“Estimating is what you do when you don’t know.”- Sherman Kent
You estimate the cost before you plan a trip, right? Estimation is entrenched in our daily life. The challenge arises when we go for project estimation in a business. No matter what business you run, you need to estimate the total cost before you quote your price.
An accurate estimate can get you more clients. Learning how to estimate projects involves in-depth knowledge of various estimation techniques. Estimating a project involves a lot of effort and time. Not having sufficient information about estimation techniques may blow your business budget and would frustrate your entire team. Learning estimation techniques not only enhances your business health but also helps project managers to accurately budget the funds and resources required for the project.
Give a good start to your business, by estimating correctly!
Let’s figure out how to do that. But let’s discuss project estimation first, for conceptual clarity!
What is project estimation?
It is the process of analysing the available data in hand to determine the time required, approximate cost, and resources needed to complete the task. It includes various key components that help to bring out near-accurate figures for better understanding.
Why is project estimation important?
Without accurate project estimation, it is impossible to plan your project. Accurate project estimates help you to plan your project budget and resources. Project estimate is important as it helps you figure how long a project is going to continue so that you can plan out your schedule accordingly. There is no way to ensure that you will get the right material and tools for your project unless you have your project estimate ready. Therefore, creating an estimate is vital to win more projects and keep your project requirements ready before you start.
Wanna know how to create an estimate for a project in a few simple steps? – Check out our article on this!
So now as you know the significance of project estimation, let’s figure the factors to be considered while estimating!
What are the types of estimation that take place during a project?
There are mainly 6 areas in a project that are benefited from the implementation of the project estimate. Let’s discuss:
Time:
Estimates include project cost which is calculated in various ways. Some business owners calculate on an hourly basis or use flat-fee and other techniques. Therefore, it is important to figure out the project duration along with the time consumed for individual tasks. The time estimate is one of the most vital aspects of project estimation that helps both the clients and the business owner to understand the timeframe of the project, based on which they plan their budget and other stuff.
Time estimation is pretty important and significant for business growth. As per research in 2018, it was revealed that out of 5400 surveyed international specialists, 25% of project failure was due to inadequate time estimation.
Cost:
Cost is another most significant and important constraint in project management. Taking up a project does not mean it will only bring you money. There are several areas in a project that involves expenses as well. Therefore, estimating cost is essential to understand whether the project is doable or not. This helps you to predict your project expenditures much earlier so that you can plan accordingly.
Risk:
Starting a project may bring about various unexpected events that would impact your project. Estimating the probable risk factors much ahead of starting the project will help you to create your risk management plans accordingly. This way you could prevent any unwanted situation throughout the project’s life.
Scope:
The scope is another important constraint in project management. Project estimation also helps you to figure out the work involved in the project, so that you can list out your labor and materials accordingly. Time and cost estimation depend on the scope, and therefore these three are inevitably related to each other.
Quality:
Some projects demand special attention on quality, which may need additional time. Therefore, estimating the quality factor would help to list out the material and track the time required for completing the project.
Resource:
Project resources are something that you cannot neglect. This includes material, tools, software, labor, subcontractors, and many more. Resource management is a must for completing the project on time. Otherwise, starting a project without estimating resources may lead to a delay in project completion.
Fact Check
Did you know the US spends nearly $2.3 trillion on projects?
Moreover, as per studies by PMI, about 4.4 million people in the US and 12 million all across the globe consider project management as an intriguing choice of profession.
So let’s proceed to learn about the project estimation techniques that are used by various types of industries!
Main project estimation techniques
Let’s check out the common estimating methods in project management:
Top-down estimation:
This estimation method divides the project into smaller chunks of tasks to figure out the cost of each section. This helps to guess whether enough money is allocated to each task so that adjustments can be done later on if needed.
Pros
- Easy and faster method.
- Helps clients to understand the cost of each task.
- Helps to figure out the tasks that would be completed within the said budget.
- Best for single-owner businesses with limited resources.
Cons
- Not accurate as it is based on guesses.
- Does not allow space for possible changes in the budget.
Bottom-up estimation:
Bottom-up estimating is much similar to the top-down estimation technique. The only difference is that in the bottom-up estimating technique you have a lot more information than the previous. Therefore, it becomes easier to estimate each section when you have a clear idea about the scope and the components of the project.
