How to estimate projects accurately with certainty
Last updated on
January 3, 2020
Poor project estimation is dangerous. It limits profit margins, devours retainers, undermines professionalism, exhausts staff, postpones development and blunts your competitive edge. And almost every industry suffers from it – perhaps nowhere more so than the IT industry, where 45% of all large projects run over budget.
But you don’t need the extra expense of heavy-duty project management tools to improve project planning. We break down the only project planning technique you need to master to consistently scope and deliver profitable projects.
Why project planning fails
It’s largely a blend of human overconfidence and the poor use of data. Poorly estimated projects are those which ignore outcomes from previous similar projects. Since estimates always need to be based on something referential, the more they reflect actual data, the more accurate they will be.
Projects don’t actually have to be perfectly scoped from the start to be delivered on time and on budget. It’s actually pretty impossible to predict exactly how many rounds of revision or client contact a project will involve. Intelligent project planning merely looks at patterns in past project behaviour to estimate the room needed to deal with these “unknowns”.
How to estimate projects accurately
This 5-step project planning technique helps you precisely estimate project time and costs time over:
1. Gather a sample of similar past projects
Consider the type of task your new project falls into (e.g. building a new website or app) and find the most relevant examples across all your clients.
2. Pick a metric and calculate its distribution
If you’re estimating project time, look at how long you spent on each project phase and the tasks involved for previous similar projects. Then work out the distributional range for each (e.g. designing website UI takes between 5 and 8 hours).
3. Inform your distribution with human knowledge
Compare your range with the requirements of your new project, drawing on previous experience and knowledge to account for any differences, risks or unusual requirements for the new project. Use both to create an accurate project estimation.
4. Track and tweak live project performance
Monitor the performance of your estimate against actual project activity to test its accuracy.
5. Save post-project learnings for future reference
Once finished, analyze the entire project’s performance to highlight important learnings for future similar projects. It ensures your distributional ranges – and therefore future estimations – are as accurate as possible.
Why are distributional ranges SO important? They give you a realistic idea of how much unexpected extras – like iterations, client communication, revisions, conceptual discussion, and even travel – will impact your project. They give allowances for the threats that tend to extend each project phase and stretch projects beyond forecast deliveries.
How to gather data on previous projects
This is all very well, but how do you actually get data on past projects to estimate future ones? And how do can you analyze that data quickly and easily?
Thankfully, you don’t need to invest a ton in clunky project management systems to get the answers. While some people still opt for manual spreadsheet project tracking, lightweight automatic project tracking tools can do everything for you.
Tools like Timely capture every second you and your team spend on projects across all your devices while you work. Everything is digested into simple dashboards and shareable reports, so you can see precisely how project time is spent, identify threats and time drains, and take proactive action to steer projects in the right direction.
Beyond project profitability
Obviously, the main benefit of accurate project estimation is to deliver projects on time and on budget. But project time tracking can also help boost your profitability on a broader scale, by helping you:
Work out the most profitable pricing model to use for a project: fixed or hourly
Identify your most and least profitable clients, so you know who to focus on
Optimize your operational efficiency by seeing exactly how you spend project time
Price competitively with confidence, since you know your minimum requirements