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Project Estimation, Part 2: Creating a Scoping and Estimating Tool

May 6, 2019

In Part 1 of this series, I introduced my idea for a scoping and estimating tool that emphasizes transparency, puts the customer in control, and focuses on the work outcomes for piecework rather than hourly rates. Now, in Part 2, I’ll present a tutorial for creating this tool, while providing some theory on crafting a service business.

To build an estimation tool that meets your own needs, follow these steps:

  • Identify the services you’ll provide.
  • Perform a time-and-motion study for delivering each of these services.
  • Quantize and assign a price to each of your deliverables. (I use the term quantize to refer to the process of converting the value of a deliverable from an hourly rate to a discrete unit of work.)
  • Build a spreadsheet that includes each quantized element.
  • Refine the spreadsheet as necessary.

This sounds pretty straightforward, right? Just figure out what business you want to be in and what it costs you to deliver your services, then put together a spreadsheet. Of course, those of you who have been down this road realize that there’s nothing simple about some of these steps once you start dealing with the many details. So I’ll break down each of these steps to show you how my approach and the tool I’ve created to support it address the challenges of managing a service-based business.

Identify the Services You’ll Provide

The first step of building your estimating tool is identifying what services you’ll provide. Choosing these services is not a trivial problem. It involves considering a mixture of what your prospective clients might expect, what your competition is offering, what services you’re skilled in providing, and how you can make money. This tool defines the heart of your business model and strategy. To illustrate how you can build your own estimation tool, I’ll use a hypothetical business. As you build your tool, you’ll actually be defining your fee structure in a way that guarantees you’ll make money on every contract.

Our Hypothetical Business

Let’s say you’re just starting out in business, and you’ve decided to provide UX services to other businesses. You intend to provide Web-site design and UI-development services to companies that deliver all other parts of the Web ecosystem, including security, hosting, back-end code development. While this is a tricky business model, it can be very lucrative if you manage your business correctly. To keep things simple, you’re targeting mid-sized, enterprise-technology providers. As part of your discovery process, you’ve identified a set of pervasive, or common, problems from which these businesses suffer.

You want to keep things as standard as possible and you’re a whiz with WordPress, so you’re looking for partners who want to support WordPress front-ends. Of course, many other designers are competent at delivering WordPress front-ends. Is there something specific about your prospects’ businesses that you could leverage to give you a competitive advantage over a more generic Web designer? (This was essentially the situation I faced when I started my consultancy Phase II: delivering a competitive set of services to a targeted industry—systems furniture dealerships—by using a standard platform—AutoCad—that any designer could use.)

When identifying the services you want to offer, your first task is to break down all of the tasks and activities you would need to perform to deliver a complete Web-site front-end to your target market. As you list each of these tasks, you’ll note that some of them are enabled by technology—perhaps a commercially available plug-in or third-party service to which you can subscribe—while others simply require your time and skills. As you break down the tasks further, you’ll find that some are highly repetitive and could potentially be standardized, while others are one-offs, requiring custom work for each client. Look for tasks that are standard, repetitive, and could be enabled by better technology. We’ll focus on those for the initial version of the tool.

For Phase II, such a task was placing CAD objects into a drawing. Jobs might range from a few objects to several thousand. As I discussed in Part 1, the key here is to avoid getting trapped into thinking that a contract is just a matter of time. While larger projects do naturally take longer, you can bill by the piece—in this case, the CAD objects. For our hypothetical business, the number of component services would likely be much larger for larger projects than for smaller projects. Therefore, the trick is to price your contracts according to the number of different service components, their values, and the quantity of each type of service component.

To summarize this first step, identifying your services, you need to do the following:

  • Identify all of the services necessary to serving your targeted businesses.
  • Separate custom work from standardized services.
  • Identify which of the standardized services you can automate or optimize through technology.
  • Identify which services are less attractive from a business standpoint—perhaps because you can’t predictably estimate them, can’t optimize them, or have too much competition.

There’s one other thing you need to do for this step: figure out how much money you want to make per hour. For simplicity’s sake, let’s say it’s $60 per hour, which works out to $1 per minute. But doesn’t doing this contradict my assertion that you don’t want to bill by the hour? No, but you still need to put a value on your time. Even if you’re not billing by the hour, you want to establish your value and desired income by deciding what you want to earn per hour of work.

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Perform a Time-and-Motion Study for Delivering Each of Your Services

Your next step is to figure out, relatively accurately, how much time it takes to complete each of the standardized, repetitive tasks. This is actually pretty easy to do. The challenge is having enough examples to give you confidence in your time measurements. As with many other first attempts at estimating, this is an exercise in trial and learning. First, you might decide to work on a couple of small Web sites—either on your own time or perhaps at an introductory-offer rate to begin a relationship with one of your target prospects. The advantages of using a real project include the following:

  • The time you spend on the project is the actual time you need to spend. It isn’t artificial or made up.
  • You are starting to build your business even as you’re still creating your estimating tool.

But using a real project to figure out these service components poses several problems:

  • No single project—or even a few projects—would likely require all of the service components you want to provide.
  • Small sites might not be representative of the effort necessary for larger projects.

It’s almost guaranteed that you’ll get your first estimates wrong. It takes time to dial in the numbers accurately. But it’s okay if you don’t get your costs exactly right from the start. The worst that could happen is that you wouldn’t make as much money as you’d hoped during the early stages of your business. As with most trial-and-learning approaches, you can adjust your tool to make it more accurate over time. In the worst case, your prices would approach what your competitors are charging. But the point of this tool is to give you a competitive advantage by identifying the services that you can make more efficient through technology.

