Working Guides to Estimating and Forecasting: Volume I - Principles, Process and Practice of Professional Number Juggling

Overview of what this book covers

Principles, Process and Practice of Professional Number Juggling?(Volume 1 of the Working Guides to Estimating & Forecasting series) sets the scene of TRACEability and essential good Estimating practice?that is followed in the other volumes in this series of five working guides. It clarifies?the difference between an Estimating Process, Procedure, Approach, Method and?Technique, and stresses the need for a documented and inextricably linked Basis of Estimate.

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What’s in Chapter 1?

This chapter gives an overview of the features you’ll find in this book, and the others in this series. As I said in my last article on the series, the text is punctuated with? a liberal dose of humour, often at my own expense. This is intended to make the topic more accessible to a wider audience rather than simply delivering what might be a somewhat dry unappealing read.

In a similar vein, I have interspersed the text with some famous and some less famous quotations, usually with a humorous slant on things, but often with an underlying truth or poignant observation.

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Definitions

For me, one of the biggest problems within the Estimating Profession is a lack of common agreement in the definition and use of terminology, even between those various professional bodies which represent estimators or cost engineers, or across related professions that use or engage with them. In Volume I introduce and discuss my definition and interpretation of many such terms to provide a common base for those terms or concepts for the series of books. Please note that it is not my intention to try and impose my thinking or interpretation on everyone, but to encourage practitioners to at least have the discussion with other practitioners so that a common appreciation of any differences can be established and understood across a working relationship.

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Formulae – like them or loathe them?

The mathematician/statistician within me wants to be able to give explanation and justification for the various numerical techniques that I include, but I am fully aware that not everyone is comfortable with the derivation of formulae. Consequently, I have included the following sections or call-outs:

As you might expect from a Mathematician, the latter were often the harder to create.

Warnings

Based on the fairly well-known warning to shoppers: ‘Caveat Emptor’ (let the buyer beware) these call-out sections provide warnings to all soothsayers (or augurs) who try to predict the future based on assumptions, observations and behaviours around them (not unlike estimators have to). In general, these point out that in some circumstances we many encounter difficulties in using some of the techniques suggested.

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Worked Examples, and Microsoft Excel Functions and Facilities

There are over 130 examples and model answers in figures and tables in this volume.

Embedded in many of the examples are some of the many useful special functions and facilities found within Microsoft Excel (often, but not always, the estimator’s toolset of choice because of its flexibility and accessibility). Together we explore how we can exploit these functions and features in using the techniques described in this book.

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References to authoritative sources

Every estimate requires a documented Basis of Estimate. In common with that principle, every chapter will provide a reference source for researchers, technical authors, writers and those of a curious disposition, where an original, more authoritative, or more detailed source of information can be found on particular aspects or topics.

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Chapter 2: Methods, approaches, techniques and related terms

In Chapter 2 we discuss and attempt to clarify the difference and confusion between ambiguous terms like Process, Procedure, Method, Approach and Technique, and how they interrelate.

This could be the most contentious chapter across all five books. I state the proposition that there are THREE different approaches to creating estimates (Top-down, Bottom-up, and what I refer to as the Ethereal Approach in an analogy with Star Trek).

I also make the case that I only see three APT Methodologies (Analogy, Parametric and Trusted Source - APT). The differentiating factor between them (no, this is not some mathematical pun formulating) is the number of cost reference points we use to create the estimate (i.e. One, Multiple or None).

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Chapter 3: Estimate TRACEability and health checks

A robust estimating process is one that supports Estimate TRACEability. We define and discuss what this means and introduce the theme of TRACEability, and how it supports the all-important Basis of Estimate (BoE). (An estimate without a BoE is no better than a random number from a TRACEability perspective.) TRACE is my acronym for Transparent, Repeatable, Appropriate, Credible and Experiential, which are all attributes of a robust estimate.

We go on to discuss how we might score the maturity or robustness of our estimate with an Estimate Maturity Assessment (EMA), which focuses on the associated Basis of Estimate and the Assumptions, Dependencies, Opportunities, Risks and Exclusions (ADORE) rather than the estimate value per se.

The principles of Good Practice Spreadsheet Modelling are also outlined in this chapter, and we introduce the concept of evaluating the Inherent Risks in Spreadsheets with a qualitative tool called IRiS. Both of these (the practice and the health measure) rely on the principles of MUST (Maintainability, Usability, Security and Transparency).

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Chapter 4: Primary and Secondary Drivers; Accuracy and precision

Here, we consider the difference and relative relevance of Accuracy and Precision to Estimating and Forecasting, and how we might, or should, interpret these in relation to Primary and Secondary Cost Drivers. We can take a Pareto Perspecive to appreciate the difference between Primary and Secondary Drivers.

We will discuss why we want estimates to be accurate, but that, in general, we should not expect them to be inappropriately precise i.e. it is better to be roughly right than precisely wrong!

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Chapter 5: Factors, Rates, Ratios and Estimating by Analogy

Chapter 6: Data Normalisation – Levelling the playing field

These two chapters are closely related.

The principle of using Factors, Rates and Ratios in support of an Analogical Method of Estimating is introduced in Chapter 5, and the closely associated and all-important Data Normalisation that we must consider in every Estimate we create, is discussed in Chapter 6.

The difference here is that Data Normalisation refers to the principle of ensuring a like-for-like comparison between historical data, whereas the Analogical Method of Estimating uses some of the same basic techniques to create an estimate based on known or perceived differences between what we are trying to estimate and some known historical value. (I can see some of us looking a bit puzzled; in truth the difference is rather subtle.)

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Chapter 7: Pseudo-quantitative qualitative estimating techniques

Estimating is not always about numerical manipulations; estimators need to exercise judgement, often around numerical values, but there will be times when a more qualitative approach may be required. Theoretically, this may then conflict with the principle of TRACEability that we introduce in Chapter 3. In Chapter 7 we introduce some pseudo-quantitative techniques that aid such qualitative judgements, which can then be documented to support TRACEability.

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Chapter 8: Benford’s Law as a potential measure of cost bias

Finally, in Chapter 8, we introduce Benford’s Law that is used extensively in fraud detection. In suggesting this technique, we are not suggesting in any way that estimators are a bunch of crooks! On the contrary, estimators and cost engineers will make an honest assessment based on the often limited information that they have to hand. However, unconscious bias can occur.

Benford’s Law is offered here in the context of assessing the robustness of multiple lower-order estimates from third parties (such as vendor quotations) that we then incorporate into larger project estimates. It may be possible to detect any general ‘bias’ towards overstated or understated inputs.

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Glossary of Terms

This Glossary reflects those Estimating and Forecasting Terms that are either in common usage or have been defined for the purposes of this series of guides. Not all the terms are used in every volume, but where they do occur, their meaning is intended to be consistent. The Glossary is repeated in every volume.

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Volume I Formats available:

?Volume I - Principles, Process and Practice of Professional Number Juggling

Hardback ?????????ISBN 9781138063969

Electronic ???????? ISBN 9781315160054 VitalSource version (Kindle version also available)

Paperback ??????? ISBN 9781032838786