The Disadvantages of an Estimate at Completion

During projects, business owners often ask for assurance that the project remains within the budget and timeline. These requests for assurance do not come from nowhere. The “Harvard Business Review” reports that the average IT projects run 27 percent over budget and as much as 70 percent over schedule. Most businesses ask for an estimate at completion as a way of checking the status of the project, but estimates at completion have disadvantages.

An estimate at completion represents the project manager’s forecast for the total cost of completing the project. The estimate calls for adding the known costs of work already completed and the anticipated cost of remaining work. The project manager determines anticipated cost by projecting from the current state of the project, such as budget and schedule overruns, and applying experience to modify the projection. For example, if a project runs one day behind schedule at the 20 percent completion, a straight projection puts the project five days behind at full completion and drives up the costs. If the manager anticipates making up time in the next phase of the project, she might base the estimation on three days over schedule.

All estimates at completion face the disadvantage of uncertainty, some stemming from the project itself and some stemming from assumptions. An estimate performed at the 10 percent mark of the project, for example, draws on far less known data than one performed at the 50 percent mark, making it far less reliable. Large, complicated projects involving multiple teams face heightened uncertainty as the performance of one team does not carry over to other teams. The project manager must make assumptions about future performance and the standard-estimate-at-completion formulas assume project teams learn nothing from past problems. All of these factors contribute to inaccurate estimates.

A common approach to dealing with the disadvantage of uncertainty is to ask for three estimates at completion that project best-case, worst-case and expected scenarios. The three-estimate approach can mitigate some uncertainty, but it creates a time loss disadvantage. Generating three estimates for three possible outcomes often means a significant time investment for the project manager that does not contribute to actual project completion. It also reduces the project manager’s availability to the project team members, which slows progress.

Some project managers misrepresent progress or downplay the severity of problems in estimates at completion. The reasons for misrepresentation range from overoptimistic interpretations of the situation to fear that honest reporting of problems will lead to project cancellation. The use of project management software offers an additional layer of accountability to the process, but it requires caution. The information in the software may lend itself to misinterpretation because of complexity or a lag in updating that makes it appear the project suffers from a problem that does not exist.