Vasco Duarte asks an important question - what is the value of an estimate to the stakeholder of the project? This seems a simple enough. But the question is couched in the context of #NoEstimates. So taken at face value, it seems to be a question about the value of estimates themsleves, not the value to the stakeholder.
Many in that community start with the presumption that estimating has no value, without first confirming who actully needs estimates and for what reason these estimates might be needed. The assumption that business processes can be executed in the absence of estimating the cost of the work performed by that business doesn't seem to have been addressed yet.
First let's see who the stakeholders of a project are:
- The stakeholder starts with the person holding money. The short definition of a stakeholder is a person or business that has invested money in something. Long ago I was in a room with a Booz Allen senior manager, working on a proposal for a Department of Energy RFP. We (the people hoping to win) where working hard on our strategy for capturing this business. The BAH leader interupted our brainstorm with this simple request. Look guys you're way over thinking the problem. We need a simple strategy. Our potential customer has money and we want it. Stop overselling and figure out what they are willing to pay for, how much it will cost to provide this solution, and test if they have the budget for our solution.
- If you're the person with the money (the stakeholder) and want to spend it, you likely would like to know how much money will you spend to get done what you need to get done? You likely have a sense of how much money you have to spend. You're a credible manager of your budget, so you know the limits of available funding. What you need now is to know from someone, somewhere, what can you get for you money. And by the way,the notion of beyond budgeting not doing budgeting is simply false. All business run on budget. It's how you use the budget that beyond budgeting speaks to.
- If you're the person with the money, you likely work in a project based organization. Projects have this interesting attribute, they have fixed periods of performance. A start and an end, and an outcome that makes some kind of change. If you are not engaged in this manner, you may be in operations, which has much longer periods of performance. Maybe for the life of the firm. Operations has budgets as well. Operations makes changes to processes, equipment, and other operating aspects. So knowing how much money you need to spend to make those changes is likley part of your job.
Now there are certainly situations that estimates provide little value. Short duration work. Weeks, maybe days. Just do the work - assuming of course you actually understand what work to do. But those types of projects are simple and straight forward. I'm speaking of projects that are not straight forward. Since those suggesting that estimating is a waste, fail to state in what domain and context they can spend other peoples money without an estimate of how much money and when they will be done, it's difficult to see if any of their ideas have merit outside their personal experience. But it seems it is difficult to get that information, so we'll have to move on without it.
So What's the Value of Estimating to the Stakeholder?
First, the notion that stakeholders don't need estimates needs to be challanged. A fundamental axiom of all business is:
Return On Investment = (Gain from the innvestment - Cost of the Investment) / Cost of the Investment
So if there is a claim that a provider of solutions is interested in providing value, then you've got to know the cost of that value before you can determine the worth of delivered value. Let's say it again
You can't determine the value of something unless you know it's cost
Now some might argue this, but those doing so need to read Managerial Finance, Brigham and Weston. This is a core knowledge book for managing other peoples money inside or outside your business. By other peoples money I mean the stockholders, the investors - the STAKEHOLDERS.
So instead of asking what is the value of an estimate to the stakeholder, how about asking the stakeholder what information they need to manage their funding. By the way funding and bidget are not the same. Budget and price are not the same. Read Brigham and Weston to see the differences.
Starting with the ROI equation, the need for estimates, actually the demand for estimates, is to determine the ROI. This can be the end of the discussion and we can switch to how and when to develop estimates. What kind of estimates. How much confidence we need in the estimate. How the estimate is built, assessed for credibility, applied to DECISION making, and all the other aspects of managing a business funded by other peoples money. Spending your own money, no one really cares how you do that.
But there are a few more aspects of making estimates to deliver value to the stakeholder.
- Estimate At Completion - now that the project is going, how much funding will be needed to complete the project. The notion that measuring the current consumption of funding and the current production of outcomes will provide visibility to this number can only be true if nothing changes. No change in capacity of work. No change in the size of the elements of work. No change in the arriavl rate of work. Little's Law is in force and is unchanging. Not Likely.
- Estimate to Complete - for the current committed work load. The linear forecast from current performance can only be true if there is ZERO variability is the production of work with a fixed workload. Not Likely.
If there are ZERO changes in the current project's work activities the EAC and ETC can be developed from measurements of the current project's work. This seems an overly restrictive condition for an actual business management process.
So What's the Point?
Don't ask those doing the work what the value of making estimates of that work is. Ask those spending money on those doing the work what the value of estimating is.
It's their money. They need to know how much will be needed to start the project, sustain the project, complete the project.
It's that simple - follow the money not the work.
