What Is The Difference Between A Top Down And Bottom Up Cost Estimate?

By encompassing all the relevant components, project managers can arrive at accurate and comprehensive estimates. This is important because it directly translates to how project teams communicate with customers, allocate their resources and design their profit structures. Let’s take a closer look at what these companies mean when they say their estimation practices are OK. What we often find is that many are practicing bottom-up estimation, rather than the top-down process that QSM has found to be most effective.

These tools can help managers determine project durations or other project components while they keep their bottom-up estimates for elements like budgets. Integrating bottom-up estimating with other approaches can improve the overall success of projects because teams have performed thorough analysis and evaluated a project from many angles. This project estimation 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 resources needed to complete the work package. The project may be detailed into the smallest chunk that can be measured. Bottom-up estimating is important because it can give businesses, teams and project managers a sense of what a project may cost to complete.

Project Size And Duration

A poorly designed budget leads to improper asset allocation, unrealistic expectations, and potentially, a failed project. Bottom-up approaches emphasise the participation of the local community in development initiatives so that they can select their own goals and the means of achieving them. They also ensure community ownership, and commitment and accountability to the development project as it seeks development from below. This simply adds the Actual Cost , which is how much money was actually spent at this point, to the bottom-up ETC. The bottom-up ETC is the sum of how much all the remaining estimated costs will be. 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.

• The manager anticipates challenges from the ground up and leverages the specialized expertise of team members, enabling them to be flexible enough to adjust mid-stream during a project if needed.
• Bottom-up estimating is another name for the planning model presented in Chapters 6 and 7 (see Figure 6.1).
• A work package could require three programmers for five days, and their cost per day is 10 USD and seven electrical engineers for one day whose per day cost is 6 USD.
• Top-down estimating begins with a result or deliverable and applies it to a new set of tasks.
• Bottom-up estimates require teams to consider all relevant factors and identify potential project challenges early on.

These tasks can be further broken down into subtasks — great details — and then assigned to individual teams and/or team members within that team. The bottom-up approach results in a more detailed schedule, but it’s also a time-consuming approach compared with the top-down task planning approach. The schedule you create is based on direct input from experts who will be implementing the project; it’s also a useful technique to build teamwork. In bottom-up estimating, you follow a three-step process, working from the lowest level of detail in the work breakdown structure . You begin bottom-up estimating by developing a detailed work package to go with the WBS. In the work package, you detail the scope and major deliverable that each team member will produce. You describe its cost and duration as well as the risks that affect the task.

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How did the bottom-up estimation technique help you find your project cost? Please note that, if you arepreparing for the PMP certification exam, this is an important topic and you may see a few questions in the exam from this bottom-up estimation technique. For components of the entire house, Lance decomposes the work involved in building the basic framework of a house.

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People will argue that each project is different and so each estimation is different. Estimation starts with breaking down scenarios into smaller requirements and then estimating it either through top-down or bottom-up approaches.

Combining Top Down And Bottom Up Estimation

Now to display the top-down estimate we simply change the task mode of each summary task to manually schedule and enter each summary task’s top-down duration estimate, Figure 2. Microsoft Project allows you to display the difference between the bottom-up estimate and top-down estimate on the Gantt chart. In this way you can focus in on estimates where there is disagreement.

Once the work package is complete and the team member is comfortable with it, you can go on to develop the cost and duration estimates. In bottom-up estimating, you must be careful not to force an estimate on the project team members. If you force the estimate on the team member, you cannot expect to earn much commitment from them. That commitment is dependent on a free and open negotiation where the team member feels the estimate is fair and reasonable.

Types Of Estimations

Any action you take upon the information you find on this website (Answeregy.com), is strictly at your own risk. Answeregy.com will not be liable for any losses and/or damages in connection with the use of our website. In Estimate Activity Cost we need to be as precise as possible , so we use all four techniques. This article describes bottom-up estimating how to display both bottom-up estimates and top-down estimates on the Gantt chart in Microsoft Project 2013 for comparison. Looking for a way to compare bottom-up estimates with top-down estimates? Yes, in Microsoft Project you can display a comparison of bottom-up estimates and top-down estimates right on the Gantt chart.

