Estimating Techniques - Project Management

The WBS has been a handy tool so far in the creation of Planning documents, and it is indispensable in the budget process. The WBS is used to identify, estimate, and assign costs to each element of the project. The work package level is where you'll see individual costs and estimates for each task (provided the work package level shows tasks), whereas the higher levels in the WBS will show rolled-up costs. Before we get into the details of each estimate, let's look at the different estimating techniques you can use during the budget process.

Top-Down Estimating

Top-down estimating is also called analogous estimating. The idea behind the top-down technique is that one lump-sum estimate is determined for the entire project. This technique is also used for the level-two WBS elements (the deliverables level) on large projects. This technique requires the estimator to have lots of experience with previous projects that are similar in size and scope to the current project.

top-down estimating

Establishes one overall estimate for the project. This is also called analogous estimating.

This is the least accurate form of estimating. This technique works best for small projects or individual deliverables on small projects. It's best to use this technique in combination with the next one we'll discuss, bottom-up estimating.

Bottom-Up Estimating

Bottom-up estimating is the opposite of top-down estimating. This involves estimating each task or work item individually and then rolling up those estimates to come up with an overall project estimate. For example, each task at the work package level is estimated, and then these estimates are added together with other work package-level estimates to come up with WBS level-three and level-two estimates. Then these can be added together for an overall project estimate.

bottom-up estimating

Establishes individual estimates for each task and adds them all together to determine a total estimate for the project.

Note:Bottom-up estimating used in combination with top-down techniques is especially useful for large projects. Top-down estimates are given for the individual tasks or work package levels, and then these estimates are rolled up to come up with one estimate for the entire project.

Computerized Tools

Most project management software packages allow you to put cost estimates on the tasks listed on the project schedule. The software will then automatically calculate the total project costs for you. You could use a spreadsheet program to accomplish this as well by listing all the budget items in one column with their associated costs in another.

Ask the Experts

Interviewing techniques work well for estimating tasks. Ask stakeholders, subject matter experts, vendors, and project team members with previous experience on projects like the one you're working on for estimates. Many times functional managers who've loaned out resources on similar projects in the past have fairly accurate estimates ready. Never be afraid to ask.

Another useful technique in this category is to peruse historical documents. Past project documentation can be referenced to determine how much was actually spent on tasks that are similar to the ones on the current project. This is a great technique if the past project was completed fairly recently because you have actual costs to use as a base instead of estimates.

Ask the Vendors

Vendor pricing lists are a good source for estimate information. Start first with your procurement department. They may have lists of vendors who've provided pricing guides for certain activities or resources that you can reference and use as initial estimates for your project activities.

When you actually need to include costs for activities vendors will perform on your project, be sure to get input from more than one vendor when asking them for estimates; they can vary widely. Ask different vendors to give you estimates so that you can check one against the other. Be aware that some vendors hope to get future business from you, so they will purposely provide a low initial estimate. They also may be using this project as a pilot project in the hope of getting business from other companies similar to yours. Keep these things in mind when comparing estimates from different vendors. Also make certain that all the vendors providing estimates on the project have the same understanding of the requirements, assumptions, and delivery dates.

If the estimates are coming in high and the budget is tight, ask the vendors for a discount. I've used this technique with vendors, especially with the vendors I work with all the time. This isn't something you should do for every project, however; be judicious about when to use this tactic.

Last, always ask vendors to put their estimates in writing. This will help assure that you're getting estimates you can rely on throughout the project and will help you avoid setbacks later on.

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