A detailed estimation process is important for professional services firms that deliver highly-customized services and deliverables. With customization comes variability in effort (and cost), and that variability correlates with engagement risk. That risk can be mitigated with a rigorous estimation process. Without a reliable estimation process, there is an increased risk of poor client satisfaction and reduced project profitability.

Estimation Basics

What is estimation for a professional services firm? An estimate is a prediction of a future project’s delivery. It isn’t simply about coming up with a price for the project; it is about modeling each key aspect of the project. Specifically, a good estimation process will yield the following:

• The set of tasks that will need to be completed in order to deliver the project.
  ‍
• The project roles (including skills and experience level) that will be required to complete each task.
  ‍
• The estimated hours needed to complete each task.
  ‍
• The materials or other expenses (such as travel) that will be required over the course of the project.
  ‍
• The estimated total fees to deliver all of the tasks (usually determined by applying bill rates to the project roles and hours).
  ‍
• The organization of all associated tasks into a rough project plan with dependencies, in order to predict the amount of calendar time needed to complete the project.
  ‍

A good estimate brings clarity to the tasks, roles, hours, expenses, fees, and the timeline of a potential project. Your client’s primary questions may seem simple. “How much will this cost?” “When can you get it done?” But, in order to answer those questions with reliable accuracy, you must apply a detailed and disciplined approach and break down the project into its component parts.

Accuracy Matters

Accurate estimation is important for the following reasons:

• You want to set proper expectations with prospects and clients from the very beginning. If the client’s vision for the project is larger than the available budget, you are better off knowing that sooner than later.
  ‍
• Poor estimates result in project overruns. Few things upset a client more than a project requiring more time and money than was originally proposed. If your initial estimate is accurate, you can avoid this difficult and stressful situation.
  ‍
• A detailed estimate will improve your odds of winning the project. Being entirely transparent with clients about your estimation process is often a good idea. If a client has to pick between a “back of the napkin” estimation from another firm or a detailed estimation from your firm, the detailed estimation will usually win.
  ‍

Best Practices

Estimation is often difficult to do well because there may be unknowns at the time of estimation (i.e. some areas of the project scope may be vague). The more unknowns that exist, the greater the risk that the estimate will be wrong. It is important that the margin of error is adjusted based on the amount of uncertainty at the time of estimation. You do not want to provide a client with a narrow-range fee estimate for a project that has considerable unknowns. There is nothing wrong with giving a client a wide price range for a project so long as you can explain the reasons for the range.

There are sometimes large projects that can’t be accurately estimated without a great deal of work. In these situations, it may be best to propose an initial preliminary engagement to capture the full set of business requirements. Clients sometimes need such an engagement to fully explore their needs and options. A few benefits of this sort of engagement are: the client will be forced to think through each requirement and make “in or out” decisions; your ability to accurately estimate the remainder of the work is dramatically improved; and your firm’s odds of being selected to deliver the rest of the work are improved.

One important rule of estimation is that it shouldn’t be done in a vacuum. Since most projects require diverse skills, it is important to have a representative for each skill involved in the estimation process. For example, an agency building a website might want to involve a representative from project management, user experience design, and engineering. For any large estimates, it is also important for a senior member of the firm to evaluate and discuss the estimation with the estimation team. An estimation miss on a large project usually has a significant negative downstream impact on the firm.