When it was first funded in 2008, California’s high-speed bullet train between San Francisco and Los Angeles was projected to cost $45 billion. A decade and a half later, no rail segments have been built and the 400-mile system is over budget by some $80 billion.
In a perfect world, every project would run smoothly, stay within budget, wrap up on time, and deliver the quality everyone expects. But that’s not always the case. A survey by the Project Management Institute found that 10 cents of every dollar is wasted due to poor project performance. Large ventures are particularly vulnerable. “They are over budget, over time, under benefits, over and over again,” says Bent Flyvbjerg, a professor of program management at Oxford’s Said Business School, describing his “Iron Law of Mega Projects.”
Even the best laid plans can, and often do, go haywire. Remember Apple’s AirPower wireless charging pad? The project for this multi-device charger succumbed to engineering and construction challenges and was canceled two years after it began.
Why do so many projects fail? Start by blaming human nature. With inherent biases toward optimism, people tend to underestimate the amount of time it will take to complete project tasks, financial projections, and risks associated with these endeavors. We also overestimate the benefits and future performance a project can achieve. Behavioral economists call this the “planning fallacy.” Doing effective, data-based forecast project management can interrupt biases and help set a project up for success.
What is project forecasting?
The idea behind project forecasting is simple. Instead of relying on assumptions or partial sets of facts, rigorous project forecasting takes honest stock of a project’s risks and makes fact-based predictions about its possible trajectory and final results. Knowing the potential challenges and curveballs makes project managers and other stakeholders better able to adapt and more equipped to make informed decisions about resource allocation, budgeting, and project timelines.
Why does forecasting matter in project management?
Forecasting gives project managers the tools they need to adapt to whatever comes their way, allowing them to keep their projects on track. It has three primary objectives:
1: Estimating possible results
Much like travelers charting a new destination, companies need detailed roadmaps for each point along the way. A company developing a new product, for instance, might set expectations for how its teams will perform against a series of deadlines. If staff members in marketing or distribution miss targets or go over the project budget, project managers can step in to problem solve and adjust resource management and resource forecasting if necessary.
2: Reducing project execution risks
In project management, curveballs and setbacks are a matter of what and when, not if. People make mistakes, resources fail to materialize, shipments get delayed, and costs shoot up. Using project forecasts vs. projections of other sorts to anticipate these external factors sets the stage for informed decisions. Consider a construction project that experiences significant delays in the shipment of key materials like windows and flooring. Forecasting this potential roadblock can help project managers quickly determine next steps. Will the holdup impact the project’s completion date or can the project schedule be adjusted to accommodate the delays? Can additional funds be used to find new suppliers? Having resource costs clearly mapped out gives project managers the knowledge they need to plan an effective response.
3: Increasing the chances of project success
Forecasting isn’t a crystal ball, but when done effectively, accurate forecasts can mean the difference between success and failure. Knowing about missed targets or other problems as they happen lets project managers course correct before issues compound and derail the whole endeavor
Key metrics to focus on in a project forecast
Each organization’s approach to forecasting will vary depending on the type of project. All forecasts, however, will zero in on three core components:
Cost
The success of any project is tightly tied to its costs. If an initiative goes over the original budget and resources aren’t available to bridge the funding gap, the project could go on life support. An ideal financial forecast breaks costs down into individual tasks and estimates the financial impact of a variety of risks and contingencies. How much will it cost, for instance, to extend a project’s timeline or bring a new subcontractor on board? By combining past and present spending metrics, project managers can make the most accurate possible estimate regarding spending.
Duration
What period of time is a project expected to last and what are the deadlines or phases along the way? If a project is taking longer to hit certain milestones, a project manager can communicate this update to clients or stakeholders, keeping them in the loop about time frames and boosting transparency.
Quality
Naturally, every organization wants top notch results from its projects. But devotion to quality doesn’t come cheap. It may, for instance, require more time to find the most qualified or talented project team for the job, or to obtain first-rate materials.
