Avoid and handle unrealistic budgets in IT projects

The challenges

Estimation of projects is as important as it is difficult. The various approaches to estimation all have their advantages and disadvantages, however all methods, without exception, are prone to three basic hurdles:

Hurdle 1: The fact that an estimate is just a qualified guess and thus has a degree of uncertainty. If the project, team and technology is new then uncertainty is high by default and if everything is well known uncertainty is low. !

Hurdle 2: Fear of failure from specialists, project managers, and even senior management in regard to dramatically exceed promised budget or deadlines. This can lead to adding excessive hidden buffers to budgets and plans.

Hurdle 3: Parkinson’s Law, which says “Work expands so as to fill the time available for its completion”. So no matter how much time a given task has available that amount of time will be enough (or almost enough in many cases :-).

Examples

In order to illustrate the challenges, and create a basis for discussing how to handle them, lets review the following two cases.

Case 1 – The accumulated slack

A specialist is asked to estimate an interesting task, which he knows will take 6 hours to complete, however as nobody is praised for being late and there are many of these tasks to do he reports an 8 hour estimate in his reply to the project manager.

The project manager knows there is 134 tasks, of 8 hours = 1072 hours. He adds some buffer, because we all know that people tend to under-estimate interesting tasks and specialists some times over-estimate their own performance. He chooses to add 15% on top of the 8 hours and evens the amount of tasks to 140 so there is a bit of room for changes = 1288 hrs. The budget presented to management will be an even 1300 hours + 10% project buffer = 1430 hours.

The project owner has to request funds from the corporate budget and knows that he has to hit the right budget the first time. There is praise for over-performing (coming in below budget) and only trouble when exceeding. So he asks for a project budget of 1600 hours. The total estimate could have been 134*6 = 804 hours in stead – with a degree of uncertainty. Remember Parkinson’s Law? This is really expensive – and it is only driven by a fear of failure of being over budget.

Case 2 – Full scope on a reduced budget

A skilled project manager and his skilled team are presented with a project proposal. They know the domain, technology and the project is low risk. They estimate the project to have a realistic estimate of 2 million.

When presenting the project estimate for senior management, the project manager is informed that the project is very important and must be completed with full scope for a budget of 1.5 million.

How can something like this happen? Well, senior management knows that there is slack in the estimation and in the estimate and that it is a skilled team to do the job – and he also remember Parkinson’s Law. So on in the mind of senior management the project budget of 1.5 million is properly still above what it actually should take to complete the project. However, this is not the case this time around.

The game of getting adequate budget

If you know that management tend to increase scope without budget, or if you know budget will be cut, but not scope, then projects have even more tendency to over-estimate. Managers know this and more or less disregard estimates. Trouble comes when an honest estimate is under pressure (as in Case 2 above) or when an estimate with high uncertainty is turned into a deadline.

If the budget cut in Case 2 is effectuated and accepted, then we have a really bad situation. The project manager is likely to be the one accepting the new and unrealistic conditions, without commitment from his team. The mission of completing the project within the new budget becomes a personal prestige mission for the project manager – and he is probably going to fail. The outcome could be cutting scope, poor quality, being late, being over budget, and so on. The trust from the team, senior manager and business disappears, and the project manager will feel alone and frustrated.

Now when the project ends over budget the senior manager is in trouble, because he reported the reduced project budget further up in the organisation, so now his personal prestige is also involved.

All of this causes conflicts, stress, failure, extra work, re-work, bad sleep and so on. Getting trapped in this game of estimation is nasty business, and it can really do a lot of damage at a lot of people at the same time.

How to get an adquate budget

The solution is for you to lead your senior management in the right direction.

You can negotiate the scope and content of a project – but you can never negotiate how much time it takes to complete a task.

(1) Avoid accepting unrealistic conditions

Do not, under any circumstances, accept to complete a project with reduced budget – you cannot negotiate time. Also do not initiate the discussion of alternatives with the manager right away, but simply say, “I hear what you are saying. I will discuss this with the team and provide you with a plan of how we will move forward”.

(2) Find good alternative paths

The good news is that even if budget is fixed there are all sorts of things to do about it. It is important that you have some time with your team in order to find some suitable options for how to deal with a reduced or inadequate budget.

Here are a few elements to consider when finding alternative paths for the project:

• Remove scope! This is alwaysan option even if a manager says “full scope” – e.g. nice-to-have elements, documentation that nobody will ever read and so on. Have a workshop with different competences, e.g. technical, business, advisors and so on and together identify the least value-adding activities in the project and the least value-adding deliveries of the project. Who will notice is these were not to be done? Or could they be moved to another project, department, year etc.?
• Add more low-cost resources (could be both internal, through sourcing or even by using internal resources over a greater timespan).
• Outsource the entire project through tender and get a fixed price – sometimes companies are willing to give really good prices in return for a positive reference.
• Break the project in two phases and decide if phase 2 is needed when phase 1 is completed (it could turn out that phase 1 is sufficient). This course must be designed so that a new plan and estimate of phase 2 is made at the end of phase 1 and the senior management is to decide whether or not to continue (and allocate sufficient budget).
• Divide the project timeframe into two fiscal years in order to receive full budget.
• Do a quick two-point-estimation of the project breakdown in order to quickly show the degree of uncertainty. Gain acceptance of the uncertainty – and through out the project communicate progress and the reduction in uncertainty (which will normally decrease dramatically as the team gains knowledge). In Case 1 above this could do the trick, as it might turn out that when the first 10 tasks have been performed the actual time consumption is only 5 hours each. Please note that this approach only works in a trusting environment and that candid and transparent communication is mandatory.
• Perform a short pre-analysis in order to gain enough knowledge to make an estimate with less uncertainty (not always possible – some times the uncertainty increases – but that knowledge is worth a lot in both planning and budgeting).

There are many other elements to consider – point is: Be creative and think outside the box!

Identify and discuss the options together with your team and find the best ones to present to management – and do not present options that suck and that you (or your team) will not do anyway.

(3) Write a proposal

When writing a proposal to senior management it must be professional, non-complaining and most importantly provide a number of suitable options for management to choose from. Each option must have at least a clear summary of benefits, risks and cost. One of the options can be to “find the budget for the initial estimate and continue as originally planned”. Be sure to include your recommendation or preferences – if you have any.

(4) Ensure commitment

When the decision of the new direction is made, make sure that you gain commitment to this from all stakeholders involved. (This is a lot easier if a steering group or a representative group of senior managers take this decision together).

Stop blindly rewarding “on budget”

It is important to remember, that we cannot make things cost less because we invent low estimates. But we can easily do the opposite by over estimating and invite Parkinson for coffee.

I believe the first small steps in eliminating the game of estimation is simply to stop blindly rewarding being “on budget” and instead acknowledge that projects are complex, and that a fixed budget cannot always be set initially – unless it is way to large. Embrace estimating in ranges and encourage projects to report estimates and uncertainties in a candid and transparent way.

I hope that you will like, share or comment if you have read this far. Please share your thoughts below, or reach out for me personally.

Yours truly,

Kristian Sørensen

Principal Consultant – IT ADVISORY