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## Order of Magnitude Estimates: How to Calculate & Present Them

Order of Magnitude (OOM) Estimates are rough guesses made at the very beginning of the project. At this time not much is known about the project and everything can change as planning progresses. Order of magnitude estimates use historical project data with analogous mathematics. The numbers are calculated for the whole project, not for individual tasks or major deliverables.  They are usually expressed as a range, like “\$150,000 – \$200,00 cost and 125 – 160 days of duration.”  Executives dislike those ranges and immediately use only the lower (most optimistic) numbers.  But project managers should stick with the ranges in all their order of magnitude estimates because the range communicates the project’s uncertainty. Then they narrow the ranges as planning progresses and uncertainty declines.

### Order of Magnitude Estimates: When To Use Them

Project managers use order of magnitude (OOM) estimates at the beginning of a project to give executives some data. During the initiation phase, executives need information about how much the project will cost and how long it will take. They use this data to decide if the project should go forward. They may also need to decide to integrate this project with other projects the organization is considering. This data is vital for decision-making purposes and cost-benefit decisions. Unfortunately, this is the time when the project manager knows the least about what the project will entail. He/she doesn’t know what deliverables have to be produced, or how much work those deliverables will require. They also have no idea how many team members will be available to do the work. So the project manager is in no position to provide precise estimates.

The absence of data, however, does not prevent executives from demanding precise figures on a new project’s time and cost. If we look at the initial estimating situation from their perspective, we can understand why. They must approve and become accountable for the expenditure of many hours of work and other organizational resources, including cash. From their perspective, it’s reasonable to require data about the new project’s business benefit and the amount of resources it will consume.

Unfortunately, many project managers fall victim to the executives’ pressure and give estimates that aren’t based on facts. Executives may say things like, “Use your project management experience to tell us how long this will take and what it will cost.  If you’re worth your salt as a project manager you ought to be able to tell us the duration and budget you’ll need.” This inevitably leads to blaming the project manager for finishing late and over budget.

Project management experience does not give you the ability to pull accurate initial estimates out of the sky. The one exception might be when you’re repeating the same project, like building new fast food stores in the same city. But when you don’t have data from similar completed projects, there is no way you can provide accurate data during the initiation phase.

### Order of Magnitude Estimates: Better Than Commitments You Can’t Keep

Order of magnitude (OOM) estimates are the best tool for a project manager during the initiation phase.  With OOM estimates, the project manager is not providing a precise budget and completion date. He/she will be able to do that later on. Now the project manager provides data along with information about the degree of uncertainty of the estimates. Order of magnitude estimates take the form of a project manager saying, “I’m 80% certain that the cost will be between \$50,000 and \$100,000. I’m 70% certain that we can be finished between 100 and 150 days.”

We know that numbers like this will drive executives crazy. But accurate estimates are not possible. The best we can do at this point is give them an estimate that reflects the lack of information.  We do not give estimates with no factual basis. The only time we have 100% certainty of the cost or duration estimate is on the last day of the project. Project managers need to explain that the certainty of the estimates will improve as we proceed through detailed planning and execution. The estimates get more accurate as we learn more about the deliverables we have to produce, the amount of work it will take to produce them and the size of the project team available to do the work. Our estimates at initiation may have a range of -25 to +75%. As we begin detailed project planning that range narrows and when the plan is approved, we may have a range of uncertainty that is plus or – 15%. As execution of the project proceeds, the range of the estimates narrows all the way through closeout.

### Order of Magnitude Estimates: How To Calculate Them

We’re going to express the order of magnitude estimates as a range to reflect the uncertainty. We usually use analogous estimating techniques to provide the raw data and then alter this historical data in two ways. First, we’ll adjust the historical data to reflect the differences between the current project we’re estimating and the completed project. We might gather people with known expertise and ask them to assess the differences in complexity, intensity and difficulty of the current project versus the historic one. They might come up with a 15% adjustment factor. This means the current project is 15% more difficult and will require that much additional time.

The second adjustment we would make is to apply our uncertainty percentages. As an example the -25% to +75% range we discussed above. So the numbers for the new DEF project versus the ABC historical project look like this:

#### Hours of Work

From the archives: ABC project actually took 10,400 hours of work

Adjustment factor: DEF project is +15% harder than ABC project

Estimate: DEF project requires 11,960 hours of work

Adjustment to reflect uncertainty:  -25 to +75 for DEF project

OOM: 8,970 to 20,930 hours of work range for DEF project

The project manager would present this information by saying something like this. “We’ve assembled our best experts and used actual data from the ABC project done two years ago. We asked our experts to look at the hours ABC took and reach consensus on the differences between the new DEF project and the ABC project. They concluded that the DEF project is 15% more difficult and would require that many more hours. Then I applied the uncertainty factors to reflect how little we know about the DEF project this early in the effort. The combination of those two data sources gives us the range of hours that you see above.”

