Project Estimation Techniques

Project estimation techniques help project managers accurately estimate

essential elements, such as cost and scope, within their projects. In Agile IT
operations, these techniques can be used to properly plan for resource allocation.
These estimation techniques allow PMs to provide better forecasts to clients and more
accurately budget the funds and resources they need for project success. 

What are project estimation techniques?

An estimate is a rough calculation of something. For example, a project cost
estimate is a general idea of the price model for a project. 

Estimation techniques are ways to create project estimates. When your client or
another project stakeholder asks you to estimate an aspect of the project, these
techniques help you come up with a realistic number to give them. 

Why are project estimates important?

Without accurate estimates, it’s impossible to plan your project. If you don’t have
an idea of how long the project will take or what resources you will need, there is no
way to ensure you’ll have the right people, materials, or tools available when you need
them.
What types of estimations take place
during a project?
There are six key areas of a project that benefit from the use of project estimating
techniques:

1. Cost
Cost is one of the three main constraints in project management. If you don’t have
enough money to complete the project, it will fail. If you can accurately estimate
project costs early on, you can help set client expectations and ensure you have
enough money to get the work done. 

Cost estimation involves predicting how much money you will need for the project
as well as when you will need the funds. 

2. Time
Time is another of the three main project constraints. Being able to estimate both
the ove rall project duration and when individual tasks will take place is vital to
project planning. 

Estimating your project schedule enables you to arrange for people and

resources to be available when you need them. It also allows you to
manage client expectations around when they should receive key
deliverables. 

3. Scope
Scope is the third key project constraint. Project scope is all the
work that must be done to finish the project or deliver a product. By
estimating how much work is involved and exactly what tasks need to
occur, you can ensure that you have the right materials and expertise on
the project. 

The three main constraints are often referred to as three sides of a

triangle. This is because whatever changes are made to one constraint will
inevitably impact the other two. To accurately estimate the budget, you
must know the scope and schedule. If one of the three ends up being
greater or less than you expected, it will likely result in the other two
estimates being off as well. 

4. Risk
Project risk is any unexpected event that could impact your project, for
better or for worse. Estimating risk involves predicting what events may
occur during the project’s life and how seriously they could impact the
project. 

By estimating what risks could impact your project and how they will
affect it, you are better able to plan for potential issues and create risk
management plans. 

5. Resources
Project resources are the assets you need to get the project done.
Resources can be tools, people, materials, subcontractors, software, and
more. Resource management helps you ensure you have all the resources
you need and are using them as efficiently as possible. 

Without estimating what resources you will need, and when, it’s
challenging to plan how you will manage them. This can lead to people
sitting around idle or materials not showing up until weeks after you need
them.   
6. Quality
Quality focuses on how well the project deliverables are completed.
Products that have to meet demanding quality regulations, such as
environmental restrictions, may require more money, time, and other
resources than a product with lower-level requirements. 

Estimating the level of quality that the customer requires helps you
plan and estimate the other five aspects of your project. 

All six project factors are interrelated, so predictions for one can impact
the estimates for the other five. For this reason, using the same project
estimate techniques in all six areas can improve your accuracy.  

How to use project estimation

techniques in project management
Project management estimation techniques are a key part of the
planning process. So, how and when should you deploy these crucial
techniques?

When should estimates take place?

In a traditional Waterfall project, the planning phase comes right after
project initiation. During this stage, estimates will be created and
documented for the six project aspects we discussed above. 

Estimates may also be adjusted throughout the project as new

information comes to light. For instance, as new risks are identified, your
project risk estimates will need to be updated. 

Agile projects take a more iterative approach to planning. Most Agile

frameworks divide projects into iterations or sprints. In this case,
estimates would be done initially, when creating the overall project
backlog (list of features and requirements) and then again during each
sprint. 

Estimation can happen during the sprint retrospective, as you’re

updating the backlog based on sprint outcomes. It can also happen during
the sprint planning session for each new sprint. 

Who estimates projects?

The project team is generally responsible for estimating projects. The
project manager may own the database or documents where estimates
are recorded. It's their job to ensure estimates are completed. 

However, it's up to the whole team and any subject matter experts
to help create and refine the estimates. The more knowledgeable people
you involve, the more likely it is that you will be able to create realistic
estimates. 

Major project estimation

techniques
Here are six common estimating methods in project management:

1. Top-down estimate
A top-down estimating technique assigns an overall time for the
project and then breaks it down into discrete phases, work, and tasks —
usually based on your project’s work breakdown structure (WBS). 

If a client tells you the project has to be done within six months, a
top-down approach allows you to take that overall timeline and estimate
how much time you can take for each activity within the project and still
complete it on time. 

2. Bottom-up estimate
A bottom-up estimate is the reverse of top-down. Using this
estimation technique, you start by estimating each individual task or
aspect of the project. Then you combine all those separate estimates to
build up the overall project estimate. 

Since each activity is being assessed individually, this type of estimate

tends to be more accurate than the top-down approach. But it also takes
more time. 

3. Expert judgment
Expert judgment is one of the most popular estimation techniques, as
it tends to be quick and easy. This technique involves relying on the
experience and gut feel of experts to estimate projects. 

It’s most useful when you’re planning a standard project that is

similar to ones your team has completed before. Expert judgment can be
used for creating top-down or bottom-up estimates.

4. Comparative or analogous estimation

Comparative estimation uses past project data combined with a top-
down approach to estimate project duration. If the average completion
time of similar projects was eight months, you’d assume the current one
will take eight months. Then you can break those eight months down
across tasks and activities to get your lower-level work estimates. 
5. Parametric model estimating
Parametric modeling also uses past project data, but it attempts to
adjust the data to reflect each project's differences. This technique takes
the detail of past projects and pro-rates it to estimate the current project. 

Imagine your company builds houses. Parametric modeling could

take the cost of all past construction projects divided by each project's
square footage to come up with an average project cost per square foot of
the home. Then, you’d multiply that number by the planned square
footage of the current home to create your overall project budget. 

6. Three-point estimating
Three-point estimating is a technique sometimes used for creating
bottom-up estimates. Rather than assuming one duration for a task, you
may assign three: optimistic, pessimistic, and most likely. These three
numbers are averaged to create your actual estimate. 

The PERT (Program Evaluation and Review Technique) method uses

three-point estimating, but it takes a weighted average of the three points,
with the ‘most likely’ guess carrying more weight. 

The project estimation tool that

everyone should have
Two things are vital for creating accurate and realistic project estimates:

1. Solid project data

2. A project estimation tool 

 The more data you have about past project performance, the easier it
is to create current project estimates. Unless you’re creating high-level
project assumptions or general estimates, you need a tool to track and
compile all the separate aspects of your project. 

A project estimation tool can automatically build up bottom-up

estimates. It can track estimates against actuals and help you record
changes, errors, and lessons learned to improve future estimates. It also
makes updating estimates and sharing them with stakeholders much
more efficient