fact that the estimate is not a commitment to finish the project in precisely 171 days.
Another issue is that project managers do estimates of cost and duration at different points in the project lifecycle. The first kind of estimate is made during project initiation. These first estimates before the scope and deliverables are clearly defined are obviously the estimates that are the riskiest for a project manager to make. It is a difficult situation because the executive wants precise numbers to rely on and the project manager is looking to hedge the estimate as much as possible. The best practice is to provide cost and duration estimates in ranges which, during initiation, are usually + or - 50%. As an example, during initiation a project manager might give an order of magnitude estimate of duration between 100 and 150 days and a budget of between $15,000 to $20,000.
Needless to say, wide ranges of those estimates do not satisfy executives. But initiation is the time of greatest uncertainty about the project and only a foolish project manager would make a commitment to a precise date or budget.
When Do We Use Estimating Techniques
Project managers make estimates during project initiation, at several points during project planning, and then every week while the project team is executing the plan. The amount of uncertainty in the estimates decreases as planning is complete and we execute more and more of the project plan. Accordingly, the estimates at initiation may be + or - 50% but by the time the project is half-complete, the ranges of the estimates might be + or - 5%.
How Do We Do Estimating
There are three principal techniques that project managers used to prepare their estimates of cost and duration. The first of the techniques is called analogous estimating and it is based on using information from previous projects that are similar to the current project. At its simplest, these analogous estimates would use the cost or duration of previous projects or phrases within those projects. We make adjustments up or down for the relative difficulty of the current project.
The second technique is parametric estimating. The project manager uses published data about how much work and duration particular tasks take. As an example, we might find data that painting an interior wall with 8 foot high ceiling would require 1.3 hours per 100 feet of wall surface. Using that reference source, the project manager makes the cost and duration estimates for the current project using data from similar type projects.
The third technique is bottom-up estimating where the project manager meets with the people who will be doing the work and develops estimates based on their judgment. These bottom-up estimates have many advantages, one of which is that the team members have some commitment to the estimates because they have helped develop them.