When the executives complain about the lack of precision the project manager can say, “This is the best available information we have as of today. As we learn more during the planning effort, I will be able to provide you with increasingly precise numbers. But we will always be dealing with some uncertainty.”

When pressed by the executives for better data, the project manager can say, “I understand you want credible numbers. But at the present time I know so little about this project that trying to be more precise would be deceitful.”

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

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## Bottom-up Estimating – Video

Bottom-up estimating is a project management technique in which the people who are going to do the work take part in the estimating process. Typically those people are the project team members. They work with you, the project manager, to develop estimates at the task level in the work breakdown structure (WBS). When you set the estimates of the amount of work, duration and cost at the task level, you can add them up into estimates of higher-level deliverables and the project as a whole.

Bottom-up estimating is the most accurate approach to estimating cost and duration. It also requires the most time. This kind of estimating involves the entire project team and gives them the opportunity to take part in developing the estimates used to measure their work. As a result, bottom up estimating tends to develop a higher level of project team commitment than parametric estimating. In parametric estimating where the numbers come from an outside source, like published rates, the team members may feel you have imposed the estimates on them. The drawback of the bottom-up approach, however, is that it takes more time than other estimating techniques.

In this video, Dick Billows, PMP, discusses how to make accurate estimates for small to medium projects.

Making Accurate Estimates of Time and Cost

## Bottom-up Estimating: Working Your Way Up

In bottom-up estimating, you follow a three-step process, working from the lowest level of detail in the work breakdown structure (WBS). You begin bottom-up estimating by developing a detailed work package to go with the WBS. In the work package, you detail the scope and major deliverable that each team member will produce.  You describe the risks that affect the task and its cost and duration.

This work package is like a contract between you and the team member for their task. You need this contract to make the bottom-up estimating process work effectively with as little padding of the estimates as possible. Team members pad their estimates because they’re concerned about the scope of their work expanding after they have started, without any adjustment to the estimates. They foresee finishing late on the expanded scope and being blamed for missing their commitment. A similar result can happen when external events affect their ability to get the task done within the estimated timeframe. Because of these factors, work packages are an effective tool for clearly explaining to the team member that any changes to the work package are going to reopen the estimating process. In that sense, it gives them protection from scope changes on their task. That is why the work package documents the deliverables, the risks and the approach to the task. You record the team member’s estimates and you both sign the document.  This removes a lot of the anxiety from many team members who have previously been burned by the estimating process.

## Bottom-up Estimating From the Work Package

Once the work package is complete and the team member is comfortable with it, you can go on to develop the actual cost and duration estimate. In bottom-up estimating, you must be careful not to force an estimate on the project team members. If you force the estimate on the team member, you cannot expect to earn much commitment from them. That commitment is dependent on a free and open negotiation where the team member feels the estimate is fair and reasonable. You may use the team member’s pessimistic, optimistic and best guess estimates developed in the 3-point estimating process. That technique allows the estimates to show the task’s uncertainty.

Alternatively, you can use an analogous estimating technique with the team member. You will look at the actual amount of work that similar tasks required on completed projects. If you have several projects and tasks to draw information from, you can quickly reach a consensus on how the current task compares to the other tasks. Then you can adjust the estimated work number to show that difference. The team member needs to actively participate in this discussion and in determining the work number that you will use.

Last, you aggregate the estimates for each activity in the lowest level of the WBS and roll the numbers up to develop estimates for the major deliverables and the project as a whole.

You can use a number of mathematical techniques with bottom-up estimating. The most popular and most accurate is  3-point estimating where each team member provides their pessimistic, optimistic and best guess estimates for the calculations.

To learn more about how to do bottom-up estimating, consider our online project management courses. You work privately with an expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at the courses in your specialty.

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## Project Estimation Sponsor Games

Project Estimation Sponsor Games are played by ineffective sponsors who use intimidation and manipulation avoid being held responsible for project results. These sponsors don’t play the sponsor role effectively by clearly detailing the project scope and the deliverables they want.  Instead, the dodge all commitment and seek to set up the project manager and team to take the fall is the project fails.  So as you start a new project you need to know how to play the game to avoid being set up any and executive who plays project estimation sponsor games.

### Project estimation sponsor games tactics

These sponsors add games and high-pressure tactics to the estimating process. These sponsors say things like,

• “Any competent project manager should be able to give me a precise estimate at the beginning of a project.”
• “I can’t make any decisions if you cannot give me a firm commitment to be done by December 15.  I mean I spent an hour with you telling you what I want. Why can’t you commit?”
• “These numbers are padded with at least 25% fat.  What are you looking to take a vacation to the last month the project? Cut these numbers down to something that’s realistic, I don’t care how hard you and the team have to work.”

