Tweet

Padding Estimates

Written by: Robert Whipple

Article Overview: We all know there is a game of padding estimates in most parts of our society. It certainly exists in business. Here are a few helpful thoughts on how you can get more accurate numbers.

Padding Estimates

Early in my career, I worked with an estimator whose job it was to figure out the costs of projects in advance. One day he told me, "When you estimate costs for a living, you need to be prepared for one eventuality, you will always be wrong." Of course, he was stretching the point because often costs come in within a small range of the point estimate, but they are almost never correct down to the last digit. You can practice to improve your aim and illuminate the target better to see the bull's eye, but in the end you still have to shoot the dart at the dartboard. Recognizing that estimating costs is an inexact science is a first step to understanding this complex process. The second, and more difficult, step is to realize that the estimates come from people, and every person has an agenda. Human nature leads us to do things that win favor and avoid things that can make us look incompetent. Since the penalty for guessing wrong is worse if your estimate of costs is too low, most people tend to err on the high side. The problem is worse if people expect management to recognize a bias and make adjustments to their figures based on that. It becomes a vicious circle as people try to second guess what management will do to their estimates and compensate for it by inflating their original figures.

You can identify somedefenses to this problem like relying on historical figures and using Monte Carlo processes. These devices may help mitigate the problem, but do not remove the underlying cause. One technique worth considering is allowing people to give range estimates rather than point estimates. That gives the illusion of more safety as people can give their "real" guess as the low figure and one with a significant contingency as the top figure.

Another way to fight the bias is to base rewards on accuracy of the absolute number. That is, make the penalty for gross underestimates as painful as the penalty for overestimating. That sounds logical, but it is hard to administer. People can see the look on the boss' face if costs come in under the estimate. It has a smile. If costs are above the estimate, the boss looks pained because he or she will have some explaining to do.

One approach taken by astute estimators is to use change of scope discussions to hone in on more accurate estimates as the job progresses. One shrewd estimator said it this way, "I always put in low estimates. I realize that changes are profits in escrow." Since scope creep is present in some form in every project, it offers the ability to tweak the estimates up or down several times while the project is progressing. This has the impact of greatly improving the accuracy of cost estimates.

Related Articles
  Buy a Business, Start a Business or Buy a Franchise?
  You can't bring a horse to water
  Rules Suck
  Voice Mail Hell...
  Top 10 Things - The First Minute of a Sales Candidate Interview

Article Tags: Estimates Costs Leadership, Scope creep, Trust



Related Forum Posts
Re: How to Manage Your Emails - Kevin - I have a lot of subfolders and I've been creating rules for new emails, using outlook. In a perfect world this could be done as the messages come in so 'future' messages will get routed right into their little folders - the thing is, you have to remember to scan those folders or you miss the incoming messages. Some of my Subfolders - Vendors Current Projects Estimates Past Clients Forums Friends and Family My Websites GT - [quote:3xmyx5l3]Hi, Russell: Sad to say, I am visually oriented ... which (for me) simply means "Out of sight, out of mind." (Hey. The wife has been saying that second part about me for years!) I haven't been able to take advantage of email filtering options - or, I haven't made the attempt to. My concern is that I will get lazy about checking all those filtered files and will miss something important. I like to see it in my inbox in the order they came in so I KNOW it's there and can deal with them one at a time. For me (being visual), it would be frustrating to have to check SEVERAL folders each time I look at my mail just to see if something new came into those folders. I want it front and center so I don't miss it.[/quote:3xmyx5l3] In this case you could track incoming emails if all previous msgs are opened - Then you scan n your subfolders for new 'unopened emails'. It works for me - though I get your point completely...


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

What Is The Foundation for Your Vision?

LEARNING TO HAVE FUN – EVERYDAY!

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.