Family man, family problems....My wife and i have been working on finding a Nanny for our 3 year old for past few weeks....Let me say its not an easy task....you have to go through classifieds, talk to your network of friends, interview people for the position, negotiate terms, the whole nine yards...
This activity made me think about writing this article.
Working as an IT Manager, many a times we come across similar scenarios wherein the Client would want to go through a Vendor procurement Process.
For the sake of simplicity, we will refer to the Organization seeking Vendor Services as a "buyer".
Here are a few scenarios from my Insurance world, why a buyer would look for Vendor services,
1> Outsourcing Services
- An Insurance company say. wants to focus its attention on the Insurance Business and does not want to be sidetracked with IT Issues. So it would naturally want to partner with one or more IT Firms to run its business applications, maintain hardware, do application modifications to maintain and Competitive edge in its business domain.
2> IT Consulting Services
- An Insurance company in business for years and decades would have lots of in-house and Third party applications and services communicating with each other. Thus if the company wants to overhaul and upgrade its infrastructure, hardware or software systems for better and reliable performance and scalability, it has to procure services from Vendors who have handled similar Business Transformation Initiatives.
3> Technology Solutions
- An Insurance Company wants to (say.) move away from its Legacy applications and march towards the latest and greatest state of the art application suite available in the market to better run its business.
These are some of the reasons why the procurement manager would want follow proper Vendor Procurement guidelines. Failure to do so, may lead to problems and issues in the whole venture and many a times may lead to scrapping the whole deal either midway or towards the end of the project.
Here are the top 3 reasons why Procurement process may fail,
1> No clear requirement specifications and hence no clear understanding of the exact scope of work.
2> Carelessness in terms of contract clauses negotiations. No clear review of Vendor Contract terms and conditions.
3> Unrealistic targets and deadlines promised and accepted by both parties during the procurement process.
A Vendor Procurement process just like any project life cycle has 4 distinct phases, They are,
1> Requirement scope and Elaboration
- The Buyer has to elaborate on the exact requirements that will be shared with the Vendors and clearly defines why you are seeking the vendor services. These requirements may be Technical, functional etc as the case demands.
There will be a team of Business analysts and Functional experts who will meet the necessary business users to gather the exact requirements and thus prepare the requirements specifications documentation.
2> Vendor Selection
- The requirements specifications created are used to prepare an RFI (Request for Information), RFP (Request for Proposal) or RFQ (Request for Quotation) etc as the case may be.
The buyer Organization prepares a selected Vendor list and sends RFIs/RFP to them. The set of vendors must meet a predefined selection criteria set by the buyer organization. These prospective vendors will be someone, who already do similar service for the buyer organization or are in similar business as the work scope demands.
Before sending out the questionnairre to the Vendor make sure there is a confidentiality Non Disclosure agreement signed, as here the buyer may share some Business sensitive information with the potential vendors. It is necessary to safeguard the business information and Intellectual property from competition.
After this, if the vendors have some technical questions or need any clarifications, the buyer may arrange for a common Q&A session or they may request the vendor questions via email.The buyer sets a deadline for the questions and queries so they can be reviewed and answered.
The prospective Vendors have to be aware of the milestone dates and the formal processes like routing the questions through the procurement Manager etc.
The Procurement Manager is responsible for responding to the questions. The same information should be shared with all vendors, so that no one gets any unfair advantage in this process and in turn will also help the vendors understand the requirements better.
3> Contracting and Contract Administration
After receiving responses from the Bidders or Vendors, the buyer has its own selection criteria to finalize the vendor for the job. This is usually based on some weightage program, Vendor rating system, Proposal evaluation technique or expert judgement etc.
After the vendor selection is complete, then comes the contracting phase. In this phase, the contract agreement (this may also called as the Statement of work, Letter of Intent etc) that is sent by the vendor company has to be carefully read and scrutinized so that both parties agree to the terms and conditions in the contract and it is favorable to both parties. If there is any clarification, ambiguity in any of the points, seek clarification from the Vendor representative immediately.
Contract Administration is a very important phase for successful execution of the Contract. During execution, there may be some changes required to the Project scope, milestone and deadlines approval processes set.
The Contract should also be a project acceptance and completion criteria specified. e.g. For a new Policy System installation and enhancement project, the acceptance criteria specified should be in terms of service or scope delivery timeline (say 12 months) with (say) 2 Critical, 4 Medium and 6 low level bugs open.
