Anyone working in the project world has heard of the word ‘forecast’. The most commonly asked question from the senior executive management team is ‘how much will it cost at completion?’ Most of the time, this question cannot be answered with great certainty. It is, after all, an educated guess based on currently known risks. This article will hopefully provide you with some tips and insights to producing a reliable project forecast.
What is Project Forecast?
A project forecast is a prediction of the project outcome in terms of schedule and cost. In other words, a competent Project Manager will be able to answer the following questions confidently:
- When will the project complete?
- How much will everything cost?
This prediction is of course based on current project performance indicators and future assumptions. Current project performance indicators are real project data being collected as the project progresses. Based on these data, a certain trend or trends can be identified. Future predictions rely on the statistics from these trends and can be used to project a final estimate at completion (EAC).
If the data paints a true picture of where the project is heading, a lot can be done to keep the project on track and within budget. The Project Manager will have the proactive ability to make critical decisions to realize opportunities, reduce or mitigate risks to shape the outcome of the project. If a construction job is at the risk of running behind schedule and therefore going over budget, a Project Manager may wish to look into solving productivity issues or introduce night crews. These are big decisions and it begs the question, ‘how do I know if the EAC is accurate?’
There are many factors that will impact the project performance and therefore change the future assumptions. All of them are intertwined and any deviation has the potential to skew the final estimate at completion. So what are the things we must consider?
Understand the Project Scope
The engineers can design a swimming pool, but it will not be of use to the procurement and construction team if they are prepared to build a skating rink. It is crucial for the entire project team to clearly understand the scope of the project. Once everyone is on the same page then they can speak the same language. A properly developed project schedule provides a comprehensive visual of the entire project scope and it can be a helpful tool to track and monitor the deliverables. If you cannot produce a schedule for your project to show logical sequencing of activities and properly plan and allocate resources to each activity, that may mean you need to go back to the drawing board to define the objective that you are trying to achieve. Without a properly understood definition of the scope, the execution of the ‘unknown’ is extremely risky and your forecast will be a wild guess.
Use Real Data
Project Managers often times ‘pad’ the project forecast and the over-estimation is usually based on a ‘just in case’ scenario to justify not having to repeatedly request for a budget increase. Afterall, delivering a project within a ‘promised’ number will make you look good, right? If the project scope is clearly identified and understood, project resources can be properly allocated. Once a proper project schedule is established, keep track of the actual performance of each activity to gain a sense of how the project is progressing. Key performance indicators such as productivity factor, SPI, CPI..etc are valuable in presenting where the project is heading. Keeping up with the industry market researches on all relevant project resources will aid in providing a more realistic trend and better business decisions.
For instance, rising fuel costs have a tremendous impact on almost everything. The fuel cost from a year ago can no longer be used in the assumption for fuel costs going forward. How much will it go up and at what rate?
Whenever available, update your assumptions to reflect the real data to increase the accuracy of your forecast.
Choose the Best Techniques
Not every project is the same and there may be constraints that pave the way to which projections are made. For instance, a company trying to launch a new product may not have historical data to rely on and therefore will have to depend on market surveys to make an educated assumption. Where most projects can rely on already established industry data, there will be factors that differentiate these projects to make them unique and the methodologies used to generate the project forecast should reflect so. Choose a technique that best utilizes the available data.
The Bottom Line
Producing an accurate project forecast is no easy task. It should never fall to one person’s responsibility but rather a collaborative task that engages the entire project team. Experienced schedulers and cost controllers should be able to provide accurate performance data and metrics. A regular joint forecast review with the Project Manager and the Scope Owners offer great opportunities to validate the data provide, evaluate all known and unknown risks, and formulate a realistic schedule and cost forecast. Good communication is certainly vital to the success of project execution.