Managing Expectations Situationally – Single vs. Multi-Point Estimates

A recent conflict in a project highlighted the need to take a hard look at how to communicate estimates.

The issue was kicked-off when a functional group presented an estimate for a key critical path activity for a high profile business project.  Upon hearing the estimate and assessing both its impact on the project end date and their opinion on how long the activity should take, some members of the core project team became frustrated and started to escalate the issue to put pressure on the functional group to get things done faster.

Before things got too crazy, a brief intervention discovered that the estimate was meant as a worst-case scenario that considered a number of risk factors with varying degrees of likelihood and impact on the activity.  Relatively quickly, the functional group presented its assumptions and its most likely scenario, which satisfied the project’s need to meet a pre-established deadline and helped to create an attitude of greater trust and respect between the groups.

Estimating + Communication = Expectations Management

The lessons learned from this situation apply to two dimensions of project management, estimating and communications.  These two dimensions meet at expectations management, a most critical project success factors.  Estimates set expectations.

When communicating, it is important to make sure that the message sent is crafted in a way that is most likely to achieve its underlying objective.  The objective of an estimate is to set an expectation that can be fulfilled. As with all communication, the recipient will interpret the message through his or her filters – knowledge, personality, past history, etc.  Know your recipient and tailor the communication accordingly.

When you receive an estimate that ruffles your feathers, ask the sender questions, such as “What are your assumptions?” or “Is there any other possibility?” to avoid unnecessary conflict and escalation and begin a negotiation process.

Estimates and Situational Management

Estimates represent a continuum of values with worst case (pessimistic or highly conservative), most likely and best case (optimistic) points.  For professional project managers, conventional wisdom is to present all three points along with their underlying assumptions.  Unfortunately, conventional wisdom is not always so wise.  

The truly wise PM knows that situational management is the most effective approach and that means doing what is most likely to be right for the situation at hand.  Sometimes it is best to present a single estimate, sometimes three points, and other times it is best to present a range from pessimistic to optimistic.  In all cases, it is necessary to have the assumptions, risks and/or conditions that support the estimate well thought out and, if not communicated, then ready to be communicated as needed.  It is the sophistication and past behavior of the estimate’s recipient, that determines which approach to use.

Let’s take the situation above for example.  In that situation a technology professional was presenting the estimate to a project manager who also happened to have years of experience in the type of activity being estimated.  The PM immediately assumed he was being taken advantage of, or, worse, that the estimators didn’t know what they were talking about.  Instead of responding with questions about the reasons behind what he considered an extremely conservative estimate, he got angry and escalated the issue.

Had the estimator taken into consideration the sophistication and knowledge of the PM, he would have presented the full range of estimates and assumptions.  There could have been a good collegial discussion with a mutually acceptable estimate as an outcome.

Instead, the estimator assumed that he had to protect his group from the typical response they got from less knowledgeable recipients who did not have the patience for dealing with multi-point estimates and their underlying assumptions and conditions and who latched onto a single number and forgot that estimates are subject to changing conditions.

The Problem with and Value of Pessimistic Estimates

Pessimistic estimates represent worst-case scenarios.  They are valuable.  They set expectations that are highly likely to be met and, when done well, they provide a realistic view of the risks associated with the activity being estimated.  

If, however, the pessimistic estimate is the only estimate, it sets the bar too low.  Pessimistic estimates can become self-fulfilling prophesies.  If people work to meet the estimate, as many do, it is unlikely that they will finish any earlier or cheaper than the estimated duration and amount.  If the actuals for each successful project are used as a basis for future estimates, the low bar will be perpetuated.  Often stakeholders believe that pessimistic estimates reflect an attempt by the performers to slack off and not work as hard as they could and should. 

Pessimistic estimates may lead to poor decisions.  They may lead stakeholders to seek alternative product and service providers who say they can do the job cheaper and faster.  Pessimistic estimates may make the prospects of a project look so bad that the decision makers will not authorize it.

The Problem with and Value of Optimistic Estimates

Optimistic estimates represent best-case scenarios.  They are also valuable.  They say what could be done if everything aligns as perfectly as possible.  They enable performers to do the best they can do to make for the desired outcome by better understanding the required conditions.

When optimistic estimates are the only estimates and when they are presented without underlying assumptions or conditions, they may be used as a lever to put pressure on performers.   In some cases, optimistic estimates (often called low-ball estimates) are a means for making a sale or for getting decision makers to OK a project that, had the real expected cost been known, might be rejected.

Optimistic estimates are a problem because they set unrealistic expectations.  The manager who relies on an optimistic estimate will be setting unrealistic expectations for those above him or her (e.g., program managers, more senior executives or clients).  When the estimates are not met, the result is embarrassment, a cascade of blame and retribution and, in some cases, financial damages.

Qualified Estimates

Qualified estimates give their recipients a sense of the reliability, risk and conditions associated with the estimate.  Referring to an estimate as High-level or a budget estimate or a definitive estimate gives a sense of the degree to which the work being estimated has been examined in detail and a relative sense of the range of variance to expect.  Three point estimates are qualified as are any estimates that come with explicitly stated variance ranges and assumptions.  A qualified estimate whether three points or not, is one that states the conditions that have to be met to deliver the expected outcome in expected time and cost.  Assumptions regarding these conditions underlie every scenario.  Assumptions may be about the outcome of a risk event, the duration of activities like approvals.

Some powerful stakeholders, whether executives, clients or managers, are known to consider a three point estimate to be a multiple choice question in which they get to choose the answer they like best; usually the most optimistic one. They mistake most liked for the most likely.  Some do not bother to read the assumptions or understand the difference between terms like high-level and definitive.

As an estimator, take a situational approach and make sure you create and communicate your estimates in a way that gets the message across and then continuously remind stakeholders of the reality that estimates are not actuals and are therefore subject to change as conditions change.

As a manger, insist that the people reporting to you make and deliver estimates that are properly qualified, consider risk, and are supported by reasonable assumptions that relate to the conditions that will prevail when the work is being done.

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