There should be software SLA specified in the contract.
There should also be processes set for change controls. This includes tools, techniques and activities that help to monitor the change control process and control the project scope and timeline.
These contracts are generally prepared and reviewed by the legal departments with definite help and inputs from the procurement manager who forms the main coordinator. So make sure the contract is well understood by you - the Procurement Manager. It is detailed and elaborate. The contract has to specify the penalties to be imposed on the vendor in case of missed deadlines like any pricing credits or additional resource guarantee etc
4> Exit and Renewal criteria
The contract also has to specify the exit criteria for extreme cases like either party wants to exit out. e.g. If the buyer wants to default on a contract, there will be a penalty of (say) $500,000 and 2 months notice period and the entire knowledge base will become the Intellectual property of the Vendor Organization.
In case the buyer wants to extend the contract with the vendor, the renewal criteria also has to be specified.
e.g. Annual Maintenance contract for supporting Policy and Claims Administration system can be extended with IT vendor 'X' provided the application went live with max 2 open defects and specified timeline. This will have an elaborate pricing, resourcing and timelines specified.
The service SLA for Annual Maintenance is response in 1 business day and solution within 2 business days for critical issues and 3 business days for regular issues.
Thus Vendor procurement and Contract Management is a very important process for organizations that do business with external vendors. So proper knowledge of the process is an absolute must for both the Buyer and Vendor Organizations.
Friday, September 30, 2011
Monday, September 26, 2011
Art of Negotiation
Negotations - how can anyone live without it. Every day and in every walk of life, we use different negotiation forms on a personal and professional level.
Kids negotiate with their parents on what they want to (or dont want to) watch/eat/play? (and somehow always win...hhmmm i wonder why?..)
We negotiate with our better halfs on whether we eat the leftover cold pizza for dinner or dine out (Guess who wins there?)
At work, we negotiate with our bosses for better career roles, better projects, salary, promotion etc.
While on a project we negotiate the project deadlines, the workscope, experienced resources with skillsets matching the requirements etc etc. In a sales role, we negotiate with the prospects on the RFP Scope and costs. After bagging the project we negotiate with the client on Scope, timelines of the current project.
Well the point here is, Negotiations happen everywhere.
What is Negotiation?
Negotiation is a process where 2 or more parties get together and work towards a mutually acceptable solution to an issue in question.
This is also something that is closely associated to "Workplace Politics". Now generally the term politics is usually referenced or viewed in a negative sense, but it need not be the case. Politics is about talking, negotiating, convincing your Team, resources, stake holders to understand your point of view. For a person to really understand workplace politics, you have to invest your time into it. I mean really invest into it.
For this there are certain necessary steps that you have to take like,
You have to be really interested in people, their likes and wants, their concerns. This helps develop a level of trust and credibility between the 2 parties involved and this Trust is what makes it easier for the other party to understand you, accept you and your viewpoints
But this is not always an easy task to accomplish. But it is an art that can be learned, honed and sharpened with time.
Pre-Steps to a Negotiation
In any type of negotiations, there are certain guidelines to be followed. For e.g.,
1> Invest some time in genuinely understanding the other person or party. This may not always be possible but if you have a chance to do, please do it.
2> Do not deal any negotiation from an emotional angle. Always be ready to have alternatives, walk away solutions
3> Think and work on alternatives that are Win-Win for both.
4> Always make sure you have the deal makers or the actual decision makers at the negotiation table
Rules of Negotiation
1> Listen, Listen, Listen
- When on the Negotiation table, Sincerely listen to understand the other party, their viewpoints and beliefs. Many a deals and arguments are lost because one party did not try to understand the other party.
Always remember, when an person acts, (he may be right or wrong from your perspective) it is because he BELIEVES this is the right thing to do at that moment in time. So step in his/her shoes and things will be easier from that point on.
2> Do not take anything personally
- Negotiations can be stressful, tempers may rise and unwanted and harsh words may be thrown around. Try to keep your calm and focus on the situation rather than the person.
3> Focus on Relationships
Always be empatic to the other person. Focus on strengthing relationship with the other party
- Not all negotiations will end the way you want. In some cases you may get your way and in other cases, you may not. But always remember in the end, people matter more than the deal in hand so do not try to win any negotiation at the cost of losing people.
4> Backup plan
And last but not the least, always remember to work out a back up plan if your current project negotiations fail.
