Experienced project managers (PMs) appreciate the importance of producing accurate estimates although it consumes time and effort. PMs select among a selection of estimating schemes to get the precision they call for. An impressive amount of literature has been written on the subject. Of late, computer-based estimating softwares with proprietary algorithms are already available in the market, but are very expensive to purchase.
This paper cannot make an extensive discussion of all the estimating techniques available; instead, it presents the dynamics of precise estimating by discussing two established estimating methods—the fundamental building blocks utilized by all accomplished and expert project estimators. Bottom-Up Estimating Bottom up estimates are used when the project baselines are required or a definitive type of estimate is needed. These types of estimates are called “bottom up” because they begin by estimating the details of the project and then summarizing the details into summary levels.
The work breakdown structure (WBS) can be used for this “roll up”. The advantage of this kind of estimate is that it will produce accurate results. The accuracy of the bottom up estimate depends on the level of detail that is considered. Nicholas and Steyn (2008) argue that statistically, convergence takes place as more and more detail is added. The disadvantage of this type of estimate is that the cost of doing detailed estimating is higher, and the time to produce the estimate is considerably longer.
Bottom-up estimating starts from zero, accounts for each component of the WBS, and arrives at a sum for the project. It is completed with the project team and can be one of the most time-consuming methods to predict project costs. It relies on estimating the cost of individual work items, then adding them up to obtain a project total cost. Typically, an in-depth analysis of all project tasks, components, and processes is performed to estimate requirements for the items including labor and materials.
The application of labor rates, material prices and overhead to the requirements turns the estimate into monetary units. A fringe benefit to completing a bottom-up estimate is the project team may buy into the project work as they see the cost and value of cost within the project. Apportioning Another technique used in project estimation is called apportioning, or top-down, estimating. With this method, a total project estimate is given and then a percentage of the total project is assigned to each of the phases and tasks of the project.
The WBS can provide a good solid breakdown for using this estimation technique. In order for this method to be as accurate as possible, however, Lock (2007) asserts that it is critical that, first, the overall project estimate is correct; otherwise the project estimates for the smaller pieces won’t be accurate. Second, apportioning is based on a formula derived from historical/data experience of other similar projects. Because of this, it is critical that the previous subjects be very similar to the project of hand.
This technique is rarely as accurate as the bottom-up approach, but can be very valuable when assessing whether to select a project to pursue. A top-down estimate is used to estimate cost early in the project when information about the project is very limited. “Top down” comes from the idea that the estimate is made at the top level of the project. That is, the project itself is estimated in one single estimate. Its accuracy also heavily depends on the quality of the information inputs such as the resource requirements, resource rates, historical information and project schedule.
The advantage of this type of estimate is that it requires little effort and time to produce. The disadvantage is that the accuracy of the estimate is not as good as it would be with a more detailed effort. This type of project estimation technique is appropriate when doing estimations near the beginning of the project or when fairly inexact estimates are good enough. These are called “rough order of magnitude” or “budget estimates”.