"Ballpark Figure" Estimate for an IT Project
For software service companies, crafting bespoke proposals for each client is both a necessity and a challenge. Unlike off-the-shelf products, custom software solutions require detailed analysis, design, and estimation before a project can even begin.
Clients want to know the specifics of how their unique needs will be addressed, delivery plan and the cost involved. And in many cases, at the very beginning they would like to get a “ballpark figure”. The high-level estimate and the “ballpark figure” provide clients with a preliminary understanding of what to expect.
A "ballpark figure" is like taking a good guess that's not exact but close enough to give your client an idea. It's an acceptable, roughly accurate approximation.
Depending on the project's complexity, providing a high-level estimate can take anywhere from a day or two to a few weeks. At this stage, the company has limited information about the project's specifics, and this estimation often relies on experience and intuition. How can software companies navigate this delicate balance between investment and risk?
Understanding High-Level Estimates in Software Project Proposals
Creating a software project proposal involves several crucial steps. First, the team must thoroughly comprehend the client's requirements, challenges, and goals. This often involves meetings, interviews, and detailed documentation. Based on the gathered information, the team designs a tailored software solution. This includes architecture, functionalities, user experience and overall technical specifications. Once the solution is designed, the team estimates the development costs, timelines, and resources required to bring the software to life. Finally, the comprehensive proposal is presented to the client, detailing the solution, costs, and expected outcomes. However, before diving deep into the details of crafting a complete proposal, the client will likely request a high-level estimation, as mentioned earlier. In theory, creating this rough estimation should follow a similar process to crafting a complete proposal. In reality, teams may lack insights into all necessary details, and dedicated requirements sessions might not occur, while the clock is ticking as clients expect quick responses.
Here, we delve into the implications of creating high-level estimates and the subtle yet critical role these figures play in shaping the initial relationship with potential clients. For a broader look at the challenges involved in full proposal creation, including detailed process steps and common hurdles, revisit A Deep Dive into the Software Project Proposal where these topics are covered in depth.
The Risks Involved
While it plays an important role in establishing a good relationship with the client and winning the opportunity in the end, sharing the high-level estimate comes with built-in risks.
Incomplete understanding
At this point, clients aren’t ready to sit down for multiple meetings or invest significant time in explaining their needs. Without a thorough discovery process, the sales team may lack crucial insights into the client's business processes, pain points, and specific requirements. This incomplete understanding can lead to inaccurate estimations, as critical details may be missed.
Client Disappearance
During the time it takes to create the high level estimate, clients may lose interest, change priorities, or simply disappear. This can lead to wasted effort and resources for you and your team as you've invested time and resources in creating an offer that may never be reviewed or considered by the client.
Lost Opportunity
Even if an offer is delivered to the client, there's no guarantee that it will be accepted. This risk is particularly significant because it means the effort, time, and resources invested in designing a solution may not yield any returns. Rejection can occur due to various factors such as mismatched expectations, budget constraints, or the client opting for an alternative solution.
Competitive Offers
Clients often seek estimation from multiple vendors to compare offerings, pricing, and terms. This introduces the risk of competition, where a well-crafted offer from one vendor may lose out to a competitor offering a more appealing deal. Even if you put forward an excellent estimation, it may not be selected if a competitor's offer is perceived as more advantageous by the client.
Inaccurate Ballpark Figures
When providing rough estimates or ballpark figures during the initial phase, there's a risk of these figures being inaccurate or significantly deviating from the actual costs later on. This can lead to misunderstandings, dissatisfaction, and strained relationships with clients if the final costs differ significantly from what was initially communicated. Clients may feel misled or lose trust in the company's ability to accurately assess and communicate project costs.
Different Approaches to Mitigate Risk
Software services companies, at the moment, apply several strategies to mitigate these risks.
Including High Level Estimation Costs in Project Price
This approach involves bundling the cost of proposal design into the overall price of the project. By doing so, companies ensure that they are compensated for the time, effort, and resources invested in creating the initial offer, regardless of whether the client accepts it or not. While this strategy protects the company's interests and avoids direct financial losses from rejected proposals, it can potentially lead to higher project costs for clients who ultimately reject the offer. Clients may perceive this as paying for work that doesn't directly contribute to the final deliverables, which could affect their decision-making process.
Charging for Solution Design
In contrast to including estimation costs in the project price, some companies opt to charge a separate fee for designing the solution proposal and giving a high level estimate at the early stage. This fee compensates the company for the time, expertise, and resources dedicated to crafting the offer for the client. The advantage of this approach is that it ensures the company is compensated for their efforts, regardless of whether the client proceeds with the project or not. However, it's essential to communicate this fee transparently to clients to manage expectations and avoid potential misunderstandings.
Iterative Proposal Development
Adopting an iterative approach to proposal development can also reduce risks. Rather than delivering a complete offer at once, companies can present initial concepts, gather feedback, and refine the proposal incrementally. This not only speeds up the process but also increases the likelihood of aligning with the client's expectations.
Getting Estimates Right Matters
High-level estimates might seem like just the first step, but they actually have a huge impact on whether a project succeeds or stumbles. Getting these estimates right quickly can make a big difference. It helps wrap up deals faster and starts things off on the right foot with clients, setting up everything that comes after for success.
In today's world, where everything moves fast, being able to come up with quick and accurate estimates is really helpful. Improving how we make these estimates can make life easier for everyone involved—from the team working on the project to the clients counting on it. We're always looking for ways to make this part of the job smoother, so every project can start strong. Using new technology to improve the accuracy of these estimates and to have them ready in minutes rather than days should definitely be on the list of strategic initiatives for software service companies aiming to mitigate known risks.