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Project Estimation Techniques

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com
Dick’s Books on Amazon

Project estimation techniques are critical survival tools for predicting when a project will finish and how much it will cost. Estimating duration and cost accurately can make the difference between consistent success and frequent failure.  Project managers need to use different techniques during the project phases to provide good information to the decision-makers. Let’s look at some estimating situations and how to handle them properly.

Project Estimation: Questions and Answers

In the real world, estimation of project duration and cost is a high stakes game.  The client or executive quickly wants an accurate estimate of the project’s costs and duration with your commitment to hit those numbers. When an executive asks for those estimates during the initiation process, project managers may respond with any of the following comm20statements:

  1. I’m 60% confident that we can finish the project within a duration range of 3 – 8 months and a cost between $50,000 and $250,000.
  2. We’ll be done in 5 months or so and the cost will come in at about $110,000, But that’s just a rough guess!
  3. I will have no idea until we detail the deliverables, estimate the work and find out how many people are available to do that work.
  4. Tell me when you want us to finish and the amount of the budget.

Now let’s consider each of those responses:

  • Answer #1 – it’s truthful but enrages executives
  • Answer #2 – executives quickly forget the “rough guess” and are happy with the answer
  • Answer #3 – it’s the truth but executives find it useless
  • Answer #4 – is very ingratiating but a project deathtrap.

Which response do most project managers give? Choice #2 because it deals with the reality of the situation. Executives are under pressure to make cost/benefit and priority decisions about projects. So they don’t want to hear the “rough guess” part of that response. And as we all know, there are often strategic realities that force completion dates on everyone.

Project managers are caught in a narrow vise when we’re asked to give estimates and it is easy to make estimating mistakes. This is especially true when the scope of the project is vague and the resource availability is unknown. You can make this situation a little better for everyone, however, by using a four-step estimation process. You announce this during the project initiation process. Then you explain the estimates the executives will receive in each of the four phases in the project lifecycle.

Project Estimation: A Four-Stage Process

  1. Initiation: Analogous estimates are used at this phase. They are big picture estimates based on similar projects that have been documented in the corporation’s project archives. These estimates are stated as order of magnitude estimates.
  2. Early Planning: Project-level and major deliverable-level estimates are often analogous or 3-point estimates. During this phase, you may also use parametric estimating techniques.
  3. Final project plan: You use information from the team members and include them in bottom-up estimating of their deliverables.
  4. Weekly status: You use rolling estimates every week until the project is complete.

Project Estimation: Process Example

Let’s look at this four-stage estimation process on a simple project.  That will clarify what it is and how you use it. An executive invites you into the conference room and says, “All these weekly reports from the branches come in with different data in different formats.  I want you to quickly develop a consistent template.  This is a high priority for me and you’ll get everyone’s cooperation.  Listen, I have to run to a meeting now. Come back at 3:00 this afternoon. I want to know when you and your team can get it done.” Does this sound familiar?

You think through your experiences with similar projects and review the project archives for similar projects.  You meet with the executive at 3:00 and say, “During the course of the project I will give you 4 different estimates. The accuracy will get better as we know more about the project and the work involved. The best I can do now is give you a project-level, order of magnitude estimate. It’s based on prior experience with similar projects.  I’m 60% confident we can have this project done in 18 to 35 working days.”

The executive gives you a poisonous look and says, “Okay, come back when you can give me a better estimate.”

You reply, “I can give you a better estimate when we have finalized the scope and major deliverables and you have signed off on what you want.”

The executive frowns and replies, “I was planning to delegate that.”

You smile and say, “I still need a sponsor’s signature on the scope and deliverables.”

The executive nods glumly, “OK, let’s do it tomorrow at 8:00.”

The next day at the end of the 8:00 o’clock project estimating session, the executive frowns at you and asks, “Now, how long will the project take?”