## Games the Sponsor Plays

New project managers or PMs who haven’t encountered a sponsor who plays games can get sucked into this manipulation. Particularly naïve project managers may actually think they sponsor knows what he’s talking about.

From talking and working with dozens of these sponsors from hell, they have one operating principle. They think fear will drive the project manager and team to work themselves to death to finish the project early and under budget.  They think coercing a commitment to a completion date will motivate people to drop other things, including their personal lives, to meet that commitment.

What actually happens most often is that the project manager and the team quickly realize that the sponsor’s numbers are unachievable. Rather than working themselves to death, they put the sponsor from hell’s project on the back burner and work on projects that have a better chance of success. In fact, these intimidating sponsors from hell usually have the highest project failure rate in the organization. Project managers and team members go to great lengths to avoid assignment to the projects of the sponsors because failure is almost certain.

## How to play the Project Estimation Sponsor Games

No matter how much effort you spend to get assigned to the right projects, you’ll get stuck working for a sponsor from hell some time in your career. You need to know how to play the game and remember you’re always polite and respectful when talking to senior management

• First, you need to recognize that no organization has ever fired a project manager for refusing to commit to a completion date or budget for a project.
• Second, you cannot count on the professional integrity of the sponsors from hell. Accordingly, every mention of completion dates or estimates should be in writing. Never communicate estimating data verbally or over the phone. It’s also wise to put a copy of all the estimating correspondence into the project work file.  Let the sponsor know you’re doing that with a cc to the project file.
• Third, you never give an estimate that is just a point value you always give a range. In other words, you never say, we’ll be done by June 15.” What you say is I’m 80% certain will be done between June 12 in June 23. Budget estimates are likewise ask expressed as a range. ”I estimate that the project will cost between \$15 and \$18,000. “

If you follow the rules, you give yourself a defense against the sponsor from hell misrepresenting what you said or telling others that you made commitments when it’s not true.

## Importance of Status Reports

While your status report should be short and concise they should also have a forecast every week of the completion date and estimated budget (both expressed as ranges). That way you have a reasonably good defense against accusations that variances have come as a surprise to the sponsor from hell. It’s great to have a series of status reports that identify variances and also have other people who have received them. That  can protect you from Project Estimation Sponsor Games.

## Project Estimation Sponsor Games Summary

You may go through your entire project manager career and never encounter sponsor like the ones I’ve mentioned. Just tuck this article in the back of your project management toolkit and keep these defensive measures in mind if you do encounter a project sponsor who likes to play games and intimidate project managers. Courses in your specialty.

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## How To Do Analogous Estimating – Video

Analogous estimating will improve the time and cost estimates for your project. First, let’s talk about why estimates are often inaccurate and useless to the project’s decision-makers. That’s because project managers frequently estimate cost and duration by “plucking numbers out of the sky.” Or they provide estimates that have no basis in reality but are what the project sponsor wants to hear. Main Project Estimating Page

For these project managers, it’s hard to change their well deserved reputation that they “can’t estimate worth a lick.” These PM’s make their initial estimates at the beginning of a project when they know very little about it. Usually the project manager has never done a project like the new one so the uncertainty is high. In fact, it’s very possible that no one in the organization has ever done a project exactly like this one. However, the executives need decision-making data about how long it will take and how much it will cost to decide whether the project’s worth doing.

Watch a project manager develop and then present project estimates using analogous estimating.

Project Estimating Analogous & Parametric Techniques

The project manager can often find out how long the executives want the project to take and how much they want it to cost. But the executives may not know the difference between a good, accurate estimate and the numbers they want. They plucked the numbers out of the sky and often bully the project manager into estimating the cost and duration to match those numbers.

Unfortunately, the executives don’t treat those numbers as values they rammed down the project manager’s throat. Instead they treat them as the project manager’s solemn commitment to the cost and duration of the project. The numbers they plucked from the sky are not based on the amount of work required for the deliverables to be produced.  They don’t even reflect the size of the project team that will do the work.

This estimating cycle is what causes 70% of the projects in some organizations to finish late and over budget. This high failure rate undermines the credibility of project managers and makes it nearly impossible for the organization to launch strategic initiatives. But there is an answer.

## Analogous Estimating: A Better Way to Estimate Costs and Time

Analogous estimating doesn’t provide a perfect solution but it is accurate and based on data instead of wishes and hopes. It also has the potential to substantially increase the organization’s project success rate from 30% to above 60%. And you can easily implement it.

The solution is relatively simple. The organization needs to keep track of the hours of work that each team member works on a project each week. It also needs to track the costs incurred to get the project done.  In as little as 3 months, the organization will have a good start on a database for estimating new projects. This data gives you the best possible tracking on project progress and is the basis for analogous estimating.