Project managers ensure a project’s success
Project managers are responsible for orchestrating the delicate dance between cost, duration, and quality. Adjustments to one component often impact the others. Project managers have to decide where a project’s priorities lie. Does quality need to be preserved at all costs or should the company save money on materials or contractors? Or does getting the project finished by a strict deadline take top priority, thus creating some wiggle room with costs and quality? An accurate forecast helps project managers make these strategic decisions.
The responsibilities of project managers also include leading the teams, defining a project’s goals, communicating with stakeholders, and seeing a project through to its closure.
Three techniques for effective project forecasting
With the right data, predictions are more accurate. Having information at our fingertips helps avoid what psychologist and economist Daniel Kahneman calls the “illusion of control.”
“We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs,” he writes in Thinking Fast and Slow.
Three basic techniques exist for utilizing data to build forecasts. While some projects might utilize all three, others will lean more heavily on one or two. For example, techniques that rely on historical data would likely not be useful in forecasting an entirely new product or type of construction a company has never undertaken.
Qualitative techniques to improve forecast accuracy
When data is scarce, such as for the creation of a new product, techniques that rely on thoughtful, disciplined human judgment are critical. These can include market research and the Delphi Method (questionnaires given to a panel of experts and modified based on their responses).
Using historical data for trend forecasting
The past, as they say, is prologue. The best benchmark for how long a task will take isn’t your own personal evaluation, but the time it has taken others to deliver similar outcomes before. Conditions that have existed during previous projects are likely to persist today. How long did the last software development cycle take? Did a government agency tasked with the rollout of a massive digital transformation project run into numerous technical problems and usability issues as a result of insufficient testing, inadequate coordination, and lack of oversight?
Unless dramatic changes have occurred, the current trends are likely to impact future trends. Project managers will want to decipher these trends (also known as time-series analysis) and use them to predict future outcomes.
Casual models and their role in project forecasting
This forecasting technique can be used when enough historical trend data has been analyzed to establish relationships between factors. If early market testing on a product, for instance, shows particular promise, how will that affect future projects? And how will those sales impact a project’s goals and objectives? This sophisticated method uses complex statistical models to predict future outcomes.
Accurate forecasts rely on these eight tips
Whether you’re designing a new piece of software, creating a new product line, producing a large report, or building a bullet train, here are a few guidelines to keep in mind:
Get organized
Project managers already know a thing or two about organization. But keeping track of every expense, being familiar with the roles of each team member, and tracking how much time is spent on each task is crucial for forecasting accuracy.
Start with clear goals
Project objectives should be SMART: specific, measurable, achievable, relevant, and time-bound.
Create many forecasts, not just one.
Having multiple forecasts that consider different possible risks and outcomes gives project managers options to turn to when they encounter roadblocks.
Consider short vs long-term techniques.
How far into the future period do you need to predict? The forecasting technique of trend analysis works best for short-term predictions, while qualitative methods are best suited for longer term projects. That’s because historical patterns are more likely to continue over shorter time horizons.
Add in buffer time.
Despite everyone’s best efforts and the use of the world's best forecasting tools, calamities can occur. You never know when a key staff member might get sick or a subcontractor will get hacked. It’s always a safe option to schedule additional time for each task. As a bonus benefit, it gives team members essential breathing room.
Adjust as you go.
While past projects offer invaluable insights into timelines, resource allocation, and potential pitfalls, real-time data keeps you agile. It allows projects to adapt to any immediate changes in a project's landscape, ensuring that the project forecast is both grounded and flexible.
Review projects upon completion.
How well did the actual timeline and costs match the original estimate? Today’s projects are invaluable fodder for improvements to tomorrow’s forecasts.
Look into project forecasting software or tools.
Project forecasting software automates the process of gathering, analyzing, and visualizing historical data. It also helps project managers collect real-time information from multiple sources, saves time and money, reduces errors from manual calculations, and quickly generates accurate projections.
Takeaways
As the saying goes, those who fail to plan are planning to fail. Making detailed, evidence-based predictions about how much a project will cost and how long it will take, as well as potential problems that could arise, gives project managers valuable tools for making informed decisions, delivering successful projects, and driving strong business performance.
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