It happened again! How do we estimate projects?

I participated in a meeting to prepare the proposal for a solution for a customer. They insist that the the proposal must contain a fixed price. Before the proposal can be prepared, the developers would like to know the exact scope of the solution so that all stakeholders would agree what will be delivered for the quoted price. But the customer is very vague because they are still not sure what exactly the want except that they want a fixed price proposal.

These discussions have actually been going on for months without an ending in sight. An impasse? Probably. We don’t know how it will finally end up. It could go in various directions, such as:

  • the developer defines the scope and hopes that it is the same as the customer understands it;
  • the developer estimates the cost of the project based on his understanding of the scope and adds a reserve amount hoping it will cover the unknowns;
  • the developer estimates the cost of the project as he understands it but later it becomes clear that it is different from what the customer expected;
  • the developer doesn’t prepare a proposal until the customer specifies the scope…

Based on experience the situation will most likely end up as a troubled project. If the customer and the developer can’t agree on the scope at the very beginning it’s even more likely that they won’t be able to agree later.

What can be done?

An obvious possibility is that the developer declines to accept the project.

A second possibility would be to review once again whether the basis for the proposed project is a real business problem that needs to be addressed and whether the client representatives involved in the discussions are credible. Do they have the power to make decisions? Are there too many conflicting interests? Is the proposed project unimportant in the customer organization and does not have sufficient priority? It would be a good idea to find out the reasons why the customer wants such an undefined project. Based on these reasons a more qualified decision can be made whether to decline the project or to continue discussion with more empowered persons.

A third possibility would be to offer the customer an agile approach to implementing the project. But we need to be careful here. Because the customer wants a fixed price they would most likely want a fixed price with an agile approach as well. And while the scope is not clear and understood by both parties, even agile will not help to deliver the project.

2011-02-01 Cost estimateThis story reminded me of a presentation that I delivered some years ago on the topic of gathering information system user requirements. One of my final thoughts was: »An interesting situation, not as rare as we might expect, is that the customer expects the developer to define the cost and the time frame of the project, while they haven’t specified the exact goals of the system and it is still unknown what the system is supposed to do.« And who would have believed that this assertion is still valid today.

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