Hi everyone… over my 20 plus years of managing programs, projects, and project managers, I have developed and reviewed hundreds of project cost-estimates and proposals. Here are a few takeaways that I continue to bear in mind and hope you might find useful when it comes to costing for your projects.
- Not accounting for historical costs (maybe due to lack of availability of numbers, unwillingness by stakeholders to provide historical costs).
- Over reliance on historical numbers.
- Guesstimates versus estimates (not using a basis/model for estimating).
- Lack of transparency – not using accurate labor rates/costs.
- Underestimation – not being aware of market cost/rates.
- Lack of understanding of the estimating process.
- Lack of experience in estimating – never estimated before or never did so frequently in the past.
- Lack of understanding of a project life cycle – risks and how to manage / mitigate them with appropriate resourcing.
- Picking a Project Manager who is a pure administrator/paper pusher who relies on others for estimates on every line item.
- Not re-validating a line item estimate that is received from someone.
- Using Project Managers who do not understand the culture of the organization.
- Not listing assumptions behind each cost element.
- Not accounting for market conditions that can affect human resource cost/rates on multi-year projects.
- Lack of detailed planning – too many high-level line items in the estimates.
- In sufficient cross-review of a project manager’s estimates by functional managers, directors, and/or sponsors.
- Project Costing by decree – imposing a budget and timelines on a project.
- Inaccurate line-item estimates quickly add up – larger the plan, greater the magnitude of error.
- Time lost in re-estimating, refining when you find out estimates are wrong/invalid.
- Lowers confidence of staff who participated in the development of estimates.
- Project slowdowns when you discover that estimates were off; results in: crisis, finger pointing, root cause analysis, re-estimation and justification, requesting and getting additional funds.
- Lack of trust in the planning process.
- In some cases, firing and re-hiring of project manager may be required resulting in major down-time.
- When bringing in a project manager from the outside, the project manager almost always has a lack of understanding of the culture of the organization; estimation that is done without an understanding/insight into the culture of the organization is almost always inaccurate (either grossly over or under budget).
- Over-reliance on historical numbers can be a mistake unless the project is exactly similar to the historical one.
- When budgets are imposed on a project versus determining what a project will truly cost, the project is bound to fail.
As a rule, make sure that the project manager you hire is aware of these common mistakes. You can use the list (1 to 16) as a checklist when reviewing any cost proposal whether it is by your internal project manager or a vendor who is submitting a proposal.
Thanks for reading. Be safe till my next post.