Pros
- Helps you to manage project progress.
- Helps to check whether the project timeline is maintained.
- Keeps a track of the project budget as well.
Cons
- Time intensive and requires plenty of resources.
- Requires detailed information about each step of the project.
- The project is so detailed that the cost may get overestimated.
Analogous estimation:
The analogous estimating technique is based on your previous estimate and is similar to top-down estimation. For example, if you did a roofing job a few months back and it cost $2500, then it is assumed that your roofing project would be almost the same.
Pros
- Provide a rough estimate
- A quick and simple method
- Does not require a lot of information
Cons
- It may not be accurate as the data from the previous project may not be exact or accurate.
- Two projects may be similar, but not alike. Therefore, it may result in errors.
Parametric estimation:
This estimation technique is much more accurate than the analogous and top-down estimating technique. This offers you a ballpark figure but keeps the number accurate as it adjusts the variables. For example, you earned $200 for writing a blog post of 600 words a few months on a certain topic. You are writing on the same topic currently, but of 1800 words, then the cost would be $200×3=$600.
Pros
- Accurate estimation
- Keeps space for additional requirements in the new project.
Cons
- It may not work for digital projects. For example, putting the same amount for similar website projects, but with page variation, numbers may not work. This will lead to cost disparity and end you up in loss.
Three-point estimation:
The three-point estimating technique is way more accurate than previous methods that provide ballpark figures. In this technique, an average of three cases are considered and they are best-case scenario, worst case, and most likely scenario. In other ways, one can put weightage on different scenarios to calculate the average. Check out how it is done:
Assuming cost for certain project
Best case scenario= $1000
Worst case scenario= $1600
Most likely scenario= $1200
Average= $1000+$1600+$1200= $3800/3= $1266.33 expected estimate
Assuming the cost for the same project considering weightage for different scenarios.
Best case scenario= $1000, weightage=1
Worst case scenario= $1600, weightage=2
Most likely scenario= $1200, weightage=1
Multiplying weightage and adding them,
$1000×1=$1000
$1600×2=$3200
$1200×1=$1200
$1000+$3200+$1200=$5400
Adding the weightage=1+2+1=4
Average=$5400/4=$1350 expected estimate
Pros
- Accurate results
- Minimizes project risk
Cons
- Time-consuming
- May seem completed to learn the technique.
Some of the best practices for estimating projects properly:
- Get the right figures and avoid guesswork. Remember it’s a complete business, big mistakes can take off all your clients in one go!
- While gathering requirements and data for projects do clarify the assumptions behind every figure for a better understanding of your team members and clients as well.
- It is vital to consider the risk to create a buffer for project sustainability.
- Define the project scope and consider all the requirements to finalize the budget for accurate estimation.
- First, break down your projects into smaller chunks. Evaluate each task to channelize the project estimation process in the right direction.
- Make a point to review your checklist every day to take note of the ancillary activities. Follow the list and check the overlooked activities to maintain an efficient workflow in project estimation.
- To avoid ambiguity and create effective project estimation, study and learn from past projects.
- Understand the context of the project and ask the right questions to have better clarity about the project which will help in estimating accurately.
FAQs
For projects like moving jobs, landscaping projects, painting jobs, cleaning projects, plumbing jobs, and other similar ones, estimation is done before initiating the project. This helps understand the project timeline, budget and material, and other requirements. Estimates can be adjusted for certain aspects in project management like risk, the scope of work, resources, etc.
The project team is responsible for creating the estimate, which is checked and corrected by the project manager as he/she owns the data related to the project. Though the whole team is involved, an expert can help refine the estimate for more accuracy.
The vital and most important project estimation tools that one must have to create accurate estimates are:
1. Accurate project data and information
2. Project estimation tool
Exact information helps you to create flawless estimates. For larger projects, you may need to compile the smaller task for which you may need an estimate tool or software.
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Final thought!
Creating estimates is tricky sometimes, but once you learn the method, you are always one step ahead of others in impressing your clients and winning the project. This article will guide you to know what are the different estimation techniques and various aspects of project management. To ease up your task get Billbooks to design professional estimates and convert them into invoices to speed up the payment process.
