What's wrong with using spreadsheets for project cost estimation?

Digital Project Management

Stop making wrong decisions and arguing about project and cost estimates due to manual and error-prone spreadsheets.

"We need to price this new project for a client", your sales rep. says.

"Great! Let's get a grasp of this project by figuring out what needs to be done", you say and let one or more people start breaking the work into manageable chunks to get to a high level overview and a price that the client hopefully can accept. This will almost always involve input from the client as well e.g. priorities of features, business value, nice to haves and so on.

In all cases, ensuring that you have priced your project correctly requires that you have estimates you are fairly certain will hold water. When the client has accepted the project and it starts going over time and budget it can quickly turn your client and other stakeholders extremely sour. So let's try to avoid this as best we can.

Sound project estimates of the work involved should be the basis, along with proper project control processes of course. This is important to ensure that actual effort, once the project is complete, match the estimated targets that were set in the beginning of the project to the greatest possible extent.Thus estimates are one of the foundational pillars for ensuring that both the client and the bottom line is satisfied in the end.

It's important to note that it doesn't matter whether you're using PMI, PRINCE2 or something else for project control or Scrum, Waterfall etc. for project execution. The estimates of the work to be performed will always be the foundation for your project. Unless you of course have a client with an unlimited supply of cash and in that case you're probably the luckiest (and only) supplier in world.

So how do we manage all of this in a consistent manner?

Enter the wonders of Excel spreadsheets!

"No problem! We can just use this simple/complex (you choose, it doesn't matter) spreadsheet I made for my last project.", your Project Manager says.

Now imagine the story continuing like this; "I'll just send the spreadsheet to business analyst/PM/developer x, y and z so they can provide their input".

What's wrong with this? Nothing, initially. It does though start to get very complex and unwieldy very fast, no matter how simple the spreadsheet is when you start.

The positives of using a spreadsheet

  • Almost an industry standard
  • Low barrier for entry (Most people have access to it and know how to use it)
  • Very adaptable and customizable
  • Easy to analyze, present and pivot data (For a single project at least)
  • Easy to copy and distribute

The negatives of using a spreadsheet

  • Very adaptable and customizable
  • Error-prone due to its manual nature
  • Only accessible locally and not by multiple people at the same time
  • Easy to copy and distribute (How do you easily merge input from 10 people?)
  • Almost impossible to consolidate input of data due to its delicate nature
  • No easy way to learn from previous projects and take advantage of historic data
  • Rubbish at comparing projects and their data without substantial manual effort
  • No version control (Which always results in substantial rework)
  • Very hard to track Key Performance Indicators (KPIs) in a timely manner to react to them

The list above indicates why it can make sense to grab a tool at hand like Excel, but this on the other hand is also the major drawback of using spreadsheets as they very fast end up being very complex and fragile due to this "ease". The nature of spreadsheets make them very delicate, especially when multiple people have to work on the same sheet without any form of version control. And yes, using a document repository (with or without file locking) is still not a good solution.

Quickly a lot of manual rework needs to be done to make it work. Compiling data across projects is also a process that is error-prone and needs substantial manual effort if spreadsheets are the weapons of choice. Easily taking advantage of previous project history and track record is thus, to our experience, almost never done because it requires too much manual work.

Why a solution is needed to replace the use of spreadsheets

From our experiences with companies using Excel spreadsheets in large projects (130+ people) are not good, especially in the middle of the project where no one can agree on what the estimated baseline was. Of course this problem only becomes really prevalent once the project has started slipping and everyone is scrambling for the contract.

All in all using spreadsheets to manage this process is very much like starting all over again whenever a new project is initiated, this also makes it impossible to improve the process and reduce lead time from client interest to actual project initiation.

Why not do it the right way from the beginning and start improving over time (even without any additional work). Your bottom line and you clients will thank you for it.

Dennis Kayser

My name is Dennis Kayser and I’m CEO and co-founder in Forecast. I enjoy helping our customers succeed by building great and innovative software that supports teams in their daily work.

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