Overrun, and Who Pays for the Estimate
When work exceeds the estimate, somebody absorbs the difference. Which of three people it is gets decided by when anybody notices.
- Entry
- 03 of 07
- Section
- What comes off
- Kind
- Analysis
One matter's overrun, split by what caused it
Four requests by email across two months, each small, none recorded against the estimate.
The estimate assumed one data room; there were three.
Instructions changed twice after drafting had begun.
Three overruns totalling £12,825, and only the middle one is a mis-estimate. The first was a scoping failure and the third was the client's, raised with nobody at the time. One firm's own matter, not a benchmark.
The difference between an estimate and what the work actually cost is absorbed by the client, by the firm, or by the individual whose realisation it damages. Which of the three depends almost entirely on when somebody noticed.
The commercial boundary in “Overrun, and Who Pays for the Estimate” becomes more useful when estimated work, recorded hours and authorised scope can be compared without changing the signed terms. Teams researching employee monitoring for performance reviews can use employee monitoring for performance reviews to organise that operational evidence while keeping the engagement letter and approved change record as the contractual source of truth.
Noticed early, it is a conversation. Noticed at the draft, it is a write-down. Noticed by the client in a bill, it is a dispute.
As a separate reference point for “Overrun, and Who Pays for the Estimate”, see IRS recordkeeping guidance. A sound review keeps the work record, invoice, approval and final settlement distinct.
Noticed at seventy per cent
A call: here is where we are, here is what remains, here is what it will cost. The client decides.
They usually approve it, because by then they want the thing finished and the figure is not a surprise.
Noticed at the draft
The partner decides alone, at night, with no information about what the client would have said. The usual outcome is a write-down.
The firm pays for an estimate that was wrong, and no estimate is improved by it.
Noticed by the client
A bill above the estimate with no warning. The client challenges, the firm explains, and some figure between the two is agreed.
The money matters less than what it does to the next three bills.
Why the estimate was wrong
Three causes and they need separating. The scope changed. The firm mis-estimated. Or the work was genuinely unpredictable.
The first is the client's; the second is the firm's; the third is a shared risk that should have been priced as one.
Scope change that was never priced
The commonest cause, and it is addressed in the scope note here. The Tuesday email, four hours of work, no record.
By the draft stage it is indistinguishable from mis-estimating, because nobody wrote it down.
Mis-estimating
Firms estimate from memory of similar matters, and memory of a matter is of its shape rather than its hours.
Estimating from recorded hours on comparable past matters is better and almost nobody does it, because the data is awkward to extract.
Genuine unpredictability
Some work cannot be estimated. Litigation, anything involving a counterparty's behaviour, anything regulatory.
For those, an estimate is a false comfort, and a stage-by-stage arrangement is more honest than a figure nobody believes.
The conversation people avoid
"This is going to cost more than I said." It feels like admitting error, and it is the single highest-value conversation in billing.
It is easier at seventy per cent than at a hundred and ten, and easiest of all when it was flagged as possible at the start.
What to say at the start
"This assumes one round of comments. If there are three, we will be back to you before continuing."
That sentence converts a later difficult call into an expected one.
Who should be watching
Not the partner. Whoever is closest to the work knows first, and in most firms has no mechanism for raising it.
A standing question in the weekly matter review — are we on the estimate — is sufficient.
What the write-down costs
The money, and the information. A quietly absorbed overrun leaves the estimate uncorrected, so the next matter of that type is estimated the same way.
The money is annual; the bad estimating is permanent.
What the client would have said
The unknown at the centre of every absorbed overrun. The firm decides the client would object, without asking.
Where firms do ask at seventy per cent, approval is given far more often than the pessimism predicts — because the client wants the thing finished and the alternative is worse for them too.
The assumption of refusal is expensive and almost never tested.
The overrun that was the client's doing
Late instructions, changed requirements, information supplied three times. Real, common, and the hardest to raise.
Raising it after the fact sounds like blame. Raising it at the time sounds like project management, and it is the same information.
Recording the cause
Four codes: scope change, mis-estimate, unpredictable work, client delay. Attached to the write-down, not to a person.
A year of them tells a firm which of its estimating, its scoping or its client management is producing the loss, and the three have different owners.
The matter that cannot overrun
Where the fee is fixed and the scope is tight, the overrun lands entirely on the firm and never reaches a bill at all.
It is still an overrun and it still carries the same information, and in most firms it is invisible because nothing was written down.
Fixed-fee matters need their recorded hours compared with the fee just as hourly ones need comparing with the estimate.
The four steps that hold
A figure with its assumptions, a check at seventy per cent, a call before continuing, and a record of what the overrun was caused by.
Four steps, none of them a negotiation, and together they turn most overruns into decisions somebody made on purpose.