Budget estimation is a huge part of the work day in the IT industry. Whether you are a project manager at a software agency, or you independently build custom software for your clients, you have the responsibility of collecting your clients’ requirements, translating them into technical tasks, distributing them to the team, and creating a cost estimation.
The process is a crucial element for customers, as it’s what allows them to decide whether to start the implementation of particular features or not.
However, the estimations process brings with it various challenges. Requirements may be coming from various places – emails, phone calls, brief documents. There may be so many requirements that it’s hard to stay on top of everything. It is difficult to also keep track of historical estimations you have given the same client.
To get a better understanding of the various challenges faced by the industry, we ran a survey to see how others handle the estimation process.
The survey was made up of 24 questions, centred on finding out more about the individual, the company they work for, and their estimation process. We shared the survey with our contacts in the IT industry and collected their responses between March and May 2020.
Just under 80% of our respondents work for companies that have more than 20 employees, with half of those having more than 50 employees. There was a fairly even split between software houses, software agencies, companies who develop their own software products, and those that create bespoke software. 50% of respondents are project managers, 25% head up their own departments, and the rest are owners, co-founders or directors.
In almost 90% of cases, respondents said that the project managers are responsible to estimate the budget and time required to fulfil any requirements.
Less than 40% of respondents said their estimations are usually accurate. 25% said they often underestimate their budgets, while the rest said they either overestimate or are not sure how often they are way off.
In half of the companies, the estimated price is also the price to be invoiced in the end, while the other half use the estimation only to give an idea to the customer about what the final cost may be.
In many cases, the project manager communicates with the clients in a dedicated discovery meeting to scope the requirements, and then has a discussion with the development team, the head of development, or the tech lead to come up with accurate cases.
For some companies, the project manager or an engineer works with the customer to get detailed requirements, and then passes them on to a team leader, who estimates the quotes based on the requirement and proposed solution.
Companies that are Agile Scrum based get through the process by using story points to measure and track velocity during sprints. Based on their backlog and projections, they are able to estimate how long future sprints will take, and how productive they will be.
Half of respondents said they use fixed prices, while the other half use an hourly rate. 75% try to use previous estimates when making new ones.
When asked whether they include all of the work or just development in the estimation, a majority said that every estimation combines all the work for the feature. A smaller group said that every feature has a separate estimation for each type of work – development, QA, etc, and only 12% said each feature is estimated for development, and then 20% is added on top for QA.
60% estimate the cost of every feature separately and then pull together the estimation, 25% use price ranges where possible, and the rest rely on Agile and account management.
88% of respondents add a safety margin, but only in 25% is it a fixed percentage – otherwise, it varies depending on the job. When static, percentages range from 10-20% for some companies, while others go up to 40% if the project is more complex.
Most survey respondents only work on estimations a few times a month. There was no major split between those that have to do it weekly, a few times a week, or daily.
Half of the audience spends a couple hours a week doing estimations, 40% spend a couple hours a month, and the rest – a few hours daily.
One estimation takes 3-5 hours for 50% of our audience, and there’s a large range for the rest; some spend less than half an hour, while others – more than a day.
In almost 90% of cases, the client is engaged throughout the estimation processes. When delivered, rarely does a client reject an estimation, but they more often than not negotiate the budget and time estimated.
The tools used by our respondents to create estimates include Azure DevOps, Google Sheets, Google Docs, Microsoft Excel, Microsoft Word, and Workfront, to name a few.
The most common problems with these tools include the lack of quotation templates, historical information of quotes and estimations, and an automation of setting the hourly rates and updating them easily.
We can see that no matter what size the company, their business model, or who in it handles the process, we all have similar challenges when it comes to estimations.
Most of us have discovery meetings to understand all that the client needs, we add safety margins, and we are not always as accurate as we want to be. A lot of companies use previous estimates as a starting point and involve the client in the (often lengthy) process.
Another thing that we have in common is no one seems to have found a perfect tool to support the estimation process, or a perfect resource to use. By sharing insight in this blog, we hope to help you become an estimation expert!