Negotiation Types
Any type of negotiation falls in either of these negotiation styles,
1> Accomodating
- This mostly leads to a Lose-Win situation in which first party is more emphatic to the other person's problems and issues and ultimately succumbs to a compromise.
This happens more so, when first party is more concerned about preserving the relationships with the other party rather than the Negotiation in hand.
e.g. Consider that you as a Project or account manager are siting at a negotiation table with your prospect and are discussing and finaling the project deal. You are leaning and advocating 'X' dollars per hour more than the Prospect But a savvy negotiator would give in wherever possible if there is a prospect of a better deal/s in the future.
or
You are in the last few weeks of developing your Policy and Billing System and now you are told about a new change that business wants to push in, since you want to be in the Good books of the business director and are also a non confrontational person, you may agree to the change (with the accepted risk of quality compromise, elongated Testing Cycle leading to extended timeline possibility) and log more work hours for your Team .
This usually leads the compromising party feeling resentment and short changed
2> Avoiding
- This is a more of a Lose-Lose situation where the first party may try to move away from any contradictions and issues that exist in the negotiation. This may seem as a skillful act by the other party but is actually not. As in the end, both parties tend to lose if the actual issues and problems are simply swept under the carpet.
Consider that on your Policy System implementation project, you want to integrate to a Third party medical Bill review system but the system vendor does have a good delivery record. When you are discussing budgeting and Vendor procurement for this integration with your Business Sponsors and avoid talking about the issues with Vendor performance and delivery, you tend to lose on a larger scale. Becuase when you are actually implementing the project that is when the actual realtime problems will hit you head on.
3> Collaborating
- This negotiation style leads to more of a Win-win situation than other Negotiation tactics for the simple reason being, both parties are willing to collaborate and understand each other's problems and come up with a middle ground
Consider that in your Claims Implementation project, you are developing a Legal evaluation solution in the application, but the business requires this functionality be linked to another third party application which actually feeds overnight to a (say) reporting data warehouse.
You as a project manager understand that, the Legal Evaluation functionality is required in the application for the business to complete their claims entry and processing workflow, but at the same time the business Team understands that you cannot complete the third party system integration in this short time frame without compromising on quality. So you both adjust your scope to implement the UI functionality in the shorter term, but not the integration atleast for the current release and then commit a later release date for the integratin piece of it.
4> Competing
- This leads to a Win-Lose situation wherein the first party negotiator looks at the negotiation as a 'Must Win' game and will try any all creative tactics to win at the game. In this type of behavior the first party negotiator tends to lose on the relationship aspect with the other party as the other party may feel short changed later in the whole deal and may not want to do business with you ever again.
e.g. In your Policy System implementation project, the client wants to implement the endorsement functionality before project release, but you do not want to give in, in any case and will come up with 'n' reasons and workarounds to 'NOT' do the change. In the end, you may win this negotiation, but lose your relationship with the Business Owner or jeopardise future long term deals with the Client,
5> Compromising
- This Negotiation style again may lead to a Lose-Win Situation because the first party wants to close to deal as soon as possible and not look at other possible alternatives and solutions. This may serve to the other party's advantage at the best.
Consider an example where you are working on a Client contract bid and are negotiating the proposal with the Client Business Manager. The Client does not agree to the implementation approach and may want to cut corners by shortening the Testing phase, now based on this concern, the first party instead of trying to come up with some creative alternatives, will begin to lean and then agree towards corner cutting and closing the deal which may not benefit your project and organization as a whole in the long term.
Negotiation Tactics
People who are skillful negotiators or have sufficient street smarts will use various negotiation tactics. Inept or unskilled people may not recognise these. Here are some such techniques used,
1> Playing Good Guy-Bad Guy
- There are 2 guys on one side of the table and one of them will be pro-deal and other one will be anti-deal guy.
2> Competitor Threat
- Negotiators may try to squeeze benefits from the other party by throwing other cometitor names in the mix.
3> Delay
- Skillful negotiators will try to delay and lengthen the negotiation process by using unnecessary questions, viewpoints and delays thrown in the whole mix. The whole purpose of doing so is to tire you out mentally and emotionally so you will agree to the other party's demands.