## Analogous Estimating: How It Works

Obviously, the new projects are not identical to the completed projects. Nevertheless, some of the tasks and some of the deliverables in the new projects are going to be similar to tasks and deliverables in the old ones. Project managers may have to look through a number of previously completed projects to find tasks and/or deliverables that are roughly similar to those in their new projects.

The longer the organization builds these archives of its project work and cost data, the more valuable it will be. After a year or two, it becomes relatively easy for project managers to find similar deliverables and tasks in the archives. These are the analogous deliverables they will use in their estimating process. Then the project manager and sponsor make adjustments to the historic, analogous data to reflect the differences between the old project and the new one.

## An Example of Analogous Estimating

As an example, let’s say a new project requires a training session for the employees who will work on the new procedures and processes the project produces. The project manager could review the number of work hours used to create the training class curriculum in a previous project. They might also look at the actual classroom time used on the previous project. Then the project manager would consider the differences in complexity, scale, scope and focus between the old and new projects. The project manager would ask the Human Resources trainers to compare the two training efforts and they are told the new one is 20% more difficult and will take 20% more time than the old one.

Then the project manager would adjust the historic data for their project. Getting input from the people who will do the work is very valuable. It lets the project manager present data on the work and cost of deliverables that has a solid basis in reality. It’s certainly possible to debate the size of the adjustment factor. But you are still discussing the actual amount of work for a training class based on a previous project. That is much better than using data plucked from the sky.

You can use the analogous estimating technique at any level of the project. You can use it to develop initial estimates when a project is first discussed or initiated. You can also use it when you’re making estimates of the work and duration of the individual team members’ tasks and of the project as a whole.

## How To Do Analogous Estimating

1. You identify previously completed projects with archived data on work and cost by task and major deliverable. In organizations with mature project management processes, like established consulting or engineering firms, there may be a number of similar projects.
2. On projects larger than the very smallest, you should include team members, stakeholders and the sponsor in examining the previous projects. They will help develop factors for adjusting the work and cost data.
3. You should guide the group to consensus on the adjustment factor. Then use this as the basis for the business case and the work and cost estimates.

## Analogous Estimating: Use Historical Data With Adjustments

Let’s look at some examples.

1. Historic project- training for 30 reps: 50 hours of preparation and 16 hours delivery
2. New project – 20% less preparation time, same 16 hours delivery time
3. Analogous estimate – 40 hours preparation + 16 hours delivery = 50 hours of work

## Analogous Estimating Summary

Analogous estimating is not perfect by any stretch of the imagination. However, it is much better than using pretend numbers that are politically attractive at the beginning of the project but disastrous at the end. It’s inexpensive to implement analogous estimating. It merely requires every project manager to use automated scheduling software to plan and track projects. The software makes project managers more efficient gives the organization the hours of work and the cost of each of the major and supporting project deliverables. That’s all the data that future project managers require for their analogous estimating.

You can learn more about analogous estimating techniques in our online project management courses. You work privately with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at the courses in your specialty.

At the beginning of yourncourse, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

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## Communication Techniques – Video

One of the most challenging parts of project management is choosing the communication techniques to use with all the different people who are involved with your project. Each of the team members, stakeholders and executives has a different personality and a different communication preference. You need to be able to “type” each of those personalities and then use the kind of communication that is most effective for them. What you can’t do is try and communicate in the same way with each of those different people. That may sound like it’s efficient but it’s certainly not effective. Project Management Skills Main Page

Let’s consider two of the personality temperaments or types that project managers encounter most frequently. People with the Guardian personality temperament (ISTJ in the Myers-Briggs terminology) make up the majority of executives in most organizations. These are very detail oriented decision-makers who want all of the data, usually in chronological order, before making a decision. If you push them for a quick decision, the answer will be NO.

Another frequently encountered personality type is the Executive (ENTJ in the Myers-Briggs terminology). This type makes up about 25% of the executives in most organizations. These are big picture thinkers who become quickly bored with the details and supporting information. They want to know the big picture and the end result, then they’re ready to make a decision.

Clearly the same communication techniques for these two executive types are not going to be effective. You need to tailor your entire communications process, including pre-meetings with individuals, to fit each temperament.

Now let’s watch a video of a project manager working with a team member. These two people have very different temperaments and the project manager is initially ineffective because he communicates with the team member in a way that suits his personality, not the personality of the team member. I’ll point out some of the key mistakes the project manager makes. Then we’ll look at the same meeting with the project manager tailoring his communications to fit the team member’s temperament. This yields a much better result.

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

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## Project Estimation Techniques

Project estimation techniques are critical survival tools for predicting when a project will finish and how much it will cost. Estimating duration and cost accurately can make the difference between consistent success and frequent failure.  Project managers need to use different techniques during the project phases to provide good information to the decision-makers. Let’s look at some estimating situations and how to handle them properly.

