Project Cost Estimation and Client Expectation Management

29 October 2019 * 5 min read

Written by Velislav Ivanov

In this article, we’re going to talk about why it is important to give our best when estimating a project. Also, I’m going to outline some guidelines for setting clear client expectations and managing them throughout the project’s life-cycle.

Based on my experience, talking with people in the industry, and consulting different companies, I came to a conclusion, that when we talk about estimations, the general understanding is about cost. Surely the budget is of great importance to run the whole operation, but for some clients, time is of the essence, not money.

I’ve worked with companies with budgets so big that our project of a couple of hundred thousand dollars was just pocket money for them. However, at the same time, their deadlines were rock solid. These are points we have to clear with clients right from the start — what is their budget and reserve, what is their timeline. It is vital to understand if deadlines can be extended if something unforeseen occurs and what will be the impact for the client.

When we talk about estimation, we have to consider the constraints triangle:

Scope — This is the heart of the project. We need to define a clear scope so that we can provide more accurate estimations afterward;

Cost — The cost is an estimated calculation of the effort needed to deliver the project, fees for infrastructure, licenses, training, sub-contractors, etc. Proper effort estimation will not only help us give a more accurate cost to the client but also to plan our pipeline accordingly;

Time — Based on our effort estimations and our team’s availability, and client’s deadlines, we need to create a timeline for delivery;

Quality — The quality of the work performed should always be of high standards, but in some cases, we might decide to sacrifice quality in the name of reducing time, costs, or cutting the scope.

It is vital to make it clear to the project team and the client, that these constraints are connected to each other and changing one reflects the others.

Why do we need accurate estimations? Here are the obvious reasons:

We need to cover our operational costs — office, supplies, salaries, etc;

We need to plan with our other projects because a change in one project will have a reflection on its timeline and might interfere with another project, etc;

Although these seem like really straight forward reasons, trust me, there are employees who don’t think about them, especially in bigger companies. I’ve had this talk, it’s not pleasant.

Now for the NOT SO obvious BUT really important reasons: Client & Team relationship.

For all money driven people out there, please understand that money is just a RESULT and a SHORT TERM incentive for keeping the business operational. Of course, if you make more money, you can invest in expanding the team, learning new technologies, replacing old equipment, buying perks, etc. All of this is great, but not sustainable if you don’t have good, strong relationships.

Good relationships and reputation, on the other hand, are LONG TERM investment which lead to:

More projects; referrals and…. money as a result!

So how do we build a good relationship and reputation with our clients? We need to deliver the scope within the estimated time, cost and sufficient quality. Reporting and risk management should also be at the highest level when talking about a good client relationship. Having in mind that things will change during the course of the project, we need to constantly manage client expectations.

But not only client relationship is important for a successful project. The team behind it has to be nurtured as well along the way — team relationship. This has to do with the company’s culture, not pointing fingers when something goes wrong, keeping everyone up-to-date with the project’s health and progress, and most of all, maintaining a razor sharp focus on the end goal. So as a Project Manager, you have to make sure that expectations are aligned not only with the client but also with the team within the company or any other external stakeholders.

When talking about expectations, it is important to understand the difference between time and effort especially when communicating plans with clients. For example in most cases if you tell a client that something would take 4 months of effort, in their head that immediately means in the span of 4 months. This is quite wrong, because you have to take into account consecutive phases/tasks, risks, lags, etc. It seems pretty obvious when we bring it up, but often this gets neglected and the relationship suffers when it turns out that instead of 4 months the project is delivered in 5.

How to manage client expectations?

The whole idea of the project management diamond is to put emphasis on customer expectations.

Everyone wants their projects to be fast, cheap and good. But the reality is that most projects won’t have the budget to be delivered with top quality and on time. In most cases, we’ll need to weigh one constraint against the other and reach the best possible outcome.

Juggling with those constraints and making decisions on your own can be catastrophic to the project and client relationship. As a Project Manager, your job is to monitor all verticals, report to stakeholders on a regular basis and discuss possible outcomes.

I strongly believe that client expectations should be set during the Sales phase so there are no bad surprises at the start, but if you’ve missed your chance, the next would be the kick-off meeting (I’ll create another article about it). As a Project Manager, you should educate your client on the importance of the triple constraint, work together to create the best balance and be aware of any changes to the cost, time and scope.

As a good practice would be to set weekly calls meetings between you and the client to discuss the overall project health and status. Avoid e-mails to discuss important topics. I use e-mails to confirm what was discussed in our meeting call only. If the topic is more sensitive, even consider a physical meeting.

Velislav Ivanov is a Project Manager & Operations Coach. Certified Scrum Master who is passionate about helping people implement/improve processes and adopt Agile. He has also had the opportunity to develop training and consulting skills in 100+ sessions.