Understanding Level of Effort (LoE) and Its Importance for Scoping

When clients approach IT service providers, their primary concerns are usually “How much will this cost?” and “How long will this take?” Unlike industries that rely on physical resources like bricks, wood, or cement, IT projects primarily consume workforce hours. The complexity of a project determines the time needed to build each component and feature. In IT service quoting, this is known as the level of effort (LoE). LoE helps project managers track overall progress and translates the development process into terms that clients and stakeholders can easily understand.

What is level of effort (LoE) 

Level of effort refers to the amount of work needed to complete specific tasks within the overall project, typically measured in labor hours. Breaking down a project into the line item and individual components required for a successful delivery makes it easier to estimate labor. Determining the correct level of effort to complete a task should include the time needed to develop or implement the feature and factors surrounding it, such as complexity, skills required, and testing. 

For example, when planning a server migration, LoE would account for the time spent physically moving data and the complexity of ensuring data integrity, minimizing downtime, and addressing potential compatibility issues.

LoE in project management 

Level of effort serves as a measurable foundation for project managers in IT service to estimate, plan, and track progress. Teams can use LoE with other metrics, depending on what best suits clients. 

• LoE vs. Duration: Duration is the calendar time a task takes, while LoE is the actual effort expended. A task might have a duration of one week but only require 20 hours of actual work (LoE).
• LoE vs. Story Points: In Agile methodologies, story points are relative measures of effort. LoE provides a more concrete, often time-based, measure.
• LoE vs. Capacity: Capacity refers to the total available work time, while LoE is the effort required for a specific task or project.

Level of effort is one of the most ubiquitous ways of scoping IT service projects, as it captures the range of factors that go into completion, from complexity to available skillset. 

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Why it is important to understand level of effort?

Understanding the level of effort (LoE) allows IT service providers to plan projects more effectively. The IT team can allocate resources correctly by accurately estimating the required effort, ensuring that projects are delivered on time and within budget.

Breaking the project down into smaller tasks to estimate LoE helps you thoroughly consider all steps and components, identify where specialized skills are needed, and plan accordingly. For example, in a network security overhaul, understanding the LoE enables scheduling the correct number of security experts for the appropriate duration. This foresight helps prevent unforeseen obstacles and hiccups from arising mid-project.

Since LoE directly impacts project costs, you can create more precise pricing strategies, ensuring fair compensation for the work completed. This approach not only safeguards profitability but also offers clients transparent and justifiable cost breakdowns. Clear communication of LoE helps manage client expectations from the outset, providing a tangible way to explain project complexities and timelines.

How to calculate level of effort

The first step in calculating level of effort is to break the project down into the individual tasks required for completion. After that, assess each task by considering the following factors:

• Task complexity: How intricate is the work? For example, a routine software update typically requires less effort than developing a custom API.
• Required skills: Does the task need specialized expertise? Does the IT service provider’s current team have those skills, or will they need to learn something new to complete the task? 
• Historical data: Past project data can inform LoE estimates for similar future projects.
• Environmental factors: Consider elements like system downtime windows, client availability for approvals, and potential integration challenges.

After breaking the project into small, manageable tasks and evaluating the factors above, it becomes easier to determine the resources and developers needed for each task and estimate the total work hours required. You’ll end up with a comprehensive spreadsheet that looks like this:

Project management and CPQ software like Microsoft Project, Jira, or ScopeStack can help standardize the LoE estimation process across your organization. For instance, a custom LoE template might include fields for task breakdown, skill requirements, complexity factors, and risk assessments. After enough estimates, some LoE fields should become standard as implementing that feature is routine and easy to estimate.  

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Who is responsible for tracking and calculating LoE?

The responsibilities of calculating and tracking LoE may change from team to team. An effective estimation of the level of effort usually requires input from various departments. However, a typical setup for an IT service provider team could consist of the following: 

• Business Analysts: Help translate client requirements into estimable tasks.
• Project Managers: Oversee the overall LoE estimation and tracking process.
• Technical Leads: Provide detailed LoE estimates for specific technical tasks.
• Team Members: Contribute to LoE estimates based on their expertise and provide feedback on actual effort expended.

While roles and job titles may differ between companies, the strategy for completing a LoE estimate remains consistent.

Examples of level of effort estimation for IT service

To better illustrate what calculating LoE for an IT service project looks like, below are two examples of what a project quote could look like. 

Example 1: Cloud migration

Task: Migrate an on-premise system to Microsoft Azure 

Work breakdown: 

Example 2: SSL VPN

Task: Implement an SSL VPN Multi-factor authentication for a medium-sized company 

Work Breakdown:

Sometimes, service providers have different hourly rates, such as a difference between a junior and senior developer. In this scenario, add an extra column for “hourly rate” and include the different hourly rates in dollars. After creating the LoE estimate, simply multiply the total LoE hours by the rate the company charges for the price of services rendered.  

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Benefits of knowing level of effort for scoping projects

Accurate LoE estimation leads to more realistic project plans, reducing the risk of overruns and missed deadlines. For instance, a well-scoped cloud migration project based on precise LoE estimates is more likely to be completed on time and within budget, leading to higher client satisfaction and team morale.

Detailed LoE breakdowns also benefit the company. By understanding the actual effort required for projects, you can price your services more accurately and allocate resources more efficiently. This can lead to improved profit margins and better utilization of specialized skills. For example, knowing the exact LoE for a cybersecurity expert in various projects allows optimal scheduling across multiple clients.

This level of detail can set an MSP apart from competitors who provide only high-level estimates. When bidding for a complex network overhaul project, a proposal with a comprehensive LoE breakdown for each phase can instill confidence in the client and increase the chances of winning the contract.

Standardizing LoE process with a CPQ 

A CPQ solution, like ScopeStack, can automate much of the LoE estimation process by integrating historical project data, standardized service offerings, and customizable parameters. ScopeStack’s platform, along with its customizable SoW templates, allows IT service providers to tailor estimates to specific client requirements and consider current resource availability. This approach not only speeds up the estimation process but also ensures consistency and accuracy across team members and projects. 

With ScopeStack, the scoping, discovery, and LoE estimation process can be streamlined to as little as 15 minutes, resulting in an easy-to-read work breakdown.

Additionally, by linking LoE estimates directly to pricing models, a CPQ solution ensures that quotes are up-to-date and accurate effort estimations. This minimizes the risk of underquoting or overcommitting resources, leading to more reliable project planning and better client outcomes. By automating these processes, ScopeStack enhances efficiency and helps IT service providers deliver more competitive and precise proposals.

If you’re interested in improving your LoE estimation process to respond quicker to client requests while maintaining a high degree of precision, then contact us. 

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