How to Estimate Fixed-Price Projects Effectively

Recently, we posted “The Pros and Cons of Fixed-Price Projects” and were humbled by the amount of tweets, shares, reads, recommendations and general feedback that we received from the community. Several of you asked us to do a follow-up post on how we come up with accurate fixed-price quotes.

Here’s our ultimate conclusion:
It’s impossible to come up with 100% accurate fixed-price quotes.

BUT, don’t stop reading quite yet- just because it’s impossible to be 100% accurate doesn’t mean you can’t come darn close.

Here are a few tips we’ve come up with to get you as close as possible, based on our previous experience:

Learn from your mistakes.

You’ll misquote your first several projects, maybe even severely. Don’t be disheartened. It’s only once you have done similar projects a few times over that you’ll be able to understand how many hours certain things will take. The best thing to do is pay attention to your mistakes and make note of what took you longer than expected for next time.

Designers aren’t developers, developers aren’t designers.

When quoting a project that has multiple phases (for example: discovery, UI/UX, design and development) you need to involve all of the proper departments when estimating hours for the project. Never expect your developers to give you adequate design estimates and vice versa. Good communication between all parties is key to estimating a project effectively.

Some padding needs to happen.

Oh my goodness, I said it. You should pad your quotes. Don’t go crazy, but realize problems will arise and you will need more budget.

Why should you pad your quotes? Let me run through a list of more-than-likely scenarios (at least one of these has happened on every project we’ve ever worked on):

  1. Project management will be underquoted: this is our most common problem. Sometimes, it feels like we’re scared to add project management hours to a quote as this managerial work does not translate into hours of work the client can actually see similarly to design or development work. The amount of time needed will likely not only depend on the scope of the project but on the client as well. Clients vary in terms of how much time they want to spend on the phone with you, how hands-on they want to be, how organized they are with deliverables, etc. Depending on the size of the project at least 5% to 25% of the quote should be dedicated to Project management.
  2. Excitement trumps reason: quoting new projects is exciting business! The process brings with it feelings of the new. New designs to create, new code to write, a new sample for the team’s portfolio. No matter what the excitement is about someone on the team will jump the gun and underquote their hours while they’re feeling refreshed.
  3. You’re going to have to comp things: re-quoting projects to accommodate for an hour here and an hour there is terribly frustrating and not something you’re going to want to do halfway through the project. Since this has happened during every single one of our builds we accommodate for some leeway to comp small things. It’s not worth the effort to bill an hour for a small addition, so why not work this into the quote up front?

Bonus suggestion: speaking of padding, another important thing to consider is that projects will always take more time than you think. Our general rule of thumb with big projects? Add two weeks to whatever deadline your team comes up with. Here’s why: computers will break, the Internet will go down, you’ll lose electricity, developers will get the flu, flat tires will happen… I think you get our point. And, isn’t it a great feeling when you exceed the client’s expectations and deliver a project early?

Most importantly, use the tools in your toolbox.

There are awesome productivity tools out there, why not use them to our advantage? I recognize that sometimes it may be annoying to use *another* tracking tool or learn yet another piece of technology, but sometimes it’s well worth it.

Our favorite combination of tools for estimating fixed-priced projects effectively? Pivotal Tracker and Harvest.

Pivotal Tracker is a lightweight, easy-to-use, agile project management tool that was created by our friends over at Pivotal Labs. One thing to note when using Pivotal Tracker (as with most agile project management tools) is it gives you a unique identifier for each story you’ve created. Harvest is time tracking software that allows you to track your teams hours, create invoices and generate reports.

When entering data into Harvest you can add the unique identifier from Pivotal to track the amount of time that each story took. After the project’s completion you can use this historical data to search through for your future quotes. The more projects you use both of these tools for and the more historical data you have the more accurate your estimates will become.

Have any questions about estimating fixed-price projects effectively ? Take a look at BuildRX.com or reach out to us on twitter @BuildRX.