## Project Estimation: Questions and Answers

In the real world, estimation of project duration and cost is a high stakes game.  The client or executive quickly wants an accurate estimate of the project’s costs and duration with your commitment to hit those numbers. When an executive asks for those estimates during the initiation process, project managers may respond with any of the following statements:

1. I’m 60% confident that we can finish the project within a duration range of 3 – 8 months and a cost between \$50,000 and \$250,000.
2. We’ll be done in 5 months or so and the cost will come in at about \$110,000, But that’s just a rough guess!
3. I will have no idea until we detail the deliverables, estimate the work and find out how many people are available to do that work.
4. Tell me when you want us to finish and the amount of the budget.

Now let’s consider each of those responses:

• Answer #1 – it’s truthful but enrages executives
• Answer #2 – executives quickly forget the “rough guess” and are happy with the answer
• Answer #3 – it’s the truth but executives find it useless
• Answer #4 – is very ingratiating but a project deathtrap.

Which response do most project managers give? Choice #2 because it deals with the reality of the situation. Executives are under pressure to make cost/benefit and priority decisions about projects. So they don’t want to hear the “rough guess” part of that response. And as we all know, there are often strategic realities that force completion dates on everyone.

Project managers are caught in a narrow vise when we’re asked to give estimates and it is easy to make estimating mistakes. This is especially true when the scope of the project is vague and the resource availability is unknown. You can make this situation a little better for everyone, however, by using a four-step estimation process. You announce this during the project initiation process. Then you explain the estimates the executives will receive in each of the four phases in the project lifecycle.

## Project Estimation: A Four-Stage Process

1. Initiation: Analogous estimates are used at this phase. They are big picture estimates based on similar projects that have been documented in the corporation’s project archives. These estimates are stated as order of magnitude estimates.
2. Early Planning: Project-level and major deliverable-level estimates are often analogous or 3-point estimates. During this phase, you may also use parametric estimating techniques.
3. Final project plan: You use information from the team members and include them in bottom-up estimating of their deliverables.
4. Weekly status: You use rolling estimates every week until the project is complete.

## Project Estimation: Process Example

Let’s look at this four-stage estimation process on a simple project.  That will clarify what it is and how you use it. 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 quickly develop a consistent template.  This is a high priority for me and you’ll get everyone’s cooperation.  Listen, I have to run to a meeting now. Come back at 3:00 this afternoon. I want to know when you and your team can get it done.” Does this sound familiar?

You think through your experiences with similar projects and review the project archives for similar projects.  You meet with the executive at 3:00 and say, “During the course of the project I will give you 4 different estimates. The accuracy will get better as we know more about the project and the work involved. The best I can do now is give you a project-level, order of magnitude estimate. It’s based on prior experience with similar projects.  I’m 60% confident we can have this project done in 18 to 35 working days.”

The executive gives you a poisonous look and says, “Okay, come back when you can give me a better estimate.”

You reply, “I can give you a better estimate when we have finalized the scope and major deliverables and you have signed off on what you want.”

The executive frowns and replies, “I was planning to delegate that.”

You smile and say, “I still need a sponsor’s signature on the scope and deliverables.”

The executive nods glumly, “OK, let’s do it tomorrow at 8:00.”

The next day at the end of the 8:00 o’clock project estimating session, the executive frowns at you and asks, “Now, how long will the project take?”

You look over your meeting notes and say, “At this point in our project estimating process, I can give you a better project-level estimate.  We’re still working top-down from the project scope down through the deliverables required to achieve that scope. Based on similar projects, I can give you a somewhat tighter estimate and apply some ratios to that. I can give you estimates on each phase. I’m 75% confident we can finish the project in 23 – 30 working days.  Using my project experience and the ratios between phases on previous projects, I can also say that I’m 75% confident in the following phase estimates:

• Branch office managers signoff on requirements: 4 – 7 days
• Development – people in the test group can complete the template in < 60 minutes: 5 – 8 days
• Training- users can complete the template in 45 minutes: 4 – 5 days
• Rollout and enforcement – 95% user compliance: 10 – 15 days.”

The executive scowls again and says, “When will I get better numbers?”

You answer, “As soon as I detail the work estimates and get commitments on the team members here at headquarters and in all the branches.  Then I can give you a bottom-up estimate, which will be more precise than the top-down estimates I’ve been using. Bottom-up is more accurate because I’ll be using estimates from the people who will be doing the work. Then I’ll aggregate them into the overall numbers. Best of all I will give you 3-point estimates with risk data.”

A few days later, you return to the executive’s office and say, “Here’s the bottom-up estimate I mentioned. With the work breakdown structure done and the resource commitments I’ve noted, I’m 60% certain we can finish within 24 – 28 working days.”

The executive gives a slightly less venomous sigh and says, “This is getting better but I’d still like a really tight estimate.”

