This true gem of a story happened much earlier in my career when I was working for one of the largest international banks. Basically, it explains how NOT to conduct estimates-related negotiations on your projects!

Director: Hey, I am going to assign you to this new regulatory project. Keep in mind, this is a high-profile endeavour; our main client is the Senior VP of our company. Keep in mind, he hates us, the IT guys. His nickname here is “El Diablo”!

Me: Yes, I have heard about this project. I have spoken to some of our technical people and they have estimated that it would take about nine months to deliver the final product...

Director: Yup, that is another problem. I have personally promised that we would deliver the product in three months

Me: (incredulously) What?! Three months? But now that he finds out the truth he will be mad!

Director: Don’t worry about that. I have a plan. We will proceed by breaking the news to him gradually!

Me: (sarcastically) Do you really think that he got to the position of Senior Vice President of one of the largest financial institutions in the world by being an utter idiot?

Director: (slightly offended) No!!! Why?

Me: How can a normal person NOT notice the difference between a three-month project and a nine-month project?

Director: (somewhat disappointed) I see… Yes, that is a bit of a problem, isn’t it?

Have you ever been forced into similar situations by your bosses? How did you handle them?

How often have you been in a situation when your manager (customer, stakeholder, etc.) taps you on the shoulder and says something to the effect of:

Hey, Bob, I have this little project for you. Here is what I need (proceeds to describe scope at a very high level). How long do you think it would take your team to deliver this? Can you provide me with your estimate by the end of the day (week)?

Every project manager is aware of the fact that as soon as we said “project estimate”, we, whether we like it or not, said “uncertainty”. So here is a million-dollar question:

How to provide quick estimates when very little is known about the final product?

Option 1: Plus-Minus Qualifiers

Example: This project should take six plus/minus two months

Duration = 6 months ± 2 months

Option 2: Ranges

Example: This project should take anywhere between four and eight months

Duration = 4 months – 8 months

Option 3: Cases

Example:

• Best case – 4 months
• Most likely – 6 months
• Worst case – 8 months

Option 4: Coarse Dates and Time Periods

Example: “3 Quarters” instead of “9 months” (or 180 days)

Duration = 3 Quarters

Option 5: Confidence Factors

Example: “We are 90% sure that the project will be done in between 90 and 120 days”

And how do you present your project estimates? Please leave your comments below.

1. Single number
2. Plus-Minus Qualifiers
3. Ranges
4. Cases
5. Coarse Dates and Time Periods
6. Confidence Factors

Introduction

I have recently been contacted by one of my blog readers who asked me a very interesting question:

What are the estimation accuracy norms for different phases of the projects?

I found this question to be so interesting that I decided to dedicate my next posting to this particular topic. But in order to answer this question in full, let us start at the very beginning, the definition of the estimate itself.

The Definition of the Estimate

According to the Guide to the Project Management Body of Knowledge (PMBOK) published by the Project Management Institute the estimate is:

An assessment of the likely quantitative result.  Usually applied to project costs and durations and should always include some indication of accuracy (+/- x percent)

Think about this definition for a while ... If we are to believe the opinion of one of the leading project management institutions in the world, then a single number, say, "9 months", "$100,000" or "350 man-months", is not an estimate. However, statements like "9+/-3 months" or "$75,000 to $125,000" are indeed true estimates.

While this fact is well-known to any experienced project manager, many executives, sales, marketing and operations professionals are frequently very surprised when this piece of information is brought to their attention.

Let us try to explore some more and find the root causes of this phenomenon.

There is Uncertainty in the Estimation Process!

We must understand that there is almost always a serious degree of uncertainty in the estimation process. Here are just some of the questions that can never be answered at the very beginning of the project:

I have recently been running a project management workshop at one of the European banks and an interesting dialogue took place between one of the senior managers and me. He basically asked me the following question:

I have a feeling that our project managers constantly pad their estimates in order to obtain more breathing room and to make their lives easier than they should be. How does one address this issue?

In response I walked over to the next available flipchart and drew this figure (see Figure 1):

Figure 1

Me: When you assign projects to your project managers what do you usually ask of them?

SM: Well, I usually ask them to tell me how long on average this project should take ...

Me: (pointing to Figure 1) So, basically when they answer your question, they provide you with a "fair" estimate for this project. Do you realize that according to the laws of statistics, you have only a fifty percent chance of hitting that deadline?

SM: Oh, I never thought about it that way ...

Me: And we haven't even considered the optimism bias theory, that in a nutshell , states that humans tend to constantly  overestimate their abilities and underestimate the complexity of tasks at hand. So, in reality when they think that they provide you with a 50/50 estimate, they actually supply you with a deadline they have only a 20% probability to hit (see Figure 2)?

Figure 2

Me: So, as a project sponsor would you be comfortable with only a 20% probability of finishing on time?

SM: Absolutely not!

Me: So, what threshold would be satisfactory for you?

SM:  I guess at least 90% on most of my projects. And some of them would require even higher probability, say, 95 or 99% ...

American troops, on the other hand, had a much tougher challenge: the occupation of the mountainous centre and western half of the island. Nevertheless, the American Seventh Army was able to reach the north coast of Sicily in only seven days and with hardly a shot fired. What allowed the US troops to accomplish "the fastest blitzkrieg in history", as General Patton once described this campaign?

According to some historians, the American government managed to strike a deal with the most powerful man on the island, the capo di tutti capi of the Sicilian mafia - Don Calogero Vizzini. The US Office of Strategic Services (OSS) - the wartime predecessor of the Central Intelligence Agency (CIA) - recruited Charles "Lucky" Luciano to act as an intermediary between the advancing US Army and "La Cosa Nostra". As a result of these negotiations, the mafia protected the roads from snipers, arranged enthusiastic welcomes for the advancing troops, encouraged mass desertions from the Italian army and provided guides through the confusing mountain terrain.

One might wonder what events lead to such an unlikely alliance between the Allied forces and the mafia chieftain? A negotiating expert would call this situation "a value-creation exercise in negotiations". This was a classical case of proverbial synergy, where two sides stood to benefit immensely from one shared goal - the liberation of Sicily from fascists. The benefits, derived from this partnership, however, were quite different but surprisingly congruent.