How to Set Realistic Timelines and Budgets

Quick Insight

When estimating project timelines and budgets, look at similar projects from your company’s past or from other companies. We all think we’re better than other companies. We all think we won’t make the same mistakes of time and money we made in the past. Maybe... just maybe... we aren’t that special and our past experience or the experience of others is the reality we should prepare for.

The “inside view” in project planning is when people ask themselves: "When do we think we can finish this?" They string together a timeline based on the tasks they anticipate. Those time estimates are usually extremely optimistic. Projects go far past the expected due dates and are well over budget.

A better method is called the “outside view.” When taking the outside view, you ask: “How have other similar projects gone that can provide a more objective and correct guess of the time and costs of a project?”

The other projects you look at for your estimate are called the "reference class." You can use reference class forecasting by looking at timelines from similar projects from the company, other companies, or the industry.
Start with that timeline and then adjust from there for any specifics of the proposed project that may cause it to be different than the reference class.

Your timeline will be much more accurate by using the outside view and reference class projects than just planning out the timeline without looking at similar projects. This also works for budgets. When estimating costs, look at costs from similar projects from your company’s past or from other companies.

Here’s the biggest mistake people make with reference class forecasting: we all think we’re better than other companies. We all think we won’t make the same mistakes of time and money we made in the past. Maybe, just maybe, we aren’t that special and our past experience or the experience of others is the reality we should prepare for.

- Rob Stephens

Further Insight

CFO Perspective Resources

  • Video: How to Avoid Decision Making Mistakes. - We all fall for business decision-making errors. Our emotions and snap judgments influence our business decision-making process more than we know. In fact, we are more likely to resort to a snap judgment when faced with a complex business decision. This video explains common business decision-making mistakes and how to avoid them.
  • Course: Behavioral Finance - Overcome your destructive financial impulses by understanding common thinking mistakes. With my Behavioral Finance course, you can avoid these costly financial decision-making mistakes. The course will help you to learn science-backed ideas to make better financial decisions.

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