How can a project manager ensure that estimates are accurate and how bad estimates can lead to good projects failing

Estimating is a critical part of project planning, involving a quantitative estimate of project costs, resources or duration. Typically, a project estimate shows the client: Tasks – What’s going to be done, Resources – By who, Rate – At what billing rate, in what currency, with how much tax, Duration – For how many hours or days, and + any mark-up and 3^rd party costs (such as hosting, photography, travel or subsistence).

Accurate Estimates

1. Designate a Lead Estimator

2. Encourage Bottom-Up Estimating

3. Gather Detailed Requirements

4. Determine Pessimistic, Best Guess, and Optimistic Estimates

5. Encourage Communication among Project Members

6. Include Finance and Legal Staff

The project manager can ensure that his estimates are correct by beginning with estimating the time needed for each task rather than for the project as a whole. The level of detail they need to go into depends on the circumstances. For example, you may only need a rough outline of time estimates for future project phases, but you'll probably need detailed estimates for the phase ahead. They should list all of the assumptions, exclusions and constraints that are relevant; and note any data sources that they rely on. This will help when estimates are questioned, and will also help identify any risk areas if circumstances change. Assuming that resources will only be productive for 80 percent of the time.

Building in time for unexpected events such as sickness, supply problems, equipment failure, accidents and emergencies, problem solving, and meetings. If some people are only working "part-time" on a project, it’s important to bear in mind that they may lose time as they switch between their various roles. Remember that people are often overly optimistic, and may significantly underestimate the amount of time that it will take for them to complete tasks.

Bad Estimates

Estimation is at the heart of most project disciplines, and project cost and time overruns can often be traced back to inaccurate estimates.

Project estimates go wrong due to:

1.  False analogies

2.  False precision

3.  Estimation by decree

4.  Subjectivity

5.  Coordination neglect

6. Too coarse grained

7.  The one size fits all approach

Inexperienced estimators tend to be overly optimistic and assume that everything will go right. More experienced estimators tend to assume everything will go wrong and so pad their estimates accordingly. But, in the planning process, this padding can become cumulative (as above) resulting in poor overall estimates. And, as the estimates drive the costs, this can unnecessarily increase the cost of the project. Poor estimating is also encouraged by a project's culture. Senior management conveniently forgets the meaning of the word "estimates" and assumes they should be accurate, "If you know what you're doing." But management ask for too much accuracy too soon.

When "final" estimates are required too early in the project delivery process (before the requirements, let alone the solution have been defined), the level of reliable information required for estimating is too low for accurate.