Can we put an end to this ‘Estimate’ game of fools?

The true value of an estimate is not about what you thought the project would initially cost, but rather, the true value of an estimate is as a tool to estimate the final cost of the project once the project is underway.

Trying not to get into too much detail here, but, when you devise your initial estimate you should have a list of deliverables and you should determine what you think those deliverables will cost to implement. Your initial estimate will then become your baseline, and is mainly used to keep track of what you initially agreed upon (scope) and as a way to measure your progress.

Imagine that based upon your original estimate you have a deliverable that to implement will cost $50,000, but you have already spent $30,000 to implement it and are only 10% done. Well then your new estimate would now balloon out to $300,000 and it will take 10x as long. If you replicate this process out across all of your deliverables based on their progress you will have a new estimate, as the project continues your estimate will become more and more accurate.

Beyond having a better understanding of what your project will actually cost, you will also have a tool to handle scope changes by management and/or the client. You will automatically have an idea of based upon your prior performance on this project the feature that they ask will cost them $X additional dollars and increase the duration of the project by Y Days, or, as a way to negotiate a reduction in scope in order to stay within your budget.

There are certain mega engineering firms that make all their money solely off of defining the estimate and scope at a very detailed level up front and then renegotiating the (hell out of the) price as new scope is introduced.

Here's a link for more information:

http://en.wikipedia.org/wiki/Earned_value_management

The reality is very few projects will ever be approved in every field with "I don't know?" as the answer to "How much will it cost?"

Estimation is by far the trickiest project management tool. 2 identical projects with identical caliber teams will come up with very different results. All you can do is use the estimate for a very imprecise first guess to get things started.

Of course very little is known for sure early on. The scope isn't final. The tolerated risks aren't final. The project team isn't final. The target quality level isn't final.

So what can you do? Admit that these are in flux, and be proactive about managing them. "Ok, now that we know more, it looks like things are more expensive. Do we fix the cost and reduce the scope, or fix the scope to reduce the cost? If hitting the budget is the most important thing, should we preemptively cut scope?" These are the way discussions have to be managed.

A team of 4 was told to move 7 tons of bricks 100 yards. Dutifully, they loaded a wagon by hand, moved the wagon 100 yards and dumped the bricks out. Again and again. After about 1 ton, Management wanted to know how long it would take to move all the bricks. The team multiplied their time spent so far by 7. Management wasn't happy.

Trying to be helpful, Management bought 6 more wagons.

The team said that with 4 team members, they couldn't productively use more than 4 wagons. Could we please have another team member? Management wasn't happy.

Trying to be helpful, Management set a deadline, and gave a speech about how important the deadline was to the company.

The deadline was completely unrealistic. The team worked to move bricks as fast as it could. After moving about 3 tons of bricks, they missed their first deadline. Management wasn't happy.

Trying to be helpful, Management set a deadline, and changed the goal to be to move the bricks 60 yards.

The team was pretty happy for a while... Until they realized that management wanted them to move those first 3 tons of bricks BACKWARDS 40 yards. They tried to explain that this was like moving 3 * 140 + 7 * 60 = 840 brick-ton-yards, rather than 7 * 100 = 700 brick-ton-yards, and was therefore an even harder goal! Management wasn't happy.

Trying to be helpful, Management hired a consultant.

The team was told to stop moving bricks for a while, and talk about everything with the consultant. The consultant gave some fun presentations, and coached the team through a lot of soul searching... They decided to have stand-up meetings every so often, to talk about their progress, and their plans for the day. The meetings took more time, and bricks weren't moving themselves. The team now had about 1 ton of bricks at the 100 yard line, 2 tons of bricks at the 60 yard line, and 4 tons of bricks at the 0 yard line. Management wasn't happy.

Trying to be helpful, Management bought 7 tons of gravel, and dropped it the 0 yard line, and said the new goal was to move the gravel 75 yards. They also hired an offshore team, but all they could really do was try to dial in to conference calls at weird hours of the day, and they really couldn't help move any of the gravel. Then one of the Managers was fired, and the new Manager said the goal was to move 1 ton of bricks and 2 tons of gravel 186 miles, in the back of an El Camino, that has no tires and no engine, and there's no budget for either...

...then some manager four levels up in the company decided to spend enough money to rent a few pieces of construction equipment, brought in an external team, and moved all 7 tons of bricks and all 7 tons of gravel the whole 186 miles in record time. With scorn, he talks to his peers about how awful his team is. No raises. No bonuses.