Estimating is an essential part of project management planning. Learning how to perform and understand an estimate is a critical skill for a project manager to have. There are a number of estimating techniques that you can use, and we have included four key ones here as a starting point.
What are the key estimating techniques?
The four key estimating techniques that we will consider are:
- Analogous (also known as comparative)
- Analytical (also known as bottom-up)
- Delphi
- Parametric
You do not need a background in mathematics to understand these estimating techniques or use them in the creation of estimates. You simply need to be able to understand how each estimating technique reaches an estimate and when it is most appropriate to use them.
How do you use estimating techniques?
Each of these techniques offers a different perspective or way of estimating. It is important to understand each one so that you can use them on appropriate projects that will provide you with the most suitable estimate.
Analogous
Analogous estimating is defined by the APM as a way of estimating by comparing the cost of similar, previous work. It is alternatively known as comparative estimating because its method involves the comparison of costs.
Analogous estimating can be useful in two key scenarios.
- If we are doing the same work over and over again. For example, if we are building 20 houses that are all the same in a similar time period, we could use analogous estimating after establishing the cost of the first house and comparing the subsequent projects. We can then suggest that the estimate would be the same for each successive house.
- If we are doing work that is very similar to our first piece of work. For example, if we build a 3-bedroom house, but now want to build a 4-bedroom house. You can establish the cost of the first house and scale up the cost of an additional bedroom and any other costs related to the increased space.
To carry out an analogous estimate, simply take your planned work – Project B – and compare it to the source project – Project A. If they are exactly the same, you will simply reproduce the Project A calculations. If there are any differences between Project A and Project B, you can adjust the relevant areas.
Analogous estimating is used when considering a whole project rather than individual aspects of the work. If you want to break down your estimate into constituent parts, you might want to consider an analytical estimate.
Analytical
An analytical estimate is defined by the APM as an estimating technique that uses a detailed specification to establish the time and cost of each component. It is also known as bottom-up estimating due to the granular level of detail that it requires, allowing you to build an estimate from the bottom up.
To carry out an analytical estimate, you need to have an estimated cost for each component of the project. In these scenarios, it can be preferential to have detailed information about the costs of each component part. You then work from the bottom up, i.e., the lowest level of detail, and add the amounts together to determine the total cost of the project.
You might use an analytical estimate on a one-off project, such as the creation of a new website. You would have a clear understanding of the requirements and could provide costs for the work of each person working on the project and the costs of any software or additional materials required for its completion.
Analytical estimates are most useful when completing work where the specifications are detailed and the scope is well known.
Delphi
The Delphi technique is somewhat unique. The APM defines it as the generation of an estimate through individual expert judgement followed by facilitated team consensus. It requires the gathering of a group of experts to provide individual estimates who will then come together to discuss those estimates and arrive at a united decision.
This is a useful method for particularly complex problems. It can be quite a time- and cost-intensive exercise, however, hence why it is reserved for particularly tricky issues. In undertaking a Delphi estimate, the project manager needs to balance the costs with the merits of having a range of estimates and opinions.
Parametric
The APM defines a parametric estimate as a technique that uses a statistical relationship between historic data and other variables.
To carry out a parametric estimate, you will need to take the base data and use it to calculate the total cost of your project. If the base data is accurate, it will provide an equally accurate estimate of the current project.
One example of this technique might be when carrying out building repairs. If we have data available on previous repairs to that specific site, the cost of replacement bricks and roof tiles and the cost of labour, we will be able to estimate the cost of current repairs fairly accurately. Although adjustments may be needed to reflect current issues (perhaps price rises or an increase in labour costs) the base data available gives a clear picture of the costs involved.
This technique works best with a historical bank of data that can be used to form estimates for current work. It is particularly useful on very specialised projects.
3 estimating tips for beginners
- Use a relevant technique
It is important that the technique that you use to provide your estimate is a relevant one that is suitable to the project. Using an inappropriate estimating technique could result in an inaccurate estimate, or a particularly cost- or time-intensive option being used unnecessarily. The more relevant and appropriate the technique, the better your estimate is likely to be and the less likely it is that you will be surprised by unexpected costs or changes to the estimates that will strain the project budget.
- Collaborate
An estimate is not something that needs to be determined by the project manager alone. It is useful to get the input of the team, stakeholders or suitable experts when generating an estimate. If you have access to a pool of knowledge, make use of it. As explained in relation to the Delphi technique, a collaborative approach to estimating can be especially useful on more complex problems. Using the experience of others is also likely to generate additional buy-in and investment.
- Indicate if you’ve included contingency
It is important that you indicate if you’ve included financial contingency in any estimates that you are making and how this has been calculated. If you are unclear about whether you have included contingency, it can create problems if people use your estimates as base data and are unsure or unaware of what exactly your estimates include.
Summary
It is important to have a clear understanding of the various estimating techniques available. When a suitable technique is used, the accuracy of the estimate will be improved which is helpful when planning the project budget. Using defined estimating techniques will also ensure that your estimates can be helpful to future project managers.
We hope that you now feel confident in these estimating techniques and how to use them, and will be able to use them on future projects.