This removes a lot of the anxiety from team members who have previously been burned by the estimating process. Bottom up estimating is the project management technique of estimating individual tasks and then combining them into an overall project estimate. Bottom-up estimating involves the entire project team in the estimation process; consequently, this estimating technique develops better team commitment compared to other estimating techniques. An additional benefit to the bottom-up approach is its ability to motivate teams.

Below, we explore four of the most common cost estimation techniques that you can leverage. In project management, a critical path is the sequence of project network activities which add up to the longest overall duration, regardless if that longest duration has float or not. This determines the shortest time possible to complete the project. If you are estimating on a project which has similar organizational historical data – you can rely primarily on science and apply art as a final step. It also may fail to take into consideration some of the reworking and reconfiguring that records of actual projects document concisely. Top-down estimating begins with a result or deliverable and applies it to a new set of tasks. Bottom-up does the opposite, aggregating all the individual costs of a project to build up to the total for the job.

Difference Between Analogous And Parametric Estimation

Then, you will create different labor categories that apply to each task. The cost of the project is measured by estimating how much labor will go into each piece of the job. The set cost of the labor category is multiplied by each relevant task. This estimation sets the foundation for informed change management when the project is constrained by a shortage of resources or a client request. Using the bottom-up estimating method, the cost of each component is estimated, and the results are combined to arrive at an estimated cost of the overall project.

In this style, project managers tally their costs upward, starting at the bottom and accounting for each expected cost. It’s a basic method of estimating, but the benefit is that it’s the most accurate means of estimating a project’s total cost. Accuracy is achieved just through the process of starting at the very foundation of a project and working your way up through each cost on the project work breakdown structure. It is important for…Analogous Estimating Analogous estimating is a technique for estimating a variety of project parameters and measures of scale.

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 for pmp professionals. We will next learn about the major parts of the project estimation techniques. Not using any Estimation Software – having any software estimation tool is a must for any organization.

• A top-down estimate produced from a preliminary specification may lend itself to bottom-up refinement as your customer’s needs become clear.
• This determines the shortest time possible to complete the project.
• At this stage, I don’t know the full detailed scope, but I know I need people and a budget to complete the project.
• 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.
• By building detailed cost and time estimates for a work package , the probability of being able to meet the estimated amounts improves substantially.

However, I am leaving it intact as part of organizational process assets. For example, suppose you plan to go shopping at a mall that takes one hour to reach by car. This technique involves mathematical calculations, and that is why many PMP aspirants ignore this concept.

Bottom Up Estimating

Because of its versatility, project managers can use the technique in a variety of applications and involve every member of the team. When team members contribute a lot to the initial estimate, they are often more vested in the successful execution of project phases. Another disadvantage of bottom-up estimating is that it can be costly. Additionally, the estimation done for each component is given by the individuals responsible for completing the components.

The top-down approach to “how long” is usually done by managers for budget planning, portfolio planning or for conducting feasibility studies. In these cases, a great level of detail isn’t known and there are many assumptions made with potential inaccuracies. The top-down approach to defining project tasks involves starting with the project goal or final deliverable and breaking it down into smaller planning chunks. Each of these work packages or “chunks” is further refined into greater detail, and then work items are assigned to team members. Last, you aggregate the estimates for each activity in the lowest level of the WBS and roll the numbers up to develop estimates for the major deliverables and the project as a whole. Bottom-up cost estimating – because of its accuracy – is best applied in large, multifaceted projects. Reining in costs and keeping to a budget is usually critically important in such projects, and bottom-up estimating allows you to work in just that manner.

After that, each of these small chunks is estimated and once all the chunks for a given unit or task have known estimates, a sum of those chunks makes up an estimate for the entire unit. Project managers and stakeholders all want an accurate accounting of time and project costs.

What Is Cost Estimation In Project Management?

https://online-accounting.net/ allows you to break a project into its parts, examine each part to come up with a detailed estimate, and then delegate the completion of those tasks to your team. This ensures a more accurate project, and it empowers your team to get the job done.