21 July 2019

Project Estimation Techniques

Author: Nitesh Srivastava
Original article: link

There are many different types of estimation techniques used in project management with various streams as Engineering, IT, Construction, Agriculture, Accounting etc. A Project manager is often challenged to align mainly six project constraints - Scope, Time, Cost, Quality, Resources and Risk in order to accurately estimate the project. The common questions that come into the mind of a project manager at the start of the project is –

  1. how much work is to be estimated (scope),
  2. how to estimate the project (techniques),
  3. how much time it will require to complete the project (schedule),
  4. who will be doing the project (resources),
  5. what is the budget required to deliver the project (cost), and
  6. any intermediary dependencies that may delay or impact the project (risks).

There are 3 major parts to project estimation mainly:

  • Effort estimation,
  • Cost estimation, and
  • Resource estimate

While accurate estimates are the basis of sound project planning, there are many techniques used as project management best practices in estimation as - Analogous estimation, Parametric estimation, Delphi method, 3 Point Estimate, Expert Judgment, Published Data Estimates, Vendor Bid Analysis, Reserve Analysis, Bottom-Up Analysis, and Simulation. Usually, during the early stages of a project life cycle, the project requirements are feebly known and less information is available to estimate the project. The initial estimate is drawn merely by assumptions knowing the scope at a high level, this is known as ‘Ball-park estimates’, a term very often used by project managers.

Top-down estimate:

Once more detail is learned on the scope of the project, this technique is usually followed where high-level chunks at the feature or design level are estimated and are decomposed progressively into smaller chunks or work-packets as information is detailed.

Bottom-up estimate:

This technique is used when the requirements are known at a discrete level where the smaller workpieces are then aggregated to estimate the entire project. This is usually used when the information is only known in smaller pieces.

Analogous estimating:

This technique is used when there is a reference to a similar project executed and it is easy to correlate with other projects. Expert judgment and historical information of similar activities in the referenced project are gathered to arrive at an estimate of the project.

Parametric estimate:

This technique uses independent measurable variables from the project work.  For example, the cost for construction of a building is calculated based on the smallest variable as the cost to build a square feet area, the effort required to build a work packet is calculated from the variable as lines of codes in a software development project. This technique gives more accuracy in project estimation.

Three-point estimating:

This technique uses a mathematical approach as the weighted average of the optimistic, most likely and pessimistic estimate of the work package. This is often known as the PERT (Program Evaluation and Review Technique).

"What if" analysis:

This technique uses assumptions based on varying factors like scope, time, cost, resources, etc., to evaluate the possible outcomes of the project by doing impact analysis. In a usual scenario, the project estimate is done by conducting estimation workshops with the stakeholders of the project, senior team members who could give valuable inputs to the estimation exercise. The high-level scope is broken down into smaller work packages, components and activities, each work package is estimated by effort and resource needed to complete the work package. The project may be detailed into the smallest chunk that can be measured. The following activities are done during the workshop:

  • Break down the scope into smallest work package, components or activities (WBS)
  • Sequence the activities in the order in which they will be performed
  • Identify the effort required to complete each activity
  • Identify the resource estimate to complete each task or activity
  • Identify the dependencies to complete each activity
  • Identify the possible risks and assumptions
  • Define the resource and cost estimate to the completion of each activity, component and work package

The above exercise gives an exact estimate of the project and the outcome of the workshop may be a project plan and a project schedule with effort, resource and cost estimates.

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