Modus List 3: Our Five Estimate Pathologies
Business runs on estimates. How long do you think that might take? we naively ask. Then when someone tells us how long they think something might take, we write that down and hold them to it.
Webster says the very word “estimate” means to roughly calculate or judge the value, number, quantity, or extent of something. “Roughly” … “judge.” We know that estimates are always wrong enough to be lottery-worthy when they are right.
Here are five estimate pathologies that cause us nothing but pain.
When someone gives you a number, you believe it. Numbers are definite. They have credibility. When I plumber says, “This’ll probably cost ya about $600” your head immediately sets a price at $600. This is where we explore ideas of accountability. We believe that estimate is correct and we will now hold that plumber accountable even though he clearly said “probably” and “about.” Dollars, dates, and milestones become truths the moment they are uttered.
When I make an estimate I fall prey to something called The Planning Fallacy. This tells us that we will almost always err in our estimates. But when we give an estimate, we feel we've given someone or word. We feel it's a promise. That means we take ownership of it and become entrenched. We believe our own estimate and begin to ignore warning signs that the estimate may, in fact, have been only an educated guess.
Each project we undertake is an hypothesis. We believe the actions included in our plan will result in the product we envision. Further, each product is envisioned to have an impact on the market.
The larger the project, the more guesses upon which you base your work. We believe we can predict the future because the plans we are making sound plausible. In fact, they are guess upon guess, assumption upon assumption.
We believe we will get better at our estimates. That estimation is a skill. This may be true, our estimating skills can be honed. However, the planning fallacy and the realities of how we work put a cap on the accuracy we are able to attain.
Our accuracies are impacted by variation in the work and high margin work usually includes high variation. When we plan or estimate at the task level, the role of variation is so severe that simple changes in the weather or absence of a colleague due to the flu can derail an estimate and a project.
In business, we create estimates and plans and begin work immediately, rarely with the expectation that those plans will change.
In civil engineering there are different levels of estimates. A planning level estimate is an estimate believed to have a high degree of unknowns which is therefore subject to high levels of variation and uncertainty.
An engineering level estimate actually comes with gradations of certainty. Construction plans will be provided and reviewed for 20% 30% ... up to what is called a 100% submittal.
The 100% submittal is when work can begin. During actual construction the designs are further refined. When the project is completed a while new set of drawings and documents are created to document what was actually built. These are called "as-builts". This is because even in a theorizing theoretically lower-variation environment like civil engineering we still don't build to our estimates.
So tell me, what’s number 6?