I’m amazed how time and again I meet with people (during VC pitch presentations, review meetings on software development schedules, product development updates, financial projection reviews, etc.) and someone gives an estimate, and invariably they are wrong. Very often, WAY wrong.
Think about it. How many estimates/forecasts have you provided or heard that turned out to be accurate? Think about the estimates/forecasts you have given or heard concerning:
- Sales forecasts
- Capital requirements
- Costs to develop a new product
- Product launch dates
- Software completion dates
- Product shipping dates
Estimates = Expectations
How Confident Are You?
So, how do you apply this deceptively simple confidence-based estimating (CBE) technique?
When someone gives you an estimate (an amount of money, a date, a number of days/weeks/months) come back with a killer follow-on question:
What’s your level of confidence in your estimate?
So, on a scale of 0 – 100%, how confident are you that your estimate is correct? By the way,100% means you’re willing to "bet your paycheck."
If the answer does not come back around 95%+ (trust me, it usually won’t), use this follow-on question:
If I asked you for a 95% level of confidence, what would you say is the correct amount of money / date / number of days/weeks/months?As they start to think their answer through don’t be surprised when the new number / date / amount of money goes WAY up. I’ve seen initial estimates come in with people saying, “That will take 9 months.” You ask for the confidence level. They come back with 65%. You ask for 95% confidence. They come back with 12 – 18 months (by the way, read that as ’18 months’). So, they went up 30 points of confidence and their estimate doubled! That’s okay, because now people are actually thinking it through. If they can’t get to a 95% level of confidence, that’s okay too. Get as high as possible and realize the risks you are taking with lower confidence levels.
In my next post, I’ll take you through the 2nd killer question to ask.