Investigating bottom-up estimation and its application in project management
Investigating bottom-up estimation and its application in project management. Bottom-Up Estimating is a technique that includes detailed level estimates for parts of the project. These then help create an overall estimate for the entire project. It is often referred to as one of the most accurate estimation methods. Estimating the cost, duration, or resource requirements of a project usually starts with an approximate order of magnitude at first. More detailed estimates will follow later in the project.
In this article, we introduce the concept, differences, and interdependencies of bottom-up estimation with other estimation techniques and provide an example of bottom-up estimation in projects.
What is bottom-up estimation?
Bottom-up estimation is a technique in project management to estimating the costs or duration of projects and parts of a project. The term bottom-up estimation refers to the underlying concept: costs, duration, or required resources are estimated at a very granular level. This means that estimates are made for work packages (although some may suggest activities) that are the lowest and most detailed level of the work breakdown structure (WBS).
While estimating is done at the level of activities or work packages, the total project estimate is the sum of all the partial estimates.
What is the difference between bottom-up estimation, top-down estimation, and parametric estimation?
Similar (top-down) and parametric estimation as well as expert judgment can be applied at any level of partial estimation. In contrast, the bottom-up estimation technique is usually meant to deal with the smallest type of component in a project (eg work packages and activities).
However, teams can also use these techniques when performing bottom-up estimation. For example, the duration of an activity can be determined through similar estimation using the duration of similar historical activities. Resource requirements can be determined through the parametric estimation, based on observed parameters such as building materials per square foot or lines of code per developer and hour. Expert judgment can also be used in reasonable cases.
How to estimate from bottom to top?
The following guidance applies to estimates for the most detailed level of a project (eg work package or activity). The results of these partial estimates are aggregated to calculate the total project estimate.
There are three types of estimates from bottom to top:
- Estimating the required resources
- Estimating the required time (duration)
- Cost estimation
There are some interdependencies between these estimates: the duration of an activity usually depends on the resources allocated to the activity. Then the cost estimate is calculated by multiplying the resource units by the time and price of each unit.
Why should we use bottom-up estimation?
Bottom-up estimating is a popular way to estimate projects for four basic reasons.
Determining project scope is often the most difficult part of a project. It is difficult to accurately determine the type of costs, timelines, personnel, and other factors for carrying out the project.
Bottom-up estimating provides a clearer picture of project components and allows team members to take ownership of the components and ensure that they have considered all factors in their project. And you’re more likely to end up with an accurate estimate.
Bottom-up estimation helps the manager to understand the work package more comprehensively and anticipate possible obstacles on the way. Contrast this with a top-down approach, where management may not consider critical elements of the project that were not present in previous projects, or face obstacles that last managers did not have to deal with.
2- Error reduction
If the manager makes a mistake in the estimates, bottom-up estimation provides options to reduce the error. He can perform a cost-benefit analysis and propose alternative solutions, which gives him more flexibility to handle errors during the project’s lifetime.
There is also more balance in project components. In other words, the underestimation of one component can be compensated by other adjustments. This means that errors do not significantly affect delivery, reducing the impact on the budget.
The bottom-up analysis allows managers to be more flexible and implement strategies such as project breakdowns or empowering team members to take control when necessary.
Bottom-up estimation can be integrated with other estimation approaches, such as three-point estimation, to increase manager effectiveness. This technique is more of an egalitarian hierarchical command structure, making it an effective strategy for teams that work well together.
4- Reducing the overall risk
With a thorough bottom-up analysis, the manager reduces the overall risk for each phase of the project. The manager anticipates challenges from the ground up and leverages the expertise of team members, enabling them to be flexible enough to adjust mid-project when needed.
Power and control are distributed across the entire team instead of one person, leading to greater accountability, greater efficiency, and thus increased value for the customer.
How to use bottom-up estimation?
Bottom-up estimation sounds intimidating and requires a lot of homework on the part of the manager – but it’s a relatively simple process defined by the steps below.
1- List all project tasks
First, define each task related to the project. No task is too small – leave nothing out. Create a work breakdown structure (WBS) and assign tasks to individual team members who are responsible for that task. Divide the tasks into the most detailed level so that you can estimate the time and cost needed to complete each one.
Bottom-up estimation can be a very accurate way to determine the definitive estimate of a project. This method requires a certain amount of resources and an established job failure structure. Before you can use this technique, the project must be broken down into work packages and activity levels.
Apart from estimating resources, time, and costs for the planned work of a project, this technique can also be used to evaluate change requests, for example during a cost-benefit analysis of such changes.
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