- How accurate is your budget?
This is one of the first questions to ask yourself
because others using the budget need to know.
Let's look at how to answer this question
based on actual data.
I recommend supplying a range for your estimate.
For example, if I estimate the project will cost $10,000
and four months to complete,
then I might inform stakeholders
that the costs could range from 9,000 to $13,000
and the duration could range from three to five months.
But then you might ask,
how do I know what the range should be?
In the early stages of the project,
you have a limited amount of information
on which to base your estimate.
This initial estimate is often called
your order of magnitude.
Typically, for order of magnitude estimates,
the actual cost or duration could be 75% higher,
or 25% lower than your estimate.
So, you'll want to refine your estimates,
and you can do this by clarifying the following,
the scope, the requirements,
the availability of your resources,
material costs, and the costs to address risks.
Then you can provide an estimate called
a budgetary estimate.
This typically has an accuracy range of 25% higher
or 15% lower than your actuals.
Even if you don't have prior project data to use,
you'll be able to provide a budgetary estimate
as you learn more about the project,
like detailed scope requirements, updated materials,
and risk mitigation costs.
Your final, most detailed and accurate estimate
is called your definitive estimate.
This estimate should be based on project data to date,
actual resource availability, and a detailed design
of the proposed solution.
The definitive estimate target range is for your actual cost
or duration to be 10% higher or 5% lower than your estimate.
In the exercise files you'll find a document
outlining these estimation levels,
and different approaches to calculating estimates.
Another vital tip for improving budget accuracy
is documenting the assumptions for the estimate.
Common assumptions include the resources you have available,
the number of available project work hours per team member,
and material costs that haven't been formally quoted.
As the project progresses validate your assumptions
and update your estimates.
So, with this progression of estimates, if I'm asked,
how accurate is your budget?
I always say, it's more accurate every day
as I learn more, it becomes more accurate.