Saturday, April 11, 2020

Back of the envelop calculation

Most of you would have heard about "Back of the envelope calculation", which stands for what is a rough estimate of a certain thing. It can be the time a certain task will take or how many people or other resources will be needed to accomplish something. We do many kinds of estimation in our daily life both in professional and personal life. For example, how many years I should work and at what level so that I can get my retirement.  Unfortunately, that never happens. If you really want to retire it's today or you will be made to retire for some other reason.

Coming back to estimation, why that is important. We hardly do anything in life which does not have a context. There are things on which what we do is dependent on and there are things which are dependent on us. For example, if you are building a product then it's important to have a rough idea when the product will be rolled out for testing and for mass production. Marketing and sales efforts are built around that. Folks in marketing and sales need to know so that they can align their resources accordingly. Stuff doesn't sell out of manufacturing lines. They need to be marketed, introduced into channels, ferried to warehouses, and retail shops. A lot of coordination and multi-level and multilateral effort is needed to accomplish this and that needs an estimation around when things will happen.

Estimation is also important for the task in hand because the task may itself involve multiple people and different kinds of resources. That needs coordination to make them available in the right sequence. Also, the task needs to play within the constraint of a budget. Estimation also helps in ordering things correctly. If the task is in a critical path, it will need extra monitoring. If the task is not in the critical path then a possibility exists to shift it so that resources can be made available for critical tasks.

Given an infinite amount of resources in terms of money, manpower, and time anything can be done in the world may be except for some tasks like finding god. But in the real-world everything is limited and tasks compete for resources. A good estimation helps in allocating the resources at the right level and at the right time.

Let's now focus on what are the different ways of doing estimations:
  • Past experience: There is not a better teacher than experience. The same and similar task can be estimated based on what kind of resources it has taken in the past. However, do take care of the context also. Are the context and environment the same as in the past? Year-end audits are very repetitive but not be same when there are mergers or bifurcations in a company.
  • Literature: This is about learning about other's past experiences. Most of the time here the knowledge about the context in which the task was done is not available so it is important to be aware of this fact and do necessary adjustments. 
  • Mentally walk the path: This is very powerful but also needs a lot of imagination and an understanding of the details. An effective way to do is to imagine that the task is done and then come back to the steps and sequences that will help to do the task. Breaking things into details helps in estimation also. This exercise is important from one more aspect as it helps in diving into details and understands the nature of things. As it is said, the devil is in the details.

At the end of the day, estimation is an estimation. As in Army, the saying goes, all the plans go out of the window when the first bullet is fired. Don't hold your life for the estimation. It was a first-order thing which should help in getting things going. Predict reasonably but don't get into analysis paralysis. Sometimes it is better to move and adjust. Be ready to change when new information emerges or the context changes. Be ready to change and communicate the estimation as things change. For leadership also it is important to build an environment of openness where people feel comfortable in communicating changes otherwise nasty surprises appear very late in the game.

Try estimation exercise-

  • Estimate how many sharks are there in the world?
  • Estimate how much time it will take to build Facebook from scratch?
  • Estimate how many kilograms of rice and vegetables will be needed to cook Vegetable Biryani for 532 people? You can replace Vegetable Biryani with your favorite dish.

Feel free to use your experience, google, or look around. Do not use more than one A4 page for the exercise. Do write in comments about how you attempted it.

Happy estimating. 

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