Methods of Estimating
Estimates are developed with a number of methods or a combination of methods as follows:
- Top-down. A top-down estimate (defined in detail later in this section) is used in the initial stages of a project. A top-down estimate compares historical data with experience. This is sometimes called a guesstimate.
- Bottom-up. A bottom-up cost estimate (defined in detail later in this section) involves receiving estimates from all estimators and then summarizing them into a cost estimate for the project. This method could involve inflated pricing as estimators add contingency to their estimate. Ask the estimators what contingency they used to prepare the estimate. If any estimator used utilization or availability factors, then you do not apply these techniques again.
- Parametric. This measures the effort of a task. Parametric is defined in detail later in this section.
- Analogy or comparison. This describes the comparison of similar projects.
- Expert judgment. This is the information provided by a group or a person with specialized knowledge and training.
It is important to know the type of estimate and its level of precision so that you are not overconfident or underconfident when you present your estimate to management. As stated earlier, estimating for a project is not done just once. It is done throughout the life of the project. You must determine the level of accuracy needed for your estimate. A plus-or-minus precision indicator is required to best ensure that the recipient knows the level of validity (for example, that the project will cost U.S. $1 million, plus or minus 25%). Each estimating method and type of estimate is used at different times in your organization.