Why do we Estimate?

The first question we naturally ask when we have an idea is ‘How much will it cost?’

The main reason we do this is in order to make a decision about whether to proceed with the idea or not.

Asking the question this way will often result in a lot of work in many delivery teams, understanding the idea and then estimating how much it will cost to develop.  By the time we have done all this work it is as if we have started the project already – so we can find it very hard to stop.

It is more useful to ask ‘How much are we prepared to spend on this idea?’  A good way to do this is to use the IRACIS template and ask ourselves about the goals and drivers for this idea.  For each goal or driver, capture the item into the most appropriate box – does it Increase Revenue, Avoid Costs or Increase Service to our customers?

Next we look at the metrics and measures we would use to determine if each of the goals and drivers were met.  Would we count the number of sales? Would we look for a drop in complaints?  Could we reduce or delay investment? ….and so on…….

The next question is ‘With all of these benefits, how much should we be prepared to spend in order to meet these goals?’

This can be very hard to answer in a work context – but we do it all the time in our home lives.  For example, if I want to buy bananas, I already know how much I am prepared to spend.  If they are more than I have budgeted for, then I do not buy them.

Once we have the amount that we are prepared to spend, there are many light workshop techniques we can use to get an idea of the work involved in the solution and whether we think it is possible to build for the desired spend.

Back to the reason for estimation – to make a decision about whether to proceed or not with the idea.  If we estimate that we can build the solution for the desired spend, then let’s continue with the idea.

If not, then stop and spend no further effort on it.