Sunday, April 22 , 2018, 12:19 pm | Fair 66º

 
 
 

Paul Burri: The Politics of Estimating Project Costs

The magic number needed to sell the idea to the powers that be won't necessarily equal reality

I worked as the manager of the Estimating Department of Walt Disney Co. for about five years during the time that Epcot was being built. (We were also building Tokyo Disneyland at the same time.)

The Disney Co. is different from most companies in this respect; most companies make a product and then sell it to their customers. Instead, Disney makes a product — and then keeps it — and makes its money by the admission it charges its visitors.

At Disney at the time, there were two estimating departments. One department was responsible for estimating what it would cost to acquire the land, clear and grade it, and design and construct the buildings. The responsibility of my department was to estimate the cost of the various shows and rides that were inside those buildings. Take the Haunted Mansion, for example. We estimated what it would cost to build the track and vehicles, the scenery,  the animatronic figures, the special effects, and the lighting and sound systems that make it all work.

Over that five-year period, my department generated about $400 million worth of estimates for those two major projects and the many smaller ones within them. Not all the projects were actually built because often the company would not build a particular project because its estimated cost was too high. Even so, most of the projects that were actually built were accompanied by huge cost over-runs. And that’s where the politics came in ...

Here’s the way it worked. Someone — usually in a middle-management position — would get a brainstorm for a new attraction such as Space Mountain, Pirates of the Caribbean or whatever. His next step would be to present his idea to management to see if he could get approval to proceed with the idea. His motivation to have the idea accepted was that usually the person with the idea became the manager of that attraction during and after its construction. Becoming the manager of an attraction was usually an upward move within the company. Naturally, everyone wanted his idea to fly.

But the idea person knew that the first question management would ask would be, “How much is this going to cost?” This is where the Estimating Department came in, and I would get a visit from the person asking for an estimate based on his very vague idea of the scope of his project.

The problem is that to provide any kind of reasonably accurate estimate of cost, I need to have a reasonably accurate description of what you want. Otherwise, it would be like me asking you, “How long will it take you to drive from here to there?” without telling you where here is or where there is. (In an actual incident, I had a manager pop into my office one day and ask me, “How much for a spectacular light show?” From experience and from the nature of his question, I knew I wasn’t going to get any further information other than it was to be a “spectacular show.” I immediately replied, “$250,000,” and he was gone — apparently completely satisfied with my answer.)

But it gets worse. Eventually, the specifications for the new attraction would become more refined so that some idea of the scope of the project was more clearly defined. I needed to know in detail what sort of “people-moving” system was to be used, the length of the track, and the number of vehicles, animatronic figures, projectors, scenes, etc, etc. Once I had that information in hand, I would disperse it to my various estimators (who specialized in the various disciplines). Several weeks later, the data would be collected, collated and summarized into a final total estimate, which I would present to the manager.

Here’s what would invariably occur. He would take a quick look at the bottom line — i.e., the total cost — and say, “It’s too high.” In my early days, I would be confused by a remark like this. Later on I realized what was going on. The manager already had some idea of what the project needed to cost in order to “sell it” to management.

My number — generated by experts over several weeks — was a pretty accurate estimate of what the project would really cost, but it was too high to sell it to management. So I would naively respond, “Too high? What do you mean it’s too high?” I would not get a real answer other than, “It’s too high, Go estimate it again.”

I would answer, “Are you going to change the scope of the project? Make it smaller or reduce it in some way? If not, why would you expect the estimate to change significantly?”

“No changes. Just go back and estimate it again.”

“If there are no changes to the scope of the project and I come back with a significantly different estimate, won’t you start to doubt my credibility and the credibility of my department?”

Eventually, an acceptable estimate would be provided to middle management; one that could be sold to upper management. Then the individual project would be completed at a cost of about twice what the original estimate had predicted. And when the total project was finally completed at an over-run of approximately four times the original estimate (which was the case when Epcot was built), the Estimating Department would be fired for incompetence.

— Paul Burri is an entrepreneur, inventor, columnist, engineer and iconoclast. He has been a counselor with the Santa Barbara chapter of SCORE (Service Corps of Retired Executives) for the past eight years. SCORE offers free business counseling to local businesses. He is also the membership director of the Channel City Camera Club. The opinions and comments in this column are his alone and do not reflect the opinions or policies of any outside organization. He can be reached at .(JavaScript must be enabled to view this email address). Click here for previous Paul Burri columns. Follow Paul Burri on Twitter: @BronxPaul.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through PayPal below, or click here for information on recurring credit-card payments.

Thank you for your vital support.


Maestro, Mastercard, Visa, American Express, Discover, Debit

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >