As discussed earlier, we’ve established that the real-world costs of a project and the project’s complexity are directly linked and don’t necessarily change on the basis of any given estimate. That is to say, the presence or lack of an estimate doesn’t materially change the intrinsic complexity of a project as originally conceived. Instead, an estimate tends to have a causal effect on the expectations of what it will take to accomplish a project, which means that the quality and nature of the end result can be affected by an estimate. In other words, the thing that ends up in the client’s hand at the end of the project can (and usually is) materially different from the original expectation. Therefore, a bad estimate can directly cause a bad product. Let’s examine this a bit more closely.
The mere presence of budgets and estimates in relation to an unknown and fundamentally unknowable thing like how long it will take to produce a software system causes all subsequent conversations and decisions to be made around those initial pieces of information even if they have no relevant relationship to the system we are intending to build. That is to say, if I were to propose to build a software system and gave an initial estimate of $500,000, we would wind up with a different end result than if I had given an initial estimate of $1,000,000, not because the software system proposed has somehow become more or less complex, but because we have set expectations about it before we know enough about what it will actually take to build. The project itself, both the way it is run and thus the resulting software system, will be different simply because I threw out different numbers at the start. Don’t believe me? Well, you should. This is an established psychological phenomenon known as “anchoring,” and has applications in everything from salary negotiations to buying real estate. These numbers matter, and getting them wrong has a real cost.
Let’s look at it from a different angle. When a project is initially sketched out and proposed, it doesn’t actually exist. Let’s revisit the “Dream Home Architect” scenario for a moment. In this scenario, the dream home in your head is just that: a dream.
In one hand, you have a budget, an amount of money you can spend. In the other, you have the idea, your ideal dream home. It is virtually impossible for you to correlate the two without outside help. There are aspects to your dream home that you haven’t considered. There are things you are hoping to get that simply may not be possible. There are features you think you want that you may not actually need, or that may cost far more than you realize. You, the client, rely on the expertise of the architect and builder to tell you what’s possible and what’s not, what they recommend and what they don’t, and, finally, how much everything will cost.
Your plan, of course, is to get everything you can for the money you have to spend. So with that in mind, let’s see what happens in two different hypothetical situations:
Situation 1: You begin the conversation with the architect by describing your dream home. You do not discuss a budget.
Situation 2: You begin the conversation with the architect by stating exactly how much you can spend, and then you begin describing your dream home.
Now, consider two questions:
Which situation will result in an estimate that more closely reflects the actual costs to build the home as you have described it?
Which situation will result in a house that more closely reflects the dream home as you have described it?
You can see clearly here that we will get two completely different answers to these questions based on only one difference: the introduction of a budget.
In the first situation we should expect to receive a cost estimate that is likely to more closely reflect the actual costs of building your dream home as described. This is because the architect will be focused on your description without reference to an overall budget. This means that the estimate, while reflecting a reality more accurate and faithful to your ideal dream home, may be wildly out of proportion to your budget.
In the second situation we will very likely receive an estimate that hews much more closely to your budget, because the architect will be sure to keep your budget in mind. But what of the house? A conscientious architect will show you the compromises that had to be made to fit your dream home into the available resources, which means the house, while accurate and faithful to the budget, will likely be significantly out of sync with your original dream home vision.
In an earlier entry of this series, I mentioned that, as a client, receiving an estimate for a project that lines up well with your stated budget should immediately raise a flag. Your first question upon receiving such an estimate should be “What am I not getting?” Why would you assume you’re not getting everything you want? Two reasons: first, if your ideal result could be accomplished for well under your proposed budget then the agency (an honest one, at least) would have given you an estimate that came in well under your proposed budget. Second, it is extraordinarily unlikely that your ideal result and your budget are so well in line with each other by chance alone, or by any napkin math done by your own internal teams.
Furthermore, it is quite rare for a client to propose a project with a budget much larger than what’s necessary. There are two reasons for this as well: clients will naturally seek to maximize the number of features in any system, and clients greatly underestimate the effort involved in implementing any given feature.
What does all of this mean? It means that the vast majority of clients will not get everything they want for the resources they have. This wouldn’t be such a problem, except that as we’ve discussed the standard practice in the bidding and agency selection process is for clients to select an agency that not only routinely underestimates what’s required to do the job correctly, but the agency also sets an expectation that the client will get everything they want for that underestimated budget.
And why does the agency do such a silly thing? Because, believe it or not, the client expects them to. This is dysfunction.