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Estimating Accuracy Drives Profitability

By Anthony DeMarcoMay 18, 2020

Nothing drives me crazier than the statement I get from many of our clients during that first meeting, “We are really bad at estimating. So what? Why does it matter? Management does not seem to care.”  Business leaders have been duped into believing that inaccurate project estimates are not a concern and that they cannot do better – Wrong.  Bad estimates lower profitability and yes, you can do better.  Please consider that projects are prioritized and launched based on their expected costs and benefits, the return-on-investment (ROI).  So you optimize your portfolio of projects based on the total expected ROI of the projects, or at least you think you are.  Because any inaccuracy in your estimates of cost, benefits, and schedule will result in a delay of net benefit realization and a de-optimized portfolio.

Underestimates cause overruns, costing more and delayingbenefits.  Overestimates become self-fulfilling prophecies, consuming resources that could better used elsewhere.  So much for your perfect plan. If you knew then that the big troubled project in your portfolio would take twice as long and twice as much, would you have approved it?  Would you have not been better off approving the two smaller, more certain projects that would deliver benefits faster?

Improving your estimating accuracy from +-70% to +-20% more than doubles the net benefits from your portfolio of projects.  Improve your estimating accuracy and you will improve profitability.