How to Accurately Create Budget Estimates and Avoid Poor Planning
Timelines, Budgets and Resources
Do you remember the last time you worked on a project that was planned and executed perfectly? When your expectations around budgets, deadlines and deliverable quality were all met. When your clients were satisfied and there were no problems at all.
If you’re lucky, you might actually be able to think of one project like that - maybe even two. But the majority end up in the grey area where deadlines and budgets weren’t met, clients were dissatisfied or your team was miserable.
The root cause of projects in that grey area? Poor project and resource planning.
There are many elements involved in project planning, but properly managing timelines, budgets and resources is definitely the most important. You need to know how to allocate time and resources efficiently so you can manage costs and keep projects on track, otherwise you’re stuck dealing with challenges and bottlenecks everyday.
The truth is that for many agencies it’s a struggle. They’re unable to assign the necessary resources and appropriately skilled talent towards the right tasks, which results in all their great work in other areas getting undermined and their projects being driven towards catastrophic failure.
The Results of Poor Planning
Low Morale: When projects are behind schedule and over budget, oftentimes we tend to view our team as the bottleneck rather than seeing our planning efforts as the issue. When that happens, employees feel undervalued, demotivated, suffer from low morale and lose trust in their managers. When your team is unhappy and overworked it’s not just them who are being affected, it’s also your bottom line.
Low Quality Deliverables: Inefficient resource planning affects your entire project, including the quality of your deliverables. When your team and resources are tied up in multiple projects and timelines are tight, their productivity is bound to be affected. Tasks will be performed haphazardly, quality will go down, and ultimately, there’s a good chance your client will reject the final deliverable. At that point, you’re forced to spend more time on the task and you’re just losing money and precious time.
Out of Control Costs: Poor project planning costs businesses thousands of dollars every year. Along with the costs of low productivity, team morale, and deliverable quality, research has also shown that:
1 in 6 projects experiences a cost overrun of 200% or more
12% of project budgets are wasted due to poor management, counterproductive behaviours, and bad decision-making
18% of projects fail to even get completed or implemented
43% of projects are delivered late or over budget
33% of projects do not meet clients goals or objectives.
Put all that together, and it’s safe to say inaccurate timelines, budgets and resource planning are raking up the costs and leading your projects down the drain.
How to Best Estimate Budgets
Estimating project budgets and timelines can be a daunting and time-consuming task, but by being aware of your team, deliverables, tasks and processes you can make it much more bearable.
The first and foremost step in mapping out budgets is accounting for all project costs. To do so, you’ll need to create a list of all items that are relevant to the project.
After establishing all the costs associated with the project, it’s time to determine your budget. As you’ll see below, there are multiple ways to do this and there’s no right or wrong. Go with the method that makes the most sense for you and your agency.
Top-Down Estimation
This method involves deciding upon a budget and dividing it between different phases or tasks. You then determine if each section has been allocated enough money or if adjustments are required.
This method is probably the simplest, quickest and easiest one to use. Due to its simplicity, it’s best used early on in a project to determine if your client’s budget is enough to cover the project’s costs and still make a profit. However, keep in mind that this method is fairly basic and doesn’t account for any possible changes to the project or budget.
Bottom-Up Estimation
Similar to the previous method, in bottom-up estimation you estimate a project based on its phases or tasks, but you do so with a lot more information on hand. To use this method, you’ll first need to finalize the scope and components of the project. Then estimate each section individually and sum up the costs to determine the project budget.
Amongst all the techniques, this is the most accurate. Since it’s based on the actual scope of the project, it’s very detailed and can easily be referenced later on in the project's life to determine if you’re on track in terms of budget and time. One thing to note - costs can be overestimated in this method because it’s so detailed
Parametric Estimation
This estimation technique is based on old projects, with tweaks made according to your current project. Since you’ve likely performed similar projects in the past and know their budgets, you can reasonably assume your new projects will follow similar budgets. The good thing about this method is that it’s simple, realistic, doesn’t require a lot of information and can quickly provide you with an accurate estimate.
To illustrate, let’s say you previously wrote a blog post about marketing with 500 words and are now working on a project with a blog post about marketing which will be 1500 words. For your previous project you charged $100 for the blog post, therefore for the new project you’ll charge $100 x 3 (three times the words) = $300 total project cost.
It’s a simple technique that’s fairly accurate, but many times it’s difficult to find data to compare. For example, since projects can be so diverse, it’s not always fair to say that a content piece with 20 pages is simply double the project cost of one that was 10 pages.
Three Point Estimation
This last method moves away from ballpark estimates and into establishing more accurate, realistic costs. It involves taking the best case, worst case and most likely scenarios and is the most commonly used method.
It’s a simple formula that looks like this:
(Best + Worst + Most Likely Estimates) / 3 = Expected Estimate
Let’s put this in actual numbers.
You have a digital marketing project that will cost you $1000 in the best case scenario, $1500 in the worst case scenario, and $1200 in the most likely scenario. Based on the formula above it would look like this:
($1000 + $1500 + $1200) / 3 = $1233.33
This formula can further be customized by incorporating weights to the different scenarios. For example, if you think the project is more likely to end up in the best case scenario, assign a higher weight. The formula will now look like this:
$1000(2) + $1500(1) + $1200(1) = $4700
Add together the weights: 2 + 1 + 1 = 4
Divide the two totals: $4700 / 4 = $1175
That’s it!
Budgeting is a tough task and involves a learning process, but it’s crucial to your success. If you can estimate projects accurately you’ll save yourself, your clients, and your team a lot of frustration, so try out all the different techniques we’ve mentioned above and see what suits your needs.
How To Estimate Time
Inaccurate time estimations can really make or break a project. From tasks going beyond scope, your team being forced to work overtime and unhappy clients, it’s one of the toughest challenges any agency has to face.
Here are six tactics you can implement in your business today to improve time estimations:
Break down projects into activities, then further into smaller tasks, and then estimate the time required to complete each task.
Take a look at similar projects you’ve done in the past and how many hours they took. Then calculate the average. For example, project one took 5 hours and project two took 10 hours, therefore the average time it takes your team to perform the task is (5+10) / 2 = 7.5 average hours
Take past project timelines and adjust them for differences in the new project.
If you work with contractors, add labour time plus the time required to get them access to tools and resources
Estimate based on unit. This could be words per blog post, pages per website or even per deliverable.
Estimate how many hours it takes to produce each unit and multiply by how many units are required for the project.
Accurately estimating project timelines and budgets is essential to pain free project management. As you implement these tactics in your business, just remember, the hardest projects are the first ones and once you master the process, your planning efforts will be faster and more accurate. Just make sure to document everything so everyone is on the same page and you have a reference point to look at for other projects. Keep note of the strategies that worked and take a critical look at the ones that didn’t. All this information will be invaluable when planning future projects.
Key Takeaways
Continuously communicate with your team on project status, project direction, and what the project will look like at completion.
Create custom reports in your project management software that tells you what’s happening in every project and what current timelines look like.
When resources don’t materialize as planned, estimate the impact and communicate with your team.
When things go wrong, analyze why, estimate the impact, communicate with stakeholders and take action to bring the project back on track.
Be realistic – make plans that fit project requirements and don’t take on more projects than you can successfully complete
Trust data more than your assumptions – use inputs and reports from past projects to plan new ones.
Have an overview of your resources – know what resources you can use, what skills they have and what their availability is.
Align projects with your capacity and pipeline – always include other projects and priorities, so that you’re aware of potential clashes and changes.
Be there for your team – meetings with your team will help you discover their pains and challenges early on, so you have time to respond and improve.
