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Estimations in Project Management

Simple Remedies

Modern project management techniques offer a number of methods and tools that you can use to improve your estimations. But first, you need to try to avoid common mental traps that can occur while doing estimations. 
One of the most important questions to ask is how can we integrate information about risks and uncertainties into our estimations? It is very difficult to analyze the effects of risks and uncertainties without specialized methods and tools, so at this point we’ll concentrate on estimation based on “best case scenarios” as well as collected information about risks. 

Never Do A Wild Guess

Estimations are possible based on partial information; however, we often try to make estimations without any or very little information. We will call this type of estimation a “wild guess”. (For those of you who dislike the word “wild”, we can also refer to it as an “intelligent guess”). For example, how much would is cost to develop one medication to treat all forms of cancer? There is no reliable information to support any answers to this question. However, these types of questions are often asked. We try to answer them, either because we don’t want to look incompetent, or because management is really pushing us. The manager’s position is quite understandable. He does not want to end up with question marks on the project schedule. 

Unfortunately, as soon as we deliver the estimate, everybody instantly forgets that it was a “wild guess” and according to the anchoring heuristic, this estimate becomes the anchor for all future discussions. Could you imagine this newspaper headline: “Project manager of PharmaCo Inc. estimates that universal cancer drug will cost five billon dollars”. Inevitably, people will use this number as starting point in any future analysis and discussions.
But what should we do if we are asked to make estimation without any information? The only solution is to get information from somewhere. If previous relevant data is not available, the only solution is to try some small task before starting a major activity and see what happens: how long will it take and what level of resources will it require? For example, you can make a prototype or evaluation tool. Unfortunately, sometimes management wants to forego this strategy and asks for an estimate immediately. This is where the big problems begin. 

Collect Relevant Historical Data

Most project managers know how important it is to collect and analyze historical data related to previous projects, but very few actually do it. If we had full set of relevant activities in front of us, our estimates will be more accurate. In some industries, this data is available through various software applications, forms and methodologies. In other industries, using these tools does not guarantee accuracy. If you are lucky, you work for those organizations that routinely collect and analyze historical data as part of a portfolio management process.

But what if you don’t have any tools and want to make accurate estimation? The simple solution is to keep your old project schedules handy, so you can easily access and review them when you are trying to make estimations. 

Here is the simple way to analyze your information:

1. Look at previous project schedules or try to recall similar activities.

2. Write down activities and their relevance to the current one:

Proper collection and analysis of relevant historical data will help mitigate the negative effect of both motivational and cognitive biases, and will specifically help you address the availability heuristic.

Reality checks

Reality checks are a simple way to improve the accuracy of your estimations. The objective is to compare your estimations with known project results. Here is an example of how NASA analyzed the cost of the LISA project:
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Einstein’s theory of relativity has predicted the gravitational wave. NASA and European Space Agency are planning a mission called Laser Interferometer Space Antenna (LISA). LISA will consist of three sciencecraft, which will carry laser devices to measure passing gravitational waves. The launch is planned for 2011. The mission cost is very substantial and at the same time uncertain. NASA has used a number of techniques to estimate the cost. For example, NASA has plotted LISA against other NASA missions with similar size and cost.

It as a type of reality check. The analysis has shown that cost calculation for LISA project has been done consistently with the other missions. The main purpose of reality checks is to ensure that similar projects or activities will not require significantly different resources. 

Independent Assessment

Independent estimations by different members of the same team or by different teams are a double-edged sword. On one hand, they offers additional look on the estimated parameters. On the other hand, psychologists know that assessments made by separate individual teams may be completely different and difficult to reconcile. Sometimes the independent assessment is as biased as the original estimate.

For some projects, especially with huge budgets, independent assessment is a requirement. 

For example, for LISA Project, cost of the mission was independently assessed by JPL. JPL’s cost estimate was $843m, while the original LISA Project cost estimate was $872m. Most importantly, after the independent assessment, an analysis was performed to discover what was the cause of the difference. This analysis found that the internal LISA Project estimates put more emphasis on technology development, which caused an increase in cost.

Sometimes an independent assessment may not be practical, as it may be difficult to find independent experts familiar with the particular project. Nevertheless, any discussions regarding the results of estimations between team members or independent teams have proven to be very effective as it helps to incorporate more information into the estimations.

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