The Best Estimate
Even with a well-defined project plan, it's best to let the customer
know that an estimate on deliverables is just that -- an estimate.
- By Jeff Rudolph
- June 01, 2006
"Estimate." Although that magic word appears in every
proposal, it means different things to different people.
For a solution provider, an estimate includes a well-defined set
of deliverables documented in the proposal and the subsequent requirements
document. Ultimately, it represents an educated guess about the
project's cost, which is, of course, subject to change as a result
of unforeseen challenges or circumstances. Too often, though, customers
see an estimate as a bottom line that's set in stone and that includes
all the costs of implementing a new system as well as any additional
costs that might come up during installation.
Once, in the middle of a three-month ERP implementation, our client
landed a new account of its own and needed to begin working with
its new customer right away. To comply with that customer's electronic
data interchange (EDI) process, our client had to adopt a complex
set of rules into its practice. So our implementation team hunkered
down, wrote the necessary interface and met our client's tight deadline.
As a result, we billed an amount well beyond our original estimate.
Our team assumed that the client understood that this extra work
hadn't been included in the estimate. However, our client didn't
think that adding a new customer should change the project's scope.
Eventually, we reached a compromise, but not without some ill will.
Unfortunately, such situations are all too common in ERP implementations.
We make money by billing customers for time spent on projects. Unlike
other products for sale, hours can't be returned. If we don't get
paid for our time, it's gone and can't be sold to someone else.
Our implementers want to do the best for their customers, and our
customers want to run profitable companies. So how do you balance
those positions to manage customer expectations about estimates
-- and prevent writing off billable hours?
First, here's what not to do: Don't beg for forgiveness at the
end of a project. Ask for permission before it starts by having
the customer acknowledge that there might be some cost overruns.
If you wait until the end to bring up that issue, your chances of
recouping money for extra hours spent are next to nil.
We begin each project with a simple one-page letter of understanding.
This document explains how we reached our estimate, noting that
it's subject to change as the project moves forward. It also says
that all adjustments will be discussed with and approved by the
client via a change order before work begins. Both our project managers
and the client sign this letter at the outset. We then hold a kick-off
meeting with the customer to discuss the project's stages, team
members, sign-off documents, change-control process and our status-reporting
mechanism -- including the all-important budget report.
That bi-monthly report shows our progress toward
project milestones, comparing actual time to estimated time. If
it appears that we're exceeding our original estimates, our project
manager discusses the situation with the client, and they agree
upon a remedy, signing a change order if necessary. Regularly scheduled
meetings with the client allow us to discuss new requests and potential
problems. Results of all meetings, status reports, change orders
and other pertinent project documents are posted to a dedicated
Our well-documented processes and procedures, along with our use
of SharePoint and a change-order system built into our Navision
ERP application, keep project management overhead to a minimum.
And, while we're constantly refining our methodology, we've made
great strides in reducing "returned time" and defining
"estimate" with its intended meaning.
Jeff Rudolph is the partner in charge of Sikich LLP's ICS Technology
Division. Based in Aurora, Ill. Sikich
is a Microsoft Gold Certified Partner providing Microsoft Dynamics
ERP solutions with Great Plains, Navision and CRM as well as infrastructure
solutions with the Microsoft platform.