4> Not enough Authority
- Skilled negotiators never impress on the other party that they are the decision makers and will always leave some wiggle room to think over things. That is why always make sure you have the right decision making people at the negotiation table
5> Low balling
- Skilled negotiators will always try to low ball a deal and will offer you something that is much below the actual deal price (Although this may not always be true). So make sure you do your homework about the deal in question, the market position etc
Negotiation always happen between people (You do not negotiate with a robot, atleast not yet in the real world). This means each party/person will come with his own bag and baggage of emotions, goals and objectives etc. It is therefore mandatory and beneficial to come to a negotiation with a clear mind. Your attitude and perception sets the tone on the Negotiation table (atleast partially, if not completely). Please comment on whether you agree to these points or you feel there is anything else to add here.
Kids negotiate with their parents on what they want to (or dont want to) watch/eat/play? (and somehow always win...hhmmm i wonder why?..)
We negotiate with our better halfs on whether we eat the leftover cold pizza for dinner or dine out (Guess who wins there?)
At work, we negotiate with our bosses for better career roles, better projects, salary, promotion etc.
While on a project we negotiate the project deadlines, the workscope, experienced resources with skillsets matching the requirements etc etc. In a sales role, we negotiate with the prospects on the RFP Scope and costs. After bagging the project we negotiate with the client on Scope, timelines of the current project.
Well the point here is, Negotiations happen everywhere.
What is Negotiation?
Negotiation is a process where 2 or more parties get together and work towards a mutually acceptable solution to an issue in question.
This is also something that is closely associated to "Workplace Politics". Now generally the term politics is usually referenced or viewed in a negative sense, but it need not be the case. Politics is about talking, negotiating, convincing your Team, resources, stake holders to understand your point of view. For a person to really understand workplace politics, you have to invest your time into it. I mean really invest into it.
For this there are certain necessary steps that you have to take like,
You have to be really interested in people, their likes and wants, their concerns. This helps develop a level of trust and credibility between the 2 parties involved and this Trust is what makes it easier for the other party to understand you, accept you and your viewpoints
But this is not always an easy task to accomplish. But it is an art that can be learned, honed and sharpened with time.
Pre-Steps to a Negotiation
In any type of negotiations, there are certain guidelines to be followed. For e.g.,
1> Invest some time in genuinely understanding the other person or party. This may not always be possible but if you have a chance to do, please do it.
2> Do not deal any negotiation from an emotional angle. Always be ready to have alternatives, walk away solutions
3> Think and work on alternatives that are Win-Win for both.
4> Always make sure you have the deal makers or the actual decision makers at the negotiation table
Rules of Negotiation
1> Listen, Listen, Listen
- When on the Negotiation table, Sincerely listen to understand the other party, their viewpoints and beliefs. Many a deals and arguments are lost because one party did not try to understand the other party.
Always remember, when an person acts, (he may be right or wrong from your perspective) it is because he BELIEVES this is the right thing to do at that moment in time. So step in his/her shoes and things will be easier from that point on.
2> Do not take anything personally
- Negotiations can be stressful, tempers may rise and unwanted and harsh words may be thrown around. Try to keep your calm and focus on the situation rather than the person.
3> Focus on Relationships
Always be empatic to the other person. Focus on strengthing relationship with the other party
- Not all negotiations will end the way you want. In some cases you may get your way and in other cases, you may not. But always remember in the end, people matter more than the deal in hand so do not try to win any negotiation at the cost of losing people.
4> Backup plan
And last but not the least, always remember to work out a back up plan if your current project negotiations fail.
Negotiation Types
Any type of negotiation falls in either of these negotiation styles,
1> Accomodating
- This mostly leads to a Lose-Win situation in which first party is more emphatic to the other person's problems and issues and ultimately succumbs to a compromise.
This happens more so, when first party is more concerned about preserving the relationships with the other party rather than the Negotiation in hand.
e.g. Consider that you as a Project or account manager are siting at a negotiation table with your prospect and are discussing and finaling the project deal. You are leaning and advocating 'X' dollars per hour more than the Prospect But a savvy negotiator would give in wherever possible if there is a prospect of a better deal/s in the future.
or
You are in the last few weeks of developing your Policy and Billing System and now you are told about a new change that business wants to push in, since you want to be in the Good books of the business director and are also a non confrontational person, you may agree to the change (with the accepted risk of quality compromise, elongated Testing Cycle leading to extended timeline possibility) and log more work hours for your Team .
This usually leads the compromising party feeling resentment and short changed
2> Avoiding
- This is a more of a Lose-Lose situation where the first party may try to move away from any contradictions and issues that exist in the negotiation. This may seem as a skillful act by the other party but is actually not. As in the end, both parties tend to lose if the actual issues and problems are simply swept under the carpet.
