A potential client asks you for an estimate of how long a construction project will take. You spout off a range of numbers which have little to do with reality, but they sound about right and the client seems pleased with the answer.
Two weeks later that same client is asking for a contract, and you’ve somehow committed yourself to completing a project in an unrealistic time
While this is an extreme example, it is not that uncommon in our business. Many companies don’t spend enough time and effort in estimating the time, costs, and price of a project. This often leads to a loss of profitability of the project, completing out of scope work, client relationship woes, and missed deadlines.
This is partly because we want to be able to give clients a simple answer to these common questions: How much is this going to cost? And how long will it take?
Project estimating is both an art and a science: You can only know the time required to complete a project once the project is done.
It can never be completely accurate, but there are ways you can approach estimating so that the client pays a fair price, your agency makes an acceptable margin on the project, and the work is completed on time.
4 Project Estimating Techniques
1) Three-Point Estimating
This is also known as PERT — or the Program Evaluation and Review Technique. To use this estimating approach, you need to understand all the risks associated with a project, both bad and good. Based on these risks, you create three different estimates: Optimistic, Pessimistic, and Best Guess.
An example: You project that writing and designing an ebook will take 20 hours. That’s your best guess. Now you consider the risks. If the client approves the ebook upon the first delivery, that’s the best-case scenario. Your optimistic estimate then is 15 hours. If the designer is late delivering the files, the expert is unavailable for the first week for an interview, and the client requires three rounds of revisions, the pessimistic estimate would be more like 30 hours.
To find the true estimate that acknowledges the probability of risk, use this formula to find the project estimate once you have determined your three different numbers:
(Optimistic + Pessimistic + (4 X Best Guess)) / 6 = Project Estimate
Using our example above, the result looks like this: (15 + 30 + 80) / 6 = 21 Hours
2) Bottom-Up Estimating
Bottom-up estimating is where the individuals who will actually do the work become involved in the estimating process. This requires each “expert” or owner to estimate her time for the outlined deliverable that you or a team have come up with based on the client’s request.
This method works well as the person who will actually be doing the work is able to estimate her own time based on her past experiences and expertise. This also leads to a higher level of buy-in between the creative team and the person managing the project. This approach can be problematic if people are pressured into reducing or inflating their time or if negative consequences will occur if the work goes beyond a person’s estimated time.
Bottom-up estimating requires the person putting together the final quote to trust everyone who has provided a number of hours or estimate, and you will need to break down the individual tasks of a project prior to providing a proposal/scope of work.
3) Analogous Estimating
Analogous estimating is done when you don’t have a lot of information about the current project, but you need to provide an estimate. In this case, you rely on a previously completed similar project to provide a projected total cost. Analogous estimating requires that you have a record of previous projects and the time and costs associated with those jobs.
4) Parametric Estimating
This approach to estimating requires that you have access to published reports and reliable data – either internal or external — on how long it takes to finish a project and/or the typical hourly rates. It’s useful when you are just starting out and need to accurately estimate a larger project without having first-hand knowledge of the time commitment a project typically requires. You can also use this method if you need to produce an estimate quickly and simply want to rely on past data.
With parametric estimating, you choose a measurement that you can scale. An example: I wrote one blog post in three hours. I can then write three blog posts in nine hours.
This can be highly inaccurate when you take into account all the variable and customization required for client projects, but it could be a starting point for certain types of projects where the variables are stable.
11 Tips for More Accurate Project Estimating
1) Understand how each task impacts the overall project.
For most projects, each task is dependent on the previous task. If one fails to meet quality standards or if a task is completed behind schedule, that will affect the entire project. It’s a domino effect, which is why some agencies are looking to move away from waterfall methods to a more Agile project management approach.
Still, understanding the best case scenario and anticipating what areas of a project are most at risk and the impact of a missed deadline is important prior to working up an estimate. This will help you to adjust timelines and provide your estimate and project time frame with a buffer.
2) Understand what people on your team do and how they do it.
This is useful if you are in charge of putting together estimates and/or proposals for the entire team. While you don’t need to know how to code, design, or write, you do need to understand the person’s process, including where they start, what they need before they start a project, the common issues that cause them to fall behind in their work, and how they wrap up and finalize a project.
With this knowledge, you can ask the client and your teammate the right questions to produce an accurate and fair estimate.
3) Study historical data.
Project managers should look to historical data about how long a specific project took to create an accurate estimate. If your team is accurately tracking their time, you should look at each project after it’s completion and update a spreadsheet or file where you keep an ongoing list of the time spent on specific deliverable and tasks. This process would be more streamlined with a project management tool that allows you to track time by indivudal tasks and compare them over time. This will give you a more realistic view of how long a project takes, and it falls far outside of your average range, you can investigate why and learn from the problems that caused delays.
4) Properly scope the project.
Asking the right questions, and getting the “real” answers from the client is necessary to truly understand a project and be able to forecast the time and resources required by your agency.
Ask questions. And then ask more questions.
Here are a few to get you started:
What is the goal or objective of the project? Why are we doing this project?
Are there other projects that depend on the completion of this project?
How will you measure success?
What constraints on the project exist?
Who will manage the project from the client-side?
Who needs to review and approve the work?
Who will be the final decision-maker?
How many days do you need to review and approve drafts?
What is the ideal delivery date?
Will you require training on the technology or ongoing support after the completion of the project?
What are potential barriers from your side from getting the project approved and completed?
5) Confirm the project details with the client.
Once you have defined a scope of work, send an outline of everything you discussed and how that translates into the proposed scope of work. Include a timeline and review deadlines for the client. Make it clear that they too influence the final delivery date.
6) Outline negative scope.
While confirming what the project includes, you might also include what is not included — especially if you’ve had problems in the past with a particular service. An example: “This website project cost does not include the purchase of a SSL certificate,” or “This landing page design does not include the purchase of images for commercial use.”
7) Consider research and development time.
Especially if your team is younger or your agency is newer, many projects will require you to learn new skills or spend time understanding an unfamiliar industry. While you may not want to bill all of this to a client — they are, after all, paying you for your expertise — you may want to include research time in the overall project estimate.
8) Develop an on-boarding process.
This is less about creating an accurate estimate and more about staying within your proposed budget. As we stated earlier, accurate project estimating is key to profitable project work. With a structured, repeatable onboarding process, you can start the project more quickly, which will equal results faster for your client. Plus, those administrative things — such as a kick-off call, team assignments, access to client logins and accounts — can take up more time than you usually plan for. If you have a process, you can streamline this part and get to work.
9) Include a cost contingency.
While you might call them project costs, they are actually project estimates. You cannot know everything that can or will happen prior to kicking off the work. With this in mind, it’s smart to include a cost contingency to allow for uncertainties to occur. What amount should you add? There’s no right answer. Some add a certain percentage, and others employ more complicated models that take into account the amount of risk and confidence levels.
10) Have a process for creating project plans.
While your agency’s work is customized for each client, that doesn’t mean that every project’s tasks or process is completely new. Create a checklist, workflow process, or template estimates that can be used and further customized over time. Know the questions you need to ask for every website redesign. Have a process for getting quotes from people on your team and approval on the estimate from management. Have a project post-mortem to truly understand how inline with the reality your estimate was.
11) Determine what outside costs you will incur.
Will your agency need to buy certificates, licenses, subscriptions, or other materials to complete the project? When scoping the project, determine if you could complete the project more efficiently and effectively if you had different tools. You might also require access to research reports, data, or consumer insights reports. Discuss these costs with your team and/or the client.
Originally posted at blog.hubspot.com/agency/project-estimates