The great debate for project managers....is padding an estimate bad? In my new book, I say that padding is one of the worst things that you can do because it proves that you do not believe your own estimates!
As part of a new series of blog posts, I will be responding to questions that have been sent me in response to the book Stop Playing Games! The first question that I received was, "Padding is for known and unknown risks and events in the future. Why do you say padding is bad?"
Padding is actually not for known and unknown risks. It is actually a blanket percentage that a project manager will put on top of their estimates just to cover them from blowing their budget. It generally isn't scientific or have any thought pattern behind it other than lumping a generic percentage on top. This practice has been around for ages. We have conditioned our executives by doing this practice. They have learned that they can cut 10-20% of the budget without consequence. They are aware of the padding and are accustomed to chopping off a generic percentage. Thus, the game is played. Can you out add a generic percentage that your sponsor will cut?
This generally all occurs without too much conversation as well. This game is played and is played in silence. To combat this, there should be an honest conversation. The project manager should be honest in their estimates and use risk and risk information to plan for a true contingency. This is not padding, but a practice known as contingency planning. Once the contingency is planned and the reasons for it are documented, present that to the sponsor. When they try to remove a generic percentage, challenge them with the planned contingency and explain why it is there.
Having an honest conversation and talking about risk versus padding can lead to a true budget fostered in trust between the sponsor and project manager. That is a fantastic place to start!
For now,
Rick
Compare actuals to estimates. After the work has been done, compare the actual time the work took to the original estimate. Track the percent off [either under or over] and report that information back to the team members. The best way to improve estimating accuracy is by paying attention. The best way to pay attention is by tracking metrics.
Use more than one approach or more than one person, or both. After you have one estimate, compare the logic using either another approach or another person’s perspective.
Clearly write out what makes this work complete. Many times there are unknown needed revisions, quality acceptance criteria, and a level of completeness that has not been clearly thought out, not to mention communicated to the person doing the estimating.
Present estimates in either a range or by indicating your level of confidence. For example, our project team estimates this will cost $100,000, and we have a confidence level of -20% to +60% [meaning it could very possibly fall between $80,000 and $160,000].
Understand the definition of an estimate. In many knowledge projects [such as engineering, research, IT, creative, etc] the time work takes to create unique deliverables can be extremely difficult to accurately estimate. And eventually the estimation discussion turns into a risk tolerance question. It generally needs to be agreed that without seriously inflating estimates to turn them into guarantees, that schedules are best planned with some flexibility and contingency for going over. There are diminishing returns in over-analyzing the project.
Ask SMEs. Subject matter experts [SMEs] can be a big help, especially in informing project managers what the commonly overlooked work or costs are. There are very common estimation omissions. You will benefit from questioning what they are.
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By Definition: Padding is an extra time or cost added to an estimate because the estimator doesn’t have enough information. Trainees always ask me how to avoid padding in duration and cost estimations whenever they
are sent by the estimators, especially that the project manager is not necessarily the technical expert person. Here, let’s explore our options to avoid padding: 1- Usually, team member adds this extra amount randomly due to lack of information and to protect himself from any uncertainty. Therefore, the first option is to try to remove reasons of uncertainty by making information available and clear. 2- As a technical manager of the team member, the
functional managers could be helpful in this situation to make a sanity check for those estimations made by their staff.
3- Expert Judgment such us consultants, senior team members or domain experts could save you.
4- Use the actual data of previous similar works, that’s why the closing process is very important in projects which includes archiving the files of completed projects in retrievable way. You may say this would consume a good period of time, yes, that’s why you may have a project management team in your project.
5- Another effective option is communication:
- Make it clear to the team member [estimator] why padding is bad to him and to the project.
- Explain to the team member that he is required to provide the estimate because he is the most suitable and experienced person to do that and not for any another hidden reason.
- One-point estimates is not recommended here, so let the estimator provides you with a range of estimate. This way will give you an indicator to the degree of uncertainty.
- Communicate the importance of RESERVES to management and why it should be there.
- Explain [to the team member] how RESERVES can be a legal replacement of padding and how it can be used and managed to account for the potential need of additional time or fund.
- Clear how risk management can deal with any uncertainty.
Comparison:
Padding:
- Added randomly by the team member.
- Hidden in your schedule.
Reserves:
- Added by the project management.
- Calculated based on reliable information.
- Seen and manageable.