Consider that on your Policy System implementation project, you want to integrate to a Third party medical Bill review system but the system vendor does have a good delivery record. When you are discussing budgeting and Vendor procurement for this integration with your Business Sponsors and avoid talking about the issues with Vendor performance and delivery, you tend to lose on a larger scale. Becuase when you are actually implementing the project that is when the actual realtime problems will hit you head on.
3> Collaborating
- This negotiation style leads to more of a Win-win situation than other Negotiation tactics for the simple reason being, both parties are willing to collaborate and understand each other's problems and come up with a middle ground
Consider that in your Claims Implementation project, you are developing a Legal evaluation solution in the application, but the business requires this functionality be linked to another third party application which actually feeds overnight to a (say) reporting data warehouse.
You as a project manager understand that, the Legal Evaluation functionality is required in the application for the business to complete their claims entry and processing workflow, but at the same time the business Team understands that you cannot complete the third party system integration in this short time frame without compromising on quality. So you both adjust your scope to implement the UI functionality in the shorter term, but not the integration atleast for the current release and then commit a later release date for the integratin piece of it.
4> Competing
- This leads to a Win-Lose situation wherein the first party negotiator looks at the negotiation as a 'Must Win' game and will try any all creative tactics to win at the game. In this type of behavior the first party negotiator tends to lose on the relationship aspect with the other party as the other party may feel short changed later in the whole deal and may not want to do business with you ever again.
e.g. In your Policy System implementation project, the client wants to implement the endorsement functionality before project release, but you do not want to give in, in any case and will come up with 'n' reasons and workarounds to 'NOT' do the change. In the end, you may win this negotiation, but lose your relationship with the Business Owner or jeopardise future long term deals with the Client,
5> Compromising
- This Negotiation style again may lead to a Lose-Win Situation because the first party wants to close to deal as soon as possible and not look at other possible alternatives and solutions. This may serve to the other party's advantage at the best.
Consider an example where you are working on a Client contract bid and are negotiating the proposal with the Client Business Manager. The Client does not agree to the implementation approach and may want to cut corners by shortening the Testing phase, now based on this concern, the first party instead of trying to come up with some creative alternatives, will begin to lean and then agree towards corner cutting and closing the deal which may not benefit your project and organization as a whole in the long term.
Negotiation Tactics
People who are skillful negotiators or have sufficient street smarts will use various negotiation tactics. Inept or unskilled people may not recognise these. Here are some such techniques used,
1> Playing Good Guy-Bad Guy
- There are 2 guys on one side of the table and one of them will be pro-deal and other one will be anti-deal guy.
2> Competitor Threat
- Negotiators may try to squeeze benefits from the other party by throwing other cometitor names in the mix.
3> Delay
- Skillful negotiators will try to delay and lengthen the negotiation process by using unnecessary questions, viewpoints and delays thrown in the whole mix. The whole purpose of doing so is to tire you out mentally and emotionally so you will agree to the other party's demands.
4> Not enough Authority
- Skilled negotiators never impress on the other party that they are the decision makers and will always leave some wiggle room to think over things. That is why always make sure you have the right decision making people at the negotiation table
5> Low balling
- Skilled negotiators will always try to low ball a deal and will offer you something that is much below the actual deal price (Although this may not always be true). So make sure you do your homework about the deal in question, the market position etc
Negotiation always happen between people (You do not negotiate with a robot, atleast not yet in the real world). This means each party/person will come with his own bag and baggage of emotions, goals and objectives etc. It is therefore mandatory and beneficial to come to a negotiation with a clear mind. Your attitude and perception sets the tone on the Negotiation table (atleast partially, if not completely). Please comment on whether you agree to these points or you feel there is anything else to add here.
Thursday, September 1, 2011
Project Estimation basics
What is Project Estimation?
Last weekend, my wife and I along with our three year old went for a movie. As it was not a kid flick, my son had zero interest in watching the movie. So he starts with his version of the "20 Questions" game. All questions go towards "When do we go home?" and i gave him some creative answers like "As soon as all the bad guys in the movie are caught"..."As soon as this song ends" (Indian Movie) and so on and so forth.....
