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.
In this article, we’ll discuss what project elements should be estimated, the different project estimating techniques available, and how you can start using estimation techniques in project management.
What are project estimation techniques?
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:
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.
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.
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.
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.
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.
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.
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:
- Solid project data
- 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.