Let’s say, for example, that you determine your prospects would always require you to deliver a navigation structure or information architecture (IA). Setting up that structure seems to take a similar amount of time for all your experimental pilot sites. However, you learn that, for larger sites, creating the navigation structure takes substantially longer because the shift in scale adds greater complexity to the IA. Make a note of this difference because the tool must address it.

To summarize, this key step of building your estimation tool is to figure out the time necessary to perform key tasks that support the services you plan to provide by doing the following:

  • Identify the time it takes to complete each of the standardized tasks.
  • Identify the time it takes to complete each of the technology-enabled tasks—that is, setting up the technology, tweaking it for a specific site, and testing it.
  • Record the custom services—those you identified in step 1—that you are still obligated to provide to meet your clients’ expectations as a service provider.

Quantize and Assign a Price to Each of Your Deliverables

The next step in building your tool is to quantize each of the services. As I mentioned earlier, quantizing converts your hourly earning rate into a billable amount that is independent of an hourly billing rate. Essentially, this step converts your time-and-motion work into a list of services that you offer your clients. Rather than throwing hours of time at an activity, you are providing a discrete piece of work. As I discussed in Part 1, piecework is not the same thing as fixed-fee work. In fact, this estimation tool enables a flexible fee structure at a granular level that your client will appreciate.

You’ll begin by creating a spreadsheet. Although you can use almost any spreadsheet system, if you want to automate certain steps or create advanced capabilities—such as a dashboard for all of your proposals—you’ll need a system that provides macros and a programming environment such as Excel. (This tutorial requires none of that, so you can use any spreadsheet you prefer.)

First, assign a row in the spreadsheet to each of the tasks you’ve analyzed during your time-and-motion study. In our example, the first task is Craft IA. For each task, provide a quantity and a unit of measurement. For our Craft IA task, we might use iterations as our unit. Quantity is the number of times you’ll iterate on the IA. Table 1 shows how the Craft IA task might look in your spreadsheet.

Table 1—Defining the Craft IA task
A B C D

Item #

Item Name

Quantity

Unit

1

Craft IA

Iterations

The next step is to create a factor for each task. This factor is based on your timing analysis. Enter it in terms of either days or hours. For our IA example, you might have determined that it would take eight hours to craft an IA. Using an hourly basis, your factor would be 8; for a day, 1. Whichever you choose to use—hours or days—be consistent for all tasks in the estimation tool.

Now that you’ve defined a quantity and a factor, enter the formula that calculates the total effort necessary for that task in a Total column, as shown in Table 2. This formula is very simple: C1*E1.

Table 2—Calculating the Craft IA task
A B C D E F

Item #

Item Name

Quantity

Unit

Factor

Total

1

Craft IA

2

Iterations

1

2

Repeat this process for each of the services you intend to provide. Once you’re finished, you’ll have a spreadsheet of all the tasks you expect to perform. You’ll be able to estimate quickly how much an entire job would cost a client by simply entering quantities in the proper cells.

Let’s address several nuances pertaining to this step. Our hypothetical example plays fast and loose with several realities:

  • In the real world, crafting an IA could take far more time than eight hours.
  • The first iteration might take twice or three times as long as subsequent iterations.
  • Crafting an IA isn’t a single activity, but a series of subtasks.
  • The time necessary to craft an IA depends on an information architect’s level of expertise so cannot be standardized.

All of these concerns are real, and I’ll address each of them later in this series. But, for the purpose of understanding how to build an estimation tool, assume that Craft IA is a discrete service deliverable.

Before I conclude this installment, I want to address those skeptics who might not believe it’s possible to quantize all services—even our example service, crafting an IA. The objection is that there are just too many ways in which an IA can vary for us to be able to reduce this task to a single number. For some instances of service components, that could actually be true. You’ll likely have some items in your tool that are based on hourly rates—such as meetings. But in the case of Craft IA, as I’ll illustrate in a future article, you should be able to decompose this task into quantized components that increase or decrease appropriately with the size of the IA.

Conclusion

In this article, I’ve introduced an approach to modeling your service business in a way that lets you work transparently with your clients, putting them in control of their costs, without giving up your competitive advantage. Building a spreadsheet that captures your service components is simple. Over time, it becomes a core part of your competitive advantage.

When I first developed this tool for my consultancy Phase II, it took me several months to get the list of services right and perhaps a few more months to optimize the numbers. Then, I revisited this model a few times a year as my business changed. For example, when we expanded and brought on new employees, we faced a new challenge: how to account for individuals’ varying degrees of experience in performing each of the services.

Similarly, when I adapted this model for a broader range of services within an internal corporate context, the process of decomposing the services, quantizing each of them, and calibrating the numbers took several months. I continue to review my model on a quarterly basis as new tools and services emerge and for the particular team delivering them.

In subsequent installments, I’ll cover many of these topics in greater depth and show how you can use my estimation tool to help your stakeholders understand the place of User Experience in the larger context of Product Management and the Software Development Lifecycle. 

Senior Manager, User Experience, at Home Depot Quote Center

Principal at Phase II

Portland, Oregon, USA

Leo FrishbergWith over 30 years of experience in design management and design—as both a bricks-and-mortar architect and a UX designer—Leo drives highly differentiated and innovative solutions. At The Home Depot QuoteCenter, Leo leads a dynamic team of UX professionals in delivering engaging experiences for Home Depot associates. Previously, as Product Design Manager at Intel, he led UX teams on mission-critical programs. As Principal UX Architect for Tektronix’s Logic Analyzer product line, he filed several patents and spearheaded product vision and definition for the next generation of instruments. Leo is a Certified Scrum Product Owner. Over the past 20 years, he has served as Program Chair, Chair, Vice Chair, and Treasurer on the board for CHIFOO (Computer Human Interaction Forum of Oregon), the Portland Chapter of SIGCHI.  Read More

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