In any project, there are going to be a number of unknowns. You may have to make assumptions about the timeline, budget or technical requirements. As a result, you need to estimate the cost and schedule for each feature in your project.
The most common mistake teams make during this process is estimating based on their gut feeling. While this approach might feel good, it can lead to inaccurate estimates that cause problems later in the project.
The best way to avoid these errors is to use an estimation method that lets you factor in all relevant information about your product or service and allows for collaboration with your team members.
When you are looking into building a detailed cost and time estimate for a work package, you need a technique to help you in the planning phase. While there are several different techniques used to estimate costs, the most common (and accurate) approach is bottom-up estimating. But what is it and how do you use it? Learn all about the bottom up estimating approach in our guide.
The term "bottom-up" refers to an approach that starts at the lowest detail level and works up to more general conclusions. In the case of project cost estimates, it means assessing the cost of an activity by breaking it down into smaller work packages, and then adding them together until you arrive at the total summary cost. Bottom-up estimating deals with the most detailed level of the Work Breakdown Structure (WBS).
It is a unique technique in project management because it helps project managers see every minute element of the entire project before starting. It provides a highly accurate estimate to use for the budget baseline, as it is uniquely tailored to the project at hand.
For example, let’s say you have a project that requires three different tasks:
Using the bottom-up approach, you would estimate how long each task would take and then add up those estimates to arrive at an overall project cost.
The beauty of using bottom-up estimating is that you can also use other estimation techniques so that you can have more accurate final estimates.
A project manager can use bottom-up budgeting when creating a new product or service, when there are no similar projects to base the estimate on. Because the bottom-up technique involves examining all the tasks in the activity at a granular level, it is a time-consuming activity. However, having a definitive estimate will help you avoid making losses in the long-run.
Unlike the parametric estimating technique, which involves complex statistics, bottom-up analysis is fairly straightforward to do. However, it is still very detailed. Project managers plan milestones, and may involve other team members to make a to-do list around each milestone and decide steps they'll use to accomplish each task.
Let's take a look at bottom-up estimating in practice.
If you are looking to start a marketing project you have not done before, you have a few options to get a project estimate. The quickest would be to consult colleagues who have already completed similar projects for an idea of overall cost -- but they might have done things differently to you, and so their cost estimation might not be completely accurate.
One of the more accurate ways to come up with your estimate is to look at each activity you will need to complete in the project. What are your resource requirements? How many hours will the copywriter need to produce your marketing copy? How long will the design team take to create the materials? Do task dependencies influence when each task can be performed - and will that mean added costs as you pay a team member overtime or call in a more expensive contractor?
This detailed estimating approach will reduce estimation error, both in terms of the cost estimate and the duration estimate.
Before you choose an estimation technique, it is best to look at the pros and cons of each. Here are some advantages and disadvantages of bottom-up estimating:
Bottom-up estimating helps a project manager in the resource planning for their project. They can visualize every component of the project and see who will be involved in its execution. Team members can also be invited to give an estimation for their assigned tasks, because they know what their work package entails.
Because the bottom-up estimation is composed of an aggregation of all the smaller tasks, it gives you a clear idea of what is involved in each task and how long the job will take to complete. This helps you negotiate with your client for a realistic time frame.
You can use the bottom-up approach together with other techniques such as analogous estimating technique or the parametric estimating technique to come up with the most accurate schedule and budget estimate.
When you use the bottom-up approach, you know from the beginning which are your critical tasks, and what delays or change requests are likely to impact the budget and project duration. This means you are able to handle changes in resource needs more effectively throughout the project life cycle.
Bottom-up estimating can be costly because of the time it takes you and your team members to break down the costs for each activity. This can significantly increase planning and project costs.
If your project is time constricted, then long periods of planning associated with the bottom-up estimation approach will not be ideal for your project. However, if stakeholders are more concerned about accuracy than speed, this will work well.
The project must be broken down into parts to apply the bottom-up technique. It involves building a list of individual tasks or work packages used to create a total cost for the effort. If the project is large or has intricate details, it will take much longer to complete.
Analogous estimating, or top-down estimation, works differently from bottom-up estimation.
In top-down estimating, project managers estimate the costs at a project level, using similar past projects as a point of reference. In bottom-up estimating, on the other hand, there is no point of reference, and you have to break down each work task to know how much the project will cost and how long the project will take.
Sometimes, you can combine both the top-down approach and bottom-up estimating to leverage their strengths and minimize risks. If your new project resembles a past project, you can derive some estimates from the historical data, and then use the bottom-up estimate technique to work out the exact costs of materials and labor.
Bottom up estimates can be difficult, but if you follow a few best practices, they'll go much smoother. Here're some tips:
You can't estimate accurately unless you know what you're estimating! That's why the first step in the bottom up estimating process is to collect project requirements. Project requirements are the needs and wants of the project stakeholders.
They are documented as a result of consultation between the project manager and the client, or at least as much of it as possible. The goal is to gain an understanding of what will be involved in delivering the project and how long it will take to complete.
In order to get good requirements, we need to talk with people who have a good understanding of what they want from their new system. We also need to talk with people who understand technical issues like system architecture, performance, capacity planning, security and so forth. The more people involved in this process, the better off we'll be because different perspectives will help us see things from different angles.
Once we have collected all our requirements we need to organize them into a set of use cases which describe how users will interact with our application or system during normal use cases and abnormal use cases for when things go wrong (and they always do!).
Estimating project costs is one of the most challenging aspects of project management. There are many approaches to estimating, but they all depend on accurate information. If you don't have accurate information, you won't get a good estimate.
Estimation is a shared responsibility. You will be better able to identify potential issues if everyone puts their heads together during the estimating process. The best way to get accurate estimates is to involve your team in the process. The team members closest to the work are in the best position to estimate their own time and materials costs.
When you get an estimate from them, ask them why they gave that number — this will provide insight into what went into their decision and allow you to verify their assumptions with other sources (or adjust your expectations).
When estimating costs for a project, it's equally important that everyone has access to the same information: so make sure everyone has read any documents relating to the project before starting an estimate.
The best estimates are based on sound assumptions. A key role of an estimator is to question the assumptions that underlie the work. The best way to do this is by having a dialogue with the project team.
As part of this process, you can encourage everyone on the team to ask questions and express their concerns. If someone has an idea for improving the approach, or a concern about how you're doing something wrong, they should be encouraged to speak up! It's better to get these issues out in the open than try to guess at them later.
Once you've agreed on a plan of action, it's important to write down all of our assumptions as clearly as possible so there's no confusion later on when things inevitably change during implementation. Visual representations such as mind maps or flowcharts can help you stay organized while keeping everyone on the same page at all times.
In addition to questioning your assumptions, you should also challenge them by asking a few basic questions:
These tips will help you get started on the right foot and bring you towards a better understanding of how much the project will cost.
When you have to create a cost and timeline for a project, choosing the right estimation technique is critical. For high-stakes projects where reducing estimation errors is key, a bottom-up approach will provide the most accurate project cost estimates, albeit in a time-consuming way.
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