This is what is estimation is all about. To arrive at an estimate means to use "Calculated Approximation methods using inputs available to assist in a planning objective"
Preparing IT Project estimates is usually not a one man job (of course that depends on the size of the project), there may be several people involved in preparing a project estimate, right from Project Manager to Business analysts, Development Team, Testers, QA, Infrastructure resources to Project sponsors and End users. Everyone has a say and a stake in making sure the project estimates are to the mark or nearabouts.
As we all know a project has multiple phases...Initiation, planning, development, testing, deployment etc. The projects estimates have to account for each and every one of this phases along with areas that are not phase dependant e.g. Project Management, Vendor procurement, Software licensing, hardware and infrastructure etc items.
Why do we need estimations? Benefits
There is no downside in preparing a project estimate but the advantages are manifold. Project estimation is more of a science than an Art. Projects are usually undertakings that cost time and money. To avoid slippages and failures due to any of these known/unknown factors, the projects have to be properly estimated and controlled.
As both overestimation and underestimation pose a problem to a project. Overestimation will cause the project to get over budget or even cancelled and Underestimation may caue resource, scope, quality and timing issues, again may lead to Project failures.
So what is the need to estimate a project...several reasons
1> To get approval for the project so sponsors get an idea how much the project will cost - ballpark, */-10% etc, resource, time requirements
2> To streamline, monitor and guide project costs, resources when project is in progress
3> To determine project success or failure based on final project costs vs estimation
Estimation Process
Estimation Process
There are 3 processes one can use to do project estimation
1> Analogous Estimation
This estimation process makes use of knowledge base from similarly executed projects and prepares project estimates based on those.
2> Expert opinion
This process makes use of experience of people/projects from prior similarly executed projects.
3> Activity breakdown estimation
This process makes use of breaking down the project into multiple Tasks and activities and estimation is done based on these individual tasks and activities
Estimation Techniques
There are quite a few techniques that can be employed to estimate a project
1> Three Point estimation
This is my favourite project estimation technique (I call it the BMW technique - Best, Most likely, Worst case) wherein we use statistical data and information and come up with Best case, Most likely and Worst case estimates
To prepare these estimates, we use the Activity breakdown process. This means the Project is broken down into multiple tasks and estimates are prepared for each of the individual tasks and then added up together.
Estimates are prepared for the foll 3 scenarios - Best Case (B), Most Likely (M) and Worst case (W).
Based on this we come up with,
A> Standard deviation value, SD = (W - B)/6
B> Weighted Average, E = (B + 4M + W)/6
2> Base and Contingency Estimation
This is a very simple and straight forward estimation technique but not that accurate, wherein we prepare estimates for the best case and worst case scenarios. But this does not give you a similar confidence level as obtained by the prior method as it is more scientific.
How does it work?To calculate the base value assume that the project is executed in the minimal time duration possible and estimates are prepared based on that. To calculate the contingency (or Risk) values (which generally ranges from 10-50% of base estimate) list down all the project risks in a risk register and use that for preparing your project estimates.
These two values are then summed up to prepare the final Base and contingency estimate.
Note that for calculating the contingency value, user can also prepare an actual list of expected risks and issues instead of assuming a fixed percentage of the base. This gives a more nearer number for the risk value.
Also as mentioned earlier, along with the Project task level estimates we have to make sure we account for the non technical areas as well, like,
i> Infrastructure and Hardware costs
ii> Vendor costs
iii> Training costs
iv> Project Management
v> Business Analysis
vi> Testing Costs
vii> Quality Analysis etc
3> Ball park or Order of Magnitude estimation
Here the estimates calculated are usually two to three times that of the actual estimates.
To perform an order of magnitude estimation, break the project into multiple tasks and activities and then score them on basis of Complexity and Amount of work effort involved.
Based on this weighing factors prepare estimates in terms of resources and Time. For e.g. a Task with medium complexity and small size would need (say) 2 resources for 2 weeks.
Summary
Like i said above, project estimation is a Science more than an Art. Always use your prior experience and expertise of others who have been involved in similar projects to come up with a more real to life estimation. Make sure you give sufficient weightage to the risks and issues involved in estimating a project.
Also ensure that you review your estimates at the end of the project to see where you went wrong or what can be done better in the future.
Hope this article will help you in better estimating your projects. Please let me know your thoughts and comments.
Last weekend, my wife and I along with our three year old went for a movie. As it was not a kid flick, my son had zero interest in watching the movie. So he starts with his version of the "20 Questions" game. All questions go towards "When do we go home?" and i gave him some creative answers like "As soon as all the bad guys in the movie are caught"..."As soon as this song ends" (Indian Movie) and so on and so forth.....
