Estimation Techniques in Project Management

Project managers can use many estimation techniques to stay within the budget. According to CIO magazine, an estimation or cost is one of the three main constraints in the project management triangle. The other two parts are time and scope. The best estimations will keep the project management triangle balanced.

1. Set Accuracy Levels

• Before stating a budget, determine how accurate the estimate must be. A rough order of magnitude estimate depends on past project estimates. It requires more research than simply stating a ballpark estimate off the top of your head. A detailed estimate requires using actual information about the project, such as the number of laborers, to come up with the budget. This estimation technique requires more work than a rough order of magnitude estimate but is much more accurate.

Bottom-up Estimate

• This estimating technique requires finding the cost of lower level tasks and then adding up all the costs for a total project budget. This is one of the most accurate ways to estimate a budget because it is easier to figure out costs for small tasks than for large ones. For example, you can estimate the cost of each item on a grocery list to get an estimate of the entire list's total. Typical costs in projects include hourly labor rate, equipment cost and cost of materials.

Top-down Estimate

• Top-down estimates are when you decide on a total maximum budget then figure out how much of the budget will go towards each task. This technique is often used when a client seeks bids from many vendors. Vendors submit a total budget and, if chosen for a project, provide more details on how the money will be used.

Phased Estimate

• Estimating the phases of a project is a compromise between top-down and bottom-up estimating. Estimating a phase is more detailed than coming up with a total maximum budget but less detailed than breaking down each task's cost. When each phase is completed and the budget is used, each successive phase budget becomes more accurate because project managers use past phase information for the new budget.

Parametric Estimate

• These estimates are based on assigning a dollar amount to a basic unit of work. This is an accurate estimation method because you use past information from similar projects to create a new rate and basic unit of work. For example, a book editor can look at past projects and charge for editing based on dollars per hour or page as the basic work unit.

Cash Flow Schedule

• The cash flow schedule helps project managers see when money is used or available during the project. This ensures that each phase or time period has enough money to complete the work. You can use project management software, such as Microsoft Project, to track cash flow on the project timeline. Carefully plan the cash flow schedule so that money is spent wisely.

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