Estimating is a critical part of project planning. A project manager should have a well understanding of scope, time, cost, quality, resources, and risk. Which helps to estimate multiple moving parts of the project and in turn can provide an accurate picture of work for the client. A proper estimation process can help to avoid difficulties, waste of time and money.
In this blog, we are going to cover all fundamentals one should know for project estimation.
What is Project Estimation?
Project estimation is the process of analyzing available data to predict the time, cost, and resources needed to complete a project. It typically happens during the project initiation or planning phase and takes the project’s scope, deadlines, and potential risks into account.
The 3 major parts of project estimation include the following:
- Time estimation
- Cost estimation
- Resource estimation
When should Estimation take place?
A rough estimation is needed at the initial stage of the project or probably even before the actual project starts. This is because the final negotiations should be held with the customer, who needs an approximate estimate of the project’s cost, timeline, and quality.
Who is responsible for Project Estimation?
The project team is responsible for participating in estimating projects. The project manager is the owner of the documents that include the estimates. It is the manager’s responsibility to ensure estimates are completed.
However, it is up to the entire team, as well as any subject matter specialists, to assist in the creation and refinement of the estimates. The more knowledgeable experts you bring in, the more likely you are to be able to come up with realistic figures.
What are different Project estimation techniques?
There are several different project estimation processes. Here are the details for the most common types:
1. Top-Down Estimation
This method evaluates the project as a whole and then distributes it into smaller components. Top-down estimation isn’t detailed so it is only suitable for rough budget estimation to see if it is feasible.
2. Bottom-Up Estimation
In this technique, estimation of each individual task or workpiece of the project is done with the help of a work breakdown structure. Then you combine all those separate estimates to build up the overall project estimate. It is more time-consuming than top-down estimation but it results in a more accurate estimate.
3. Analogous Estimation
This method uses previous data from similar or analogous projects or tasks to predict costs for future projects of the same kind. For example, If a company spends $500 on a painting job on a similar property three months ago, it might fairly expect a new roofing project to cost the same.
4. Parametric Estimation
Parametric estimating applies a formula or algorithm to calculate the cost or time needed to implement and finish a whole project or specific task. It uses historical and statistical data to deliver accurate estimations based on the relationship between parameters. It is more accurate than analogous estimating and suitable when we have some past experience for similar projects.
The formula is:
Estimated Project Cost (or Time) = Cost (or Time) per Parameter x Parameter Value
For example, You need to cover your garden with a fence, for which you need 10 fence posts and 200 meters of barbed wire. The local hardware store suggests a fence post cost of roughly $70/post and barbed wire cost of roughly $5/meter.
Now let’s estimate the cost using the given formula.
Parameter 1 estimation:
The estimated cost of 10 fence posts = $700 (i.e. $70 x 10)
Parameter 2 estimation:
The estimated cost for barbed wire = $1000 (i.e. $5 x 200)
Total estimation will be: $700 + $1000 = $1700
5. Three-point Estimation
This technique uses a mathematical approach as the weighted average of the best-case scenario, the worst scenario, and the most likely estimation of the work package.
There are two ways to approach three-point estimation
• Triangular Distribution
Expected Estimate = (Best + Worst + Most Likely Estimates) / 3
• PERT Distribution
Expected Estimate = (Best + Worst + 4 * Most Likely Estimates) / 6
Points to be kept in mind for accurate Project Estimation
There are many factors to pay attention to during project estimation. Some of the key factors you should know are:
- Have a clear vision (goals).
- Break down your vision into small parts.
- Remove anything non-essential.
- Add a margin of safety.
- Know your budget.
- Account for hidden cost.
- Examine the credibility of your estimation .