Creating a project cost breakdown is essential for analyzing profitability and communicating with clients. How to prepare a comprehensive structure?
We all know that accurate estimates are extremely valuable in project management – they help you develop realistic project plans, budgets and schedules. Therefore, estimation results largely define project outcomes.
But how to make sure your estimates are accurate?
The key is information you apply to develop them. To predict the right volume of time and expenses, you must be fully aware of project deliverables, goals and activities involved. To calculate how long it would take to complete a task, you need to understand the work process. That is to say, you have to be conscious of how your team members handle their duties and possible difficulties, which tools they use daily and how they manage their working time.
Hence, team relationships play a vital role in defining the accuracy of time (and cost) estimates, and there is no doubt that estimation is more accurate in collaborative environments.
Here are two main arguments in favor of this statement:
1. Participatory environments improve communication and harmonize relationships between managers and employees, allowing for a deeper understanding of how everyone works.
Employee participation implies a democratic involvement of employees in decision making, a high degree of manager-employee collaboration and open idea sharing. The favorable outcomes of employee participation are many:
- Well-balanced, positive team relationships;
- Stronger sense of teamwork;
- Higher employee motivation and empowerment;
- Reduced need for supervision, etc.
It’s apparent that by encouraging workers to regularly share opinions on various work-related issues, managers gain an opportunity to learn more about their teams. And it’s essential to know your employees well for making accurate estimates – the deeper you understand how people work, their roles, duties and methods, the stronger is your ability to predict how much time they need to complete a specific task.
It’s important to note that employee participation can produce desired outcomes only in team-based and network-type organizational structures. In strictly hierarchical workplaces, where managers enjoy superior authority and prefer to control everything, employees may feel unenthusiastic about voicing their real thoughts freely. Hence, a democratic and friendly environment is vital if you want to guarantee that your team members’ time estimates are based on their true opinions and aren’t formed under pressure to meet your expectations. In other words, by making employees feel accepted and minimizing the fear of criticism, you eliminate some of the psychological factors that could reduce estimation accuracy.
2. Collective decision making is usually more critical and considers a broader scope of information than the individual one, which makes its results keener and more accurate.
As individuals, we are influenced by beliefs, emotions and prejudices that we normally can’t evaluate critically from a bystander perspective. Besides, our attention and knowledge are often limited. For this reason, we are all prone to arrive at biased conclusions by and large.
The risk of subjective biasing is much lower in collective decision making and estimation:
- Personal opinions and ideas are thoroughly evaluated and criticized during group discussions.
- Each participant contributes their unique perspective, allowing the team to take into account a large number of factors and develop a more complete picture of the problem.
- When many experts and professionals are involved in estimation, it becomes easier to bridge the existing gaps in knowledge.
Overall, when you estimate together with colleagues, your comprehension of project specifics, related activities and processes becomes more in-depth. As a consequence, you obtain less biased and more trustworthy conclusions and predictions regarding project duration.
How to involve your team in the estimation process?
If you want to know your employees better and listen to their opinions, you need to start a conversation. Since you would like the majority of your team members to participate in decision making, the best way to arrange such a conversation is though a group meeting.
Note that by their very nature, some of the estimation techniques already target to develop estimates through collective discussions (assume the Delphi method as an example). Others – such as Planning Poker – also bring a bit of fun into the team-based estimation sessions. Your main objective here is to select a technique / estimation exercise that suits your specific case best. Afterward, all that’s left to do is to choose a date, instruct your team on the estimation rules and see the practice work and produce great results.
Clearly, it may be hard (or even impossible) to involve that many workers in the discussion process in large organizations. In this situation, you can develop a sort of an estimation committee that would consist of key employees and specialists from each department. Another alternative is to implement digital data collection tools, such as surveys and questionnaires. You can distribute them across different company levels, receive employees’ responses quickly and then analyze them to inform your project duration forecasts.
Although digital surveys don’t help evaluate employee insights profoundly, they offer a standardized and systematic approach to data collection. Thus, they facilitate employee involvement in the estimation process even in those environments where it’s hard to talk and listen to each team member.
Benefits and risks of team-based estimation
We’ve already clarified that when you involve the team in the estimation process, you increase the accuracy of results. Besides, through open discussion, you enhance employees’ awareness of project requirements and strengthen their commitment to fulfilling those requirements.
However, though team-based estimation eliminates the risks of subjective biases, it’s associated with a set of its own problems that must be taken into account to avoid estimation errors:
- Groupthink – A type of psychological bias that occurs when discussion participants make a wrong conclusion resulting from a shared urge to conform or avoid heated arguments. Such a premature consensus mostly arises due to the fear of criticism and conflicts. In other cases, groupthink can take place because of the failure to consider “outside” perspectives. Hence, it’s pivotal to ensure that many diverse employees are invited to your team-based estimation sessions and that they feel free to talk and express opinions that contradict managers’ ideas and beliefs.
- Sandbagging – The term applies to behaviors when individuals deliberately lower their performance expectations to achieve better-than-anticipated results. For instance, a team member can say that an optimal time estimate for their task is 10 hours while knowing perfectly well that they can finish this piece of work in 8 hours. Later, when the job is done in 8 hours, it seems like that employee overachieved. Sandbagging is common in work environments where people are recognized and appreciated only if they overdeliver and perform exceptionally. An excellent way to avoid that is by emphasizing the importance of estimation accuracy and acknowledging employee achievements regularly.
- Unintentional buffering – Adding some buffer time to your final estimate is a standard practice serving to reduce the risk of schedule overrun. However, unintentional (or unconscious / unreasonable) buffering can be detrimental as oversized estimates slow down the progress significantly. Employees may be inclined to overestimate tasks depending on managers’ attitudes towards delays (i.e., due to the fear of punishment for not meeting a deadline). Thus, a good solution to the problem is a change in your relationships with employees and your management style. In addition, to define the optimal buffer time, your team needs to pay enough attention to risk analysis since it leads to more reasonable and evidence-based conclusions.
Another thing to remember is that each person analyzes information and makes predictions in a unique fashion. Some people may be more intuitive, while others feel more comfortable using only hard data and focusing on details. Both ways are valuable and have a place to be. Nevertheless, when estimation approaches differ significantly from one team member to another, the results may be inconsistent.
You can (and must) encourage these differences in estimation styles since they might help you develop a more comprehensive picture of the project. Nevertheless, you need to offer a system and specific routines for employees to follow during the estimation process. In this way, you’ll introduce greater transparency and uniformity in team-based estimation and make it more feasible to measure and verify estimation results.