You nod and say, “The fourth type of estimate I’ll be giving you is a weekly rolling estimate. As our work on the project progresses, the uncertainty will decrease and I’ll give you new estimates regularly.  These are called rolling estimates.  As an example, once the stakeholders approve the requirements, the uncertainty in the development work will go down and that estimate will get much tighter.”

## Project Estimation: Increasing Certainty

This simple four-step process illustrates how you can give estimates and use different estimation techniques as the project uncertainty declines.  In the example, you initially used analogous estimates based on information about prior projects.  Next, working top-down from the scope, you estimated by major deliverables using ratios from earlier projects.  This information could have come from an organizational project databank (analogous estimating), from commercial estimating methodologies (parametric estimating) or from elaborate statistical analysis of earlier projects. Whatever the source of the data, the top-down estimation technique provided overall estimates with relatively broad ranges.

In the third and fourth project estimation techniques, you used the work breakdown structure and duration/work estimating techniques at the level of individual assignments.  Using work packages improved the estimate accuracy and team member commitment. So the numbers got a lot more accurate. In the bottom-up approach, you totaled the project team members’ estimates to develop the overall project estimate.  You based your estimate on each team member’s pessimistic, optimistic and best guess estimates (3-point estimates) for their individual assignments. Three-point estimating is a widely used and effective technique.

The fourth estimation type was rolling estimates. These were also based on the bottom-up approach with the team members making regular weekly re-estimates of their task’s remaining work/duration.  As the team completes tasks each week, the uncertainty decreases and the estimates become more accurate.

A consistent requirement in these project estimating techniques is a clear and unambiguous scope definition. You also need measurable outcomes for all the deliverables and task assignments in the project. Estimating is difficult enough without the burden of a vague project scope or vague team member assignments.

## Project Estimation: Organization-wide Process

A major step to consistent estimation accuracy and success involves a modest investment in archiving data from earlier projects. This whole estimation process becomes more effective when the organization stops playing fantasy games with project estimates. They must adopt a consistent methodology for developing the kind of better and more accurate estimates we’ve been discussing.

Having an organization-wide process that details what estimating technique should be used at each project lifecycle phase is also a valuable component.  So is requiring the use of work packages to document what data supports each estimate.

Here is a related article:  How to Estimate Cost and Duration

To learn more about these project estimation techniques, consider our private, online Project Management Tools course. You have reading, video lectures and work on a project case study to practice using these project estimation techniques. Your personal coach is an expert project manager. You have unlimited video conferences with them as you master these project estimation techniques.

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

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## 3-Point Estimating

Estimating is tricky for project managers because the customer wants the project to be done quickly and cheaply. You want your team to be committed to the numbers because they are realistic and fair. On top of that, everyone is concerned with the risk that exists on any project. So the best estimating technique should give you accurate numbers and some assessment of the risk in the tasks and the project as a whole. The best approach is to quantify the estimate and the risk of not hitting it. We use the 3-point estimating technique, which comes from the NASA space program, to do this.

This process lets you estimate work and duration with the team and listen to the risks they see on their assignments. It also lets you give project sponsors the opportunity to decide what level of risk they want to accept on the project. Then you can quantify the additional costs that would be incurred to reduce the risks to a lower level.

The 3-point estimating process, which is also known as PERT (Project Evaluation and Review Technique), is a three-step process where you work closely with the team members. First, you discuss the team member’s task and the risks. This includes the good risks that could cause this task to take less work and the bad risks that could cause it to take more work. Second, you note these risks in a work package and discuss the approach to the task with the team member. Third, the team member makes three estimates: an optimistic estimate, a pessimistic estimate and a best guess estimate. You apply the formulas* (at the end of this article) to those three estimates to come up with the actual data that you will use in the project schedule.

## Common Estimating & Risk Issues

There are two mindsets that often plague the estimating process:

• Executives believe that projects have no risk
• Team members think that padding their estimates will protect them from blame.

Both of these mindsets are false and they  get in the way of accurate estimatingThe 3-point estimating technique deals with both these mindsets. Three-point estimating is a straightforward process for developing estimates using a little bit of statistics.  Three-point estimating gives you a tool to quantitatively communicate about the risk of a task’s estimate.  It lets you stop pretending that task #135 is going to finish in precisely 15 days or that the project will absolutely finish by August 30.  It also lets you address the issue that most projects are launched with less than a 35% chance of finishing by their promised due date. Because no one talks about that issue, executives think the completion date is 100% guaranteed. They believe it’s only time missed when someone goofs off.

As an example, the best project managers tell sponsors that a project has a 65% chance of finishing by August 30. These PMs also explain what they can do to increase those odds to 75% or 90% and what it will cost. Those same PMs manage the assignments of their project team members with an understanding that there is risk on each assignment. They use 3-point estimating techniques to get accurate numbers and reflect the risk.

