Accurate estimating is crucial for your business. As a business owner or manager, getting things done on time and within budget are likely top-of-mind.
This requires you to think through how much a project will cost, how long it will take, and when it will be finished by, on an ongoing basis.
Failing to estimate a project and deliver as planned risks damaging relationships, losing out on revenue, and your reputation. It’s not something any company wants.
On the other hand, the right estimation techniques lead to you forming stronger relationships, securing future work, and growing your business.
Estimating a project properly can be a difficult task.
You need to have a solid understanding of:
- The potential scope of work
- The estimated timespan of the project
- What resources the project requires
- The project cost
- The project risks that could keep it from being delivered on time
Using different project estimation tools or a project estimation template, you can easily work out the key elements of the project and form a concrete project plan.
Doing this will allow you to properly brief your team, stakeholders, and client, as well as help you to keep track of your progress throughout the project, no matter what stage it’s in.
This article will cover:
What is project management estimation?
Project management estimation means looking through all available data to propose the time, cost, and resources needed to complete a project. Typically, the project deliverables for estimating include a scope of work document, timeline, resource overview, cost estimates, and risks.
Let’s look at each part of an estimate individually.
Scope of work
Estimating a project’s scope of work means laying out what tasks, deliverables, and dependencies are all built into the project.
This covers all aspects of the project from technical development to catch-ups and calls. You’ll even note how many rounds of revisions are permitted so that there’s no question later on.
Accurately estimating what the project will actually involve will help you better predict how much it will cost, how long it will take, and what potential roadblocks may slow things down.
A straightforward timeline covering all aspects of the project and the scope of work is essential. This should show when different parts of the project start and finish, which parts depend on other parts, and when each milestone will be finished.
This might look different in Agile project management than it does for Waterfall projects.
Having a clear scope of work and a timeline will allow you to understand exactly what the project requires when it comes to resources.
A good project estimation will make it clear who will be involved in the project (staff, contractors, vendors, or suppliers), what technical or other resources you will need (manufacturing, printing, shipping, etc.) and how these relate to the overall project.
For many, this is the most important part.
Looking at the scope of work, timeline, and resource requirements will allow you to accurately forecast the project cost. With all key elements of the project mapped out, you’ll be able to clearly estimate the overall cost range.
Even better than all this, though, is historical data related to past project costs. Dig into previous projects for similar clients to compare and adjust as needed. The more accurate data you have, the closer project estimates will be.
After gaining a complete overview of the project, it’s time to identify the risk factors and potential roadblocks.
What could derail the project, and how do you avoid it?
This step should cover all aspects of the project including potential roadblocks with resourcing, scope of work difficulties, and budget constraints.
Five key project estimation techniques
There are several project estimation methods that all lead to success, and each has its own benefits.
1. Three-point estimating
This project estimation method takes a mathematical approach to estimating.
Three-point estimation allows you to create a probability distribution with a range of three outcomes based on very little data or information.
Using past experience if possible, or best guesses if the project involves unknowns, an estimate range can be calculated. This range includes:
- a = the best-case outcome or estimate
- m = the most likely outcome or estimate
- b = the worst-case estimate
If you are unable to estimate yourself, call on a key stakeholder within the relevant team or department to help you calculate using more concrete information.
Using these 3 estimates or outcomes, perform the following simple mathematical calculation to work out the weighted mean and the standard deviation. The standard deviation is used to estimate probabilities.
SD = (b − a) / 6
Three-point estimating allows you to be far more accurate with your project estimations than simply asking your teammates or colleagues to provide an estimate for the time a project, deliverable, or task will take.
Think about how this usually happens.
A project manager asks a dev team lead to estimate how long an aspect of the development will take. The team lead will usually provide an inflated figure that has both room for delays and unexpected costs.
Asking for a range of forecasts and then calculating the mean and the standard deviation allows you to be far more accurate with your project estimations.
More accurate project estimations