It was a celebration event. Our sales guys had organized it. We were all in joyous mood. After all, the win was after a tough battle with the competition. But guess what the PM was worried.
“Worry lines on his face are usual” thought the sales director. “What’s wrong Mr. PM?” he asked. “We have too tight effort budget” replied the PM. “Oh Come on! You can manage it” expressed the sales director.
But the fact is that most of our projects do not complete on-time, within effort budget and to the customer expectations. One of the root causes of such a dismal project performance is the bad estimate.
But what is a Bad Estimate?
A bad estimate has following characteristics
- Sizing (that is computing quantum of work) is not done
- Done in short time without usage of the tool and the history data
- Is a guesstimate of the effort and the duration
- Impacts of the risks on estimates are not computed
- The defect numbers and resource ramp-up/down are not estimated
- Cost of crashing the project is not estimated
Yes, it is easy to expect, but very challenging to get a realistic estimate, particularly at the proposal stage. We will discuss how to improve the situation in subsequent blogs. But let us discuss now what is the impact of a bad estimate on the project performance, team morale, work-life balance and most important on the bottom line of the organization.
Impacts of Bad Estimates
- Pessimistic Estimates: Beaten by the earlier bad experiences we try to push a large buffer in the estimate. It is our the contingency management plan. We feel secured and wiser. There are two impacts of the pessimistic estimate. First, we lose the opportunity. No further worry! We are safe for now. The second, our sales team and the customer procurement negotiate hard. Cut the buffer. We land in having less than 80% original realistic efforts. Do we go ahead? Do we have any say on that?
- Optimistic Estimates: Our probability of wining improves. Off course, it is not true the project will be awarded to the lowest bidder. But still we get some edge. We get short listed. Further negotiation puts lot of pressure. We may win. But PM and team will carry all burden. Many sleepless nights are in store for them.
- Resource Mobilization: Bad estimates do not give the resource ramp-up / down figures. The first thing the PM is worried about getting resources. Sometimes the old team continues. But several times the peak time resources are moved to project right at start. God save the project contribution!!
- Gut Feel Planning: Project plans done at the kickoff stage are just on the gut feel. We do not scope the work. Sometimes the lifecycle model are changed at this stage. Activity break down done at proposal stage is put on the shelf. We start with a great momentum and hope. We keep on assuring ourselves we will manage the situation. Cross the bridge when it comes.
- Review Effectiveness: Defects are not predicted either total or phase wise. How do we ensure the requirement review was effective without knowing how many requirement defects are expected. Hence, we are not sure whether the review was effective by counting the defects found. We just allow defect to pass to the subsequent life cycle phases. As you know the cost of defect leakage is very high. Lot of rework due to the late defect detection and imbalanced work-life!
- Team Burnout: The fuzzy scope boundaries, the over optimistic estimation, the uncontrolled changes are major risks for the project. Combination of these factors results into lot of rework. Due dates are negotiated but do not give much relief. The team stretches in the evening and burnout the holidays. End result a burnt-out team.
- Contribution Margin: The contribution margin is equal to revenue minus direct cost. In an underestimated project the contribution margin is under tremendous pressure. Further uncontrolled changes add fuel to fire.
Thus we see there is a lot of negative impact of the bad estimates on the project. We need better estimates. But how to improve estimations?
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