## 3-Point Estimating Process

The 3-point estimating process starts with a discussion with the team member about the risk inherent in their task assignment. You discuss the bad risks that will make their task take more work and more time. You also discuss the good risks that will cause it to take less work and time. Why should you do this step? Because you need an estimating process that addresses the team member’s legitimate concern that bad things will happen on their assignment and they’ll be blamed for not meeting the completion date.

Let’s talk a little bit about risk. When you ask me how long it will take to read this newsletter, I might estimate five minutes. Am I guaranteeing you that no matter what happens you’ll be able to read the whole thing in five minutes? No, what I mean is that 5 minutes is my best guess. That means there is a 50% chance it will take you less than five minutes and a 50% chance it will take you more than five minutes.

But if you are my project manager and you ask me for a task estimate, I would be a little hesitant to give you an estimate in which there was a 50% chance of an overrun. What I would rather give you is an estimate where I’m 90% confident that I can finish in that much time or less. As the project manager, you would probably regard that estimate as padded. As the team member, I feel more comfortable with a 90% estimate. Unfortunately, there is no consistency in the amount of padding your team members do.

You want your team members to leave the estimating process knowing that you considered the fact that things can go wrong on a task assignment. Using the three estimates enables you to do that. It’s better than
having a team member give you a single estimate and play the padding game about how certain that estimate is. The three estimates tell you the variability in the task.

## 3-Point Estimating: Best Guess, Optimistic and Pessimistic Estimates

With agreement on the risks in the task assignment, you go on to ask for their estimates of work and duration (time). As the name implies, 3-point estimating requires three estimates for each task. That sounds like it will take a lot of work but it takes a matter of minutes.  You and the team member develop an optimistic estimate, a pessimistic estimate and a best guess estimate for each task. In developing those three estimates, we get more accurate estimates from team members and assess the task’s degree of risk and the range of durations.

Your team member estimates that a task has a best guess estimate of 80 hours of work.  That means that 50% of the time it will take more work and 50% of the time it will take less work.

Next, the optimistic work estimate is that it will take less work than the best guess.  It is not a perfect world estimate but you want an estimate that’s based on the good risks you identified coming to pass.  The optimistic estimate is low enough that the team member thinks they can get the task done for less than the optimistic estimate 20% of the time.  The task will require more work than the optimistic estimate 80% of the time.

The pessimistic estimate is that it will take more work than the best guess. It is not a “disaster” estimate but you want an estimate that’s based on the bad risks you identified coming to pass.  The pessimistic estimate is high enough that the team member thinks they can get the task done for less than the pessimistic estimate 80% of the time.  The task will require more work than the pessimistic estimate 20% of the time.

Now let’s dip our toe into the statistics and look at two tasks, Alpha and Beta, and the calculated work estimates you would use at three different levels of confidence.

We take the three estimates and use the following simple formulas*to calculate the task’s work estimate for a certain level of confidence of finishing within the estimate.

Mean=(4*BG)+OE+PE/6.  The mean is 4 times the best guess + the optimistic guess + the pessimistic guess divided by 6.

SD=(PE-OE)/6.  The standard deviation is the pessimistic guess minus the optimistic guess divided by 6.

Probability level = work= Mean +(z-score for probability)*SD

For task Alpha we can be 80% confident with an 82.2 hour estimate. But task Beta, with optimistic and pessimistic estimates that are further from the best guess than Alpha, will require an 88.7 hour estimate to reach the 80% confidence level.

## Using 3-Point Estimating

All of the better project management software packages, such as Microsoft Project®, enable you to use 3-point estimates and create a variety of reports that communicate the project’s risks. You can take estimates like those above and calculate the odds of finishing the entire project within various durations.  That information is a solid basis for a discussion with the sponsor about the tradeoffs between cost, scope, duration, risk and resources.

To learn these 3-point estimating techniques and the entire estimating process, consider our private, online courses where you work individually with your instructor. They are available by phone, video conference or e-mail whenever you have a question or need help on an assignment. We can also deliver a customized training program at your site for up to 25 people. Call us at 303-596-0000.

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## Time Estimation: The Wrong Way – Video

Time Estimation is part of every project manager’s daily life. Project managers have to make time estimates at the very beginning of every project, during the initiation phase. That’s because the sponsor needs to know when the project will be done. The sponsor wants to be sure the PM will meet his due date expectation. The project manager will make additional estimates during the planning phase. But probably the most important estimate is the estimate of duration and work for the team members’ assignments.  That time estimation has to be accurate. And there is a tremendous advantage if the team members participate in the time estimation process. Then they have a commitment to finishing their work within that time. When the team members participate in making the estimate and think that the estimate is fair, the project manager gets a much higher level of commitment from them. That’s why there is such an emphasis on”Bottom up”  time estimation.

