Module: Project Management Techniques

Unit: Organising a Project

Lesson: Building a Detailed Estimate
Building a Detailed Estimate

Estimating Techniques

Good Project Managers know the importance of estimation and they also know the time and cost associated with
making accurate estimates. A number of approaches are used in estimating:

1. Phased Estimating

2. Apportioning

3. Parametric Estimates

4. Bottom-Up Estimating

The most appropriate method should be used based on the knowledge of the activity and people estimating.

Estimates should:

1. be resource-driven (productivity, quantity, availability)

2. use an appropriate approach e.g. parametric, analogy, expert judgement

3. have an indicator of accuracy, document assumptions

4. be validated

It is important that estimates are validated. Validate it by getting another resource to estimate independently, or use
a different approach, check assumptions and constraints etc., check that the method of estimation is to your
satisfaction.

Describe how you have gone about estimating on a project you have worked on. Can you comment on its level of
accuracy (if the project has completed you can compare actual effort against estimated effort) ?

What might the project do differently in the light of what you have learned and on the basis of experience?
It is vital that the Project Manager attach a level of accuracy to estimates, as this will help in determining the
contingency and overall budget.
Phased Estimating

This is a popular method of estimation as it concentrates on only one stage (or phase) of the project at any one time;
this means that it requires only cost and schedule information for this stage rather than the whole project.

This approach accepts that it is often difficult, if not impossible, to give an estimate for the whole project prior to its
start and instead focuses on the phases of the project lifecycle separately.

The Phased Estimate requires a series of decision points (or 'phase gates') at which decisions should be made as to
whether the project can continue. At this point the Project Manager should know what is required to enable the project
to successful reach the next phase gate.

The diagram below illustrates the Phased Estimation method:

Figure 1.14 - Phased Estimation

At the start of a project there will be a large level of uncertainty however this is reduced as the project progresses and
more is known about the various conditions surrounding the project.

Customers often do not like the Phased Estimation approach as they are unable to identify the cost and time at the
very start of the project. They often believe that a set estimate at the start of a project is a less risky approach to
developing projects. However, especially for more complex projects, it is very dangerous to plan based on an estimate
determined without full information of the project.

Phased Estimation is usually utilised on construction projects. These types of projects are often quite complex. It
would be wrong for a construction company to make a decision on a construction project based on an estimation prior
to the start of the project; rather they are better placed to estimate based on identifying a location and developing a
blueprint and then determine whether the project is still realistic.
Apportioning

Apportioning is also known as the top-down estimation method as it begins with an estimation based on the whole
project and then breaks it down (or apportions it) to each phase of the project. This approach needs a very good WBS
to enable the Project Manager to develop an accurate estimate.

Figure 1.15 - Apportioning

The Apportioning method has some limitations and these need to be recognised by the Project Manager:

1. To develop an estimate using the Apportioning method there is a need for previous information from previous
projects. It is important then that previous projects are similar to the project in question otherwise the estimation
will not be accurate. Should a project be unique then it makes the Apportioning method very difficult.

2. The estimate for each phase is only as accurate as the estimate for the whole project. As point 1 details the
difficulties in developing the accuracies of estimating the whole project, the Apportioning method will inaccurately
estimate each phase if the estimate for the whole project is inaccurate.
It is rare that the Apportioning method is as accurate as the Bottom-Up method but it can be useful for determining
which projects to investigate further. It is often useful at the Project Selection stage as it enables a Project Manager to
estimate the length of each phase.

Parametric Estimates

The Parametric Estimate is a statistic approach to estimation which is based on historical information and from this a
good, accurate calculation can be made. This approach requires the Project Manager to identify key units of work
which can then be multiplied to the full size of the project.

This approach can develop a very accurate estimate provided the underlying information is accurate. Due to the level of
information required to make the statistical multiplication it is often much easier and more accurate at the lower levels
of a project where more operational information is known. It is important to understand that the project specifications
must be very detailed to be able to make accurate estimations.

Due to the level of information required and the subsequent level of accuracy that can be achieved, this type of
estimation is usually reserved for the construction phase of a project.
Bottom-Up Estimation

Bottom-down estimating should be undertaken wherever possible; as such estimates are most accurate. But there are
instances when insufficient data is available and top-down estimation from higher up the hierarchy is the only option.
For example, if an activity involves the use of some new technology (which has not yet been released and details are
very skeletal), then some form of top-down estimate will be necessary.

This approach is the most resource-intensive however it also generates the best accuracy. This approach consists of
combining all of the detailed lower level estimates to develop a 'rolled up' estimate for the whole project.

Figure 1.16 - Bottom Up Approach

To ensure that the Bottom-Up Estimate is accurate for the project it is important to ensure that the work package
estimates are accurate from the lower levels. If these are not accurate then the whole Bottom-Up Estimate will also be
inaccurate.

The added time needed to develop the Bottom-Up Estimate is often worthwhile as it is known as the most accurate
type of estimation however it is very dangerous to undertake this type of estimate at the earlier stages of a project. A
lack of information at the earlier stages of a project makes this type of estimate impossible and so Bottom-Up
Estimation will only work effectively in developing detailed project estimates.