Making Smart Assumptions in a Project Budget

We work with clients to define custom software proposals and create a responsible budget. In this task, we’re always going to be in a position where there are unknowns. For example, a project may need to integrate with a third party service we’ve never used before. We have to assume the service works as advertised. We really won’t know until we do some additional research and start working with the service.

My preference would be to know everything there is to know about the project before starting to create a budget. It would make the job of defining a budget easier, less stressful, and more accurate. However, it is pretty unlikely that I will ever know everything. Therefore, there are times when it’s necessary to make assumptions.


Assumptions Can Be Good and Bad

My father-in-law always used to say “You know what happens when you assume? It makes an ass out of you and me.” There is some serious truth to that statement. Assumptions can get us in trouble. Assumptions can cause us to go down the wrong path. They cause us to waste time, energy, and money. Sometimes they lower the confidence the customer or team has in our decisions. Occasionally, they lead us to fail to meet important dates and budgets. We assume things at our own risk.

Yes, assumptions can be bad. I try hard to avoid making assumptions for the reasons stated above and because, well, I tend to like to know exactly what I’m getting into. The problem is assumptions can also save a lot of time and trouble. I could spend hours and hours trying to figure it all out, ask a ton of questions, do a lot of research, and I would still never know everything I need to know. It would mean never getting a proposal and a budget to a customer, or at least taking a very long time to do so. I’m sure that would be bad for business.

How to Use Assumptions in Budgeting

There are times when making assumptions are a necessary evil. The trick is to make sure those assumptions are good assumptions. Making good assumptions helps us complete proposals and budgets in a timely manner, move forward when we would be stuck otherwise, and imagine an expected outcome and estimate better based on that outcome.

Here are my rules for using assumptions to create a proposal & budget:

  1. Find reliable knowledge about the subject you are making an assumption about.
    If you don’t personally have any experience, then you should talk to someone who does, or do some research on the subject. Generally speaking, making assumptions on something you know nothing about is a good way to make a bad assumption. On the other hand you don’t have to know everything there is to know about the subject before you can move on. There is a point where you have enough knowledge to make a good assumption. Trust your instincts and give your subject the examination it deserves—the “I’ve done enough” point is going to be different for each project.
  2. Keep the number of assumptions you make to a minimum.
    Assumptions should only be used when needed to keep progress moving forward on a proposal. A proposal built on a lot of assumptions is likely to be seen as a proposal built with little effort or research on your part. There is no good rule for the number, but I always think that if I hit double digits, I need to do some more work on this budget.
  3. Be open about the assumptions that you’re making.
    They should be clearly stated in the proposal. Everyone needs to know the assumptions that went into creating the budget. Show your work, as they say in math class
  4. As the project progresses, validate the assumptions you’ve made.
    As you learn more about the project, your assumptions either become real or not, and you should determine if they have an impact on your budget going forward.

Making the Right Budget Assumptions

In a recent proposal of mine, the customer wanted their app to generate reports, but was not sure about the types or numbers of reports needed. Instead of waiting for the client to decide, I moved forward by making educated assumptions about the types and numbers of reports, based on typical reports for the type of app they were building. I then clearly stated this in my proposal and discussed it during our proposal meeting.

Making assumptions upfront is not necessarily a bad thing. Just make sure you are making good assumptions by backing them up with research and validating your assumptions along the way. That’s the best way to avoid letting assumptions make an ass out of you.