This is what is estimation is all about. To arrive at an estimate means to use "Calculated Approximation methods using inputs available to assist in a planning objective"
Preparing IT Project estimates is usually not a one man job (of course that depends on the size of the project), there may be several people involved in preparing a project estimate, right from Project Manager to Business analysts, Development Team, Testers, QA, Infrastructure resources to Project sponsors and End users. Everyone has a say and a stake in making sure the project estimates are to the mark or nearabouts.
As we all know a project has multiple phases...Initiation, planning, development, testing, deployment etc. The projects estimates have to account for each and every one of this phases along with areas that are not phase dependant e.g. Project Management, Vendor procurement, Software licensing, hardware and infrastructure etc items.
Why do we need estimations? Benefits
There is no downside in preparing a project estimate but the advantages are manifold. Project estimation is more of a science than an Art. Projects are usually undertakings that cost time and money. To avoid slippages and failures due to any of these known/unknown factors, the projects have to be properly estimated and controlled.
As both overestimation and underestimation pose a problem to a project. Overestimation will cause the project to get over budget or even cancelled and Underestimation may caue resource, scope, quality and timing issues, again may lead to Project failures.
So what is the need to estimate a project...several reasons
1> To get approval for the project so sponsors get an idea how much the project will cost - ballpark, */-10% etc, resource, time requirements
2> To streamline, monitor and guide project costs, resources when project is in progress
3> To determine project success or failure based on final project costs vs estimation
Estimation Process
Estimation Process
There are 3 processes one can use to do project estimation
1> Analogous Estimation
This estimation process makes use of knowledge base from similarly executed projects and prepares project estimates based on those.
2> Expert opinion
This process makes use of experience of people/projects from prior similarly executed projects.
3> Activity breakdown estimation
This process makes use of breaking down the project into multiple Tasks and activities and estimation is done based on these individual tasks and activities
Estimation Techniques
There are quite a few techniques that can be employed to estimate a project
1> Three Point estimation
This is my favourite project estimation technique (I call it the BMW technique - Best, Most likely, Worst case) wherein we use statistical data and information and come up with Best case, Most likely and Worst case estimates
To prepare these estimates, we use the Activity breakdown process. This means the Project is broken down into multiple tasks and estimates are prepared for each of the individual tasks and then added up together.
Estimates are prepared for the foll 3 scenarios - Best Case (B), Most Likely (M) and Worst case (W).
Based on this we come up with,
A> Standard deviation value, SD = (W - B)/6
B> Weighted Average, E = (B + 4M + W)/6
2> Base and Contingency Estimation
This is a very simple and straight forward estimation technique but not that accurate, wherein we prepare estimates for the best case and worst case scenarios. But this does not give you a similar confidence level as obtained by the prior method as it is more scientific.
How does it work?To calculate the base value assume that the project is executed in the minimal time duration possible and estimates are prepared based on that. To calculate the contingency (or Risk) values (which generally ranges from 10-50% of base estimate) list down all the project risks in a risk register and use that for preparing your project estimates.
These two values are then summed up to prepare the final Base and contingency estimate.
Note that for calculating the contingency value, user can also prepare an actual list of expected risks and issues instead of assuming a fixed percentage of the base. This gives a more nearer number for the risk value.
Also as mentioned earlier, along with the Project task level estimates we have to make sure we account for the non technical areas as well, like,
i> Infrastructure and Hardware costs
ii> Vendor costs
iii> Training costs
iv> Project Management
v> Business Analysis
vi> Testing Costs
vii> Quality Analysis etc
3> Ball park or Order of Magnitude estimation
Here the estimates calculated are usually two to three times that of the actual estimates.
To perform an order of magnitude estimation, break the project into multiple tasks and activities and then score them on basis of Complexity and Amount of work effort involved.
Based on this weighing factors prepare estimates in terms of resources and Time. For e.g. a Task with medium complexity and small size would need (say) 2 resources for 2 weeks.
Summary
Like i said above, project estimation is a Science more than an Art. Always use your prior experience and expertise of others who have been involved in similar projects to come up with a more real to life estimation. Make sure you give sufficient weightage to the risks and issues involved in estimating a project.
Also ensure that you review your estimates at the end of the project to see where you went wrong or what can be done better in the future.
Hope this article will help you in better estimating your projects. Please let me know your thoughts and comments.
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