You look over your meeting notes and say, “At this point in our project estimating process, I can give you a better project-level estimate.  We’re still working top-down from the project scope down through the deliverables required to achieve that scope. Based on similar projects, I can give you a somewhat tighter estimate and apply some ratios to that. I can give you estimates on each phase. I’m 75% confident we can finish the project in 23 – 30 working days.  Using my project experience and the ratios between phases on previous projects, I can also say that I’m 75% confident in the following phase estimates:

  • Branch office managers signoff on requirements: 4 – 7 days
  • Development – people in the test group can complete the template in < 60 minutes: 5 – 8 days
  • Training- users can complete the template in 45 minutes: 4 – 5 days
  • Rollout and enforcement – 95% user compliance: 10 – 15 days.”

The executive scowls again and says, “When will I get better numbers?”

You answer, “As soon as I detail the work estimates and get commitments on the team members here at headquarters and in all the branches.  Then I can give you a bottom-up estimate, which will be more precise than the top-down estimates I’ve been using. Bottom-up is more accurate because I’ll be using estimates from the people who will be doing the work. Then I’ll aggregate them into the overall numbers. Best of all I will give you 3-point estimates with risk data.”

A few days later, you return to the executive’s office and say, “Here’s the bottom-up estimate I mentioned. With the work breakdown structure done and the resource commitments I’ve noted, I’m 60% certain we can finish within 24 – 28 working days.”

The executive gives a slightly less venomous sigh and says, “This is getting better but I’d still like a really tight estimate.”

You nod and say, “The fourth type of estimate I’ll be giving you is a weekly rolling estimate. As our work on the project progresses, the uncertainty will decrease and I’ll give you new estimates regularly.  These are called rolling estimates.  As an example, once the stakeholders approve the requirements, the uncertainty in the development work will go down and that estimate will get much tighter.”

Project Estimation: Increasing Certainty

This simple four-step process illustrates how you can give estimates and use different estimation techniques as the project uncertainty declines.  In the example, you initially used analogous estimates based on information about prior projects.  Next, working top-down from the scope, you estimated by major deliverables using ratios from earlier projects.  This information could have come from an organizational project databank (analogous estimating), from commercial estimating methodologies (parametric estimating) or from elaborate statistical analysis of earlier projects. Whatever the source of the data, the top-down estimation technique provided overall estimates with relatively broad ranges.

 In the third and fourth project estimation techniques, you used the work breakdown structure and duration/work estimating techniques at the level of individual assignments.  Using work packages improved the estimate accuracy and team member commitment. So the numbers got a lot more accurate. In the bottom-up approach, you totaled the project team members’ estimates to develop the overall project estimate.  You based your estimate on each team member’s pessimistic, optimistic and best guess estimates (3-point estimates) for their individual assignments. Three-point estimating is a widely used and effective technique.

The fourth estimation type was rolling estimates. These were also based on the bottom-up approach with the team members making regular weekly re-estimates of their task’s remaining work/duration.  As the team completes tasks each week, the uncertainty decreases and the estimates become more accurate.

A consistent requirement in these project estimating techniques is a clear and unambiguous scope definition. You also need measurable outcomes for all the deliverables and task assignments in the project. Estimating is difficult enough without the burden of a vague project scope or vague team member assignments.

Project Estimation: Organization-wide Process 

A major step to consistent estimation accuracy and success involves a modest investment in archiving data from earlier projects. This whole estimation process becomes more effective when the organization stops playing fantasy games with project estimates. They must adopt a consistent methodology for developing the kind of better and more accurate estimates we’ve been discussing.

Having an organization-wide process that details what estimating technique should be used at each project lifecycle phase is also a valuable component.  So is requiring the use of work packages to document what data supports each estimate.

Here is a related article:  How to Estimate Cost and Duration

To learn more about these project estimation techniques, consider our private, online Project Management Tools course. You have reading, video lectures and work on a project case study to practice using these project estimation techniques. Your personal coach is an expert project manager. You have unlimited video conferences with them as you master these project estimation techniques.

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

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