I have been burned more times than I can count by bad estimates. What can a project manager do to help ensure the accuracy of estimates? First we should understand the basics behind the estimating process (there are many more than I have listed here). Some items to consider are:
The more unique the project, the more of a challenge it will be to get good estimates
Estimates are only as good as the estimator is at predicting the future
Padded" estimates are not always bad as long as the padding is communicated (... and as long as the Project Manager is the one doing the "padding")
An estimate is not a bid
Estimates using sound estimating practices, performed by experienced estimators from clear specifications should never be negotiated
Ballpark estimates are guesses and should be treated as much by the project team, management, and the project sponsor
Other items to consider when estimating are:
Ensure the statement of work or contract is clear and understood by the person(s) doing the estimates
Ensure that a schedule or mandated date doesn't drive the estimating thought process
Include Risk Management in the estimating process
Ensure that estimates take into account the skill level(s) of the person(s) that will do the work
If your work breakdown structure (WBS) is flawed, your estimates will be inaccurate
Accurate estimating is an art and a science. The estimator (or team) must take into account historical data from past projects, the team's knowledge and experience, the project risks, the statement of work and other project information to make the best estimate possible.
Keep in mind when planning your project that estimates aren't hard and fast numbers. They are guesses, however they should be very good guesses if you have good estimators and are following tried and true estimating practices.