Managing the Risk, Managing the Estimates

There lies the key challenge. How do you manage the uncertainty that is naturally involved with the estimating process? Because these estimates form the foundation for the project schedule and the project budget, you must implement techniques and approaches that enable you to properly manage this risk and the expectations of your stakeholders.

Although this subject of estimating and risk could easily slip into a review of statistics, probability, standard deviations, skewed distributions, and Monte Carlo analysis, we will not go there. In many real-world environments, these advanced concepts and techniques are not utilized to estimate work and to manage the associated risk, and these topics would be outside the scope. Our focus is understanding the impact that estimating work has on our overall risk management approach and what we can do to minimize those risks.

Estimating the work is a fundamental risk analysis step. Not only do you estimate work efforts, but you also identify the assumptions that support the estimate and the key risk factors that might affect the accuracy of those estimates. These key outputs are depicted in Figure 7.3.

Reasons for Estimating Woes

Before we review the key estimating techniques and methods that we need to know to best plan our projects and manage our risk, let’s first take a deeper look at the common reasons for estimating woes on many troubled projects:

• Improper work definition—The number one reason for inaccurate work estimates is inadequate definition of the work to be performed. This includes the following:
  • Estimates based on high-level or incomplete requirements.
  • Estimates based on incomplete work—work elements (packages) not accounted for in the WBS.
  • Estimates based on lack of detailed work breakdown.
  • Estimates made without understanding the standards, quality levels, and completion criteria for the work package.
• Wrong people estimating—Another key reason for inaccurate work estimates is that the wrong people make the estimates. Although it might be appropriate for management to make ballpark estimates during the early defining and planning stages, when firm commitments must be made, it is best to have the people who have experience doing the work make the estimates (or at least review and approve any proposed estimate made by someone else).
• Poor communications—This reason hits on the process of facilitating estimate development. This category includes events such as
  • Not sharing all necessary information with the estimator.
  • Not verifying with the estimator what resource assumptions and other factors the estimates are based on.
  • Not capturing and communicating the estimate assumptions to all stakeholders.
• Wrong technique used—We cover this in greater detail in the next section, but this category includes events such as
  • Making firm budget commitments based on top-down or ballpark estimates rather than bottom-up estimates.
  • Not asking for an estimate range or multiple estimates.
  • Not leveraging the project team.
  • Not basing estimates on similar experiences.
• Resource issues—This is a specific case where it’s not really an estimate issue but an issue with the assumptions supporting the estimate. This is when the person assigned to do the work is not producing at the targeted level or when there are performance quality issues with any of the materials, facilities, or tools. Without documented assumptions, these issues can appear as inaccurate estimates to stakeholders.
• Lack of contingency—In many cases, especially on projects involving new technologies and new processes, the identified risk factors are not properly accounted for in the work estimates. The uncertainty level in specific work estimates needs to be identified and carried forward into the project schedule and budget as part of the contingency buffer or management reserve.
• Management decisions—In many situations, senior management influence and decisions impact the estimating accuracy level. This category includes events such as
  • Senior management making firm budget commitments based on initial, high-level estimates and not accounting for accuracy ranges.
  • Senior management not willing to invest time or resources to get detailed, bottom-up estimates.
  • Estimators factoring their estimates for senior management expectations rather than the actual work effort.
  • Management requesting that estimates be reduced to make the work meet the budget or schedule goals.
  • Management decisions to bid or accept work for less than estimated cost.
  • No use of management reserve to account for risk or uncertainty.