Project estimation techniques of various types are used in Project Management with various streams such as Engineering, IT, Construction, Agriculture, Accounting, and so on. In order to accurately estimate a project, a project manager is frequently challenged to align six project constraints: scope, time, cost, quality, resources, and risk. The following are some of the common questions that a project manager has at the start of a project:
How much work should be estimated? (scope).
How to Calculate the Project Cost (techniques).
How long will it take to complete the project? (Schedule).
Who will be in charge of the project (resources)?
What is the estimated cost of completing the project?
Any intermediary dependencies that may cause the project to be delayed or impacted (Risks).
Following that, we will learn about the major components of project estimation techniques.
The Three Major Components of Project Estimation
Estimation of effort
Estimated costs
estimation of resources
While accurate estimates are the foundation of sound project planning, there are many techniques used as project management best practices in estimation, such as analogous estimation, parametric estimation, the Delphi method, the three-point estimate, expert judgment, published data estimates, vendor bid analysis, reserve analysis, bottom-up analysis, and simulation. During the early stages of a project’s life cycle, the project requirements are usually only vaguely known, and there is little information available to estimate the project. The initial estimate is based solely on assumptions and a high-level understanding of the scope; this is referred to as ‘ball-park estimates,’ a term frequently used by project managers.
Following that, we will learn about the best project estimation techniques.
Techniques for Project Estimation
1. Estimate from the Top-Down
Once more information about the project’s scope is obtained, this technique is usually used, in which high-level chunks at the feature or design level are estimated and decomposed progressively into smaller chunks or work-packets as information is detailed.
2. Bottom-Up Calculation
When the requirements are known at a discrete level, this technique is used to estimate the entire project by aggregating the smaller workpieces. This is typically used when information is only known in bits and pieces.
3. Analogical Estimation
When there is a reference to a similar project that has been completed and it is easy to correlate with other projects, this project estimation technique is used. To arrive at a project estimate, expert judgment and historical information from similar activities in a referenced project are gathered.
4. Statistical Estimation
This technique makes use of independent measurable variables derived from project work. For example, the cost of building construction is calculated using the smallest variable as the cost to build a square foot area, whereas the effort required to build a work packet is calculated using the variable as lines of code in a software development project. This technique improves project estimation accuracy.
5. Estimation in Three Points
This technique employs a mathematical approach as the weighted average of the work package’s optimistic, most likely, and pessimistic estimates. This is commonly referred to as the PERT (Program Evaluation and Review Technique).
6. Analyze What-If
This project estimation technique employs assumptions based on variables such as scope, time, cost, and resources to evaluate the project’s potential outcomes through impact analysis. In most cases, the project estimate is completed by holding estimation workshops with project stakeholders and senior team members who can provide valuable input to the estimation process. The high-level scope is divided into smaller work packages, components, and activities, and each work package is estimated based on the effort and resources required to complete the work package. The project can be broken down into the smallest measurable chunks.
During the workshop, the following activities are carried out:
Break the scope down into the smallest work package, component, or activity (WBS)
Organize the activities in the order in which they will be carried out.
Determine the amount of effort required to complete each activity.
Determine the estimated resources required to complete each task or activity.
Determine the dependencies required to complete each activity.
Determine the potential risks and assumptions.
Define the resource and cost estimates for each activity, component, and work package.