The question, “When are you going to be done?” is used so often in project management that it ought to have an acronym.  The accuracy of the time estimates is a major determinant of a project manager’s credibility with upper management, stakeholders and the project team.  Main Estimating Page

The video shows how most project managers do Time Estimation and that is the wrong way. The project manager in the video uses a technique for time estimation that 60% of project managers use, but it is awful.  It creates time estimates that no one believes, so no one is committed to them. After you watch the project manager work with the team, you’ll go behind-the-scenes and hear what the team members say about their time estimation session. You’ll also hear from the project sponsor about the completion date he set. Then I will give you my assessment of what happened, the impact on the team members, the level of commitment they have to their dates and how the project manager should have done things. I hope you enjoy it.

You can learn to use several time estimation techniques in our online project management courses. You’ll work privately and individually with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at the course in your specialty.

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## PERT Estimates – Teaching Your Team How to Do It

PERT Estimates (Program Evaluation and Review Technique) are sometimes called 3-point estimates. The reason this technique is a best practice is that it gives you three benefits:

• Increased accuracy
• Useful information on the risks of each task that you estimate
• Better commitment from the project team members because the estimate considers the task’s risks.     Project Estimating Main Page

### How To Do PERT Estimates or 3-Point Estimates

1. You work with the team member assigned to the task and identify the positive and negative risks involved in that task.  Positive risks are the things that could make it take less time and negative risks are the things that could make it take longer.

2. Then you ask the team member to make three estimates. The first estimate is a best guess (BG). It is the average amount of work the task might take if the team member performed it 100 times. The second estimate is the pessimistic (P) estimate. That is how much work the task would take if the identified negative factors occur. Last, you ask for an optimistic (O) estimate. That is how much work the task would take if the identified positive risks occur.

3. Next you do some simple mathematics with the three estimates. You calculate the mean and standard deviation applying the 3-point (PERT) estimating formulas to the estimates the team member gave you. (O + 4BG + P) ÷ 6 equals the weighted mean. P-O/6 is the standard deviation (used for calculating probabilities). The mean estimate is the one you use for the task. It reflects the amount of risk in the task and the severity of the impact of the optimistic and pessimistic risks.

### Presenting the Results of 3-point Estimates to Stakeholders

This technique is new in many organizations and you need to explain it to the project’s sponsor and stakeholders. Watch the following video to see a project manager develop and present 3-point estimates to the sponsor and some difficult stakeholders.

How To Do 3-point Estimates With Your Team

You can learn these techniques for PERT or 3-point estimating in our online project management courses. You’ll work privately and individually with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish. Take a look at the course in your specialty.

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## Project Cash Flow

### Making Sure the Project Cash Flow Will be There

Just as project managers must secure the availability of the project team members and the materials or equipment required for the tasks, they must also secure the project cash flow availability. While some contractors will wait until the completion of the project to receive payment, others must be paid when they have finished their assignment. Still other contractors may require periodic payments during the course of the work. Some materials and equipment may be available within the performing organization but other equipment must be leased or rented. And materials must be ordered from suppliers who have their own payment terms.

Your experience managing projects may be limited to projects done within an organization where the people, materials and equipment are all available from different departments in the organization. In that situation, these cash flow issues don’t arise. so you don’t have to read this article.

### Project Cash Flow Forecast

Having contractors stop work because they haven’t been paid or suppliers refuse to deliver necessary items because they haven’t been paid is the kind of mistake good project managers don’t make. These project managers always develop a forecast of the project cash flow. This can be developed in an Excel spreadsheet but the easier way is to use project schedule software. Professional-level software gives you the ability to forecast the cost of contractors and materials directly from your project schedule. As an example, from the schedule you could identify the materials that have been delivered, the equipment that has been leased and the professional or consulting fees the project will have incurred at the end of each month. Having this data allows you to discuss the project cash flow requirements before consultants or vendors have gone unpaid and stopped work. Cost Benefit Analysis Main Page

### Project Cash Flow Problems

Executives who are owners of the project should approve the cost benefit analysis, the project plan and the required cash flow before work starts on the project. If that doesn’t occur, problems like this one will arise. During the execution stage, the PM submits a request to pay a supplier. The finance manager replies that there is no cash! The project manager argues that the executives approved the project budget. The finance manager agrees that is true but he cannot reserve all funding amounts at one time. As a result, this problem affects the entire project duration. This is an example of not planning for cash flow during the project planning phase. The PM should have gotten the finance manager’s  commitment about payments.

### Project Cash Flow Plan

All receivables and payables during the project’s life cycle should be planned and secured. The project manager should plan for the cash flow on a monthly basis, as shown below, and get the finance manager’s approval.

Cash Flow Project Plan
Period 01-JUN-2013 To 30-JUN-2013
“The Whole Amount must be reserved from the beginning of the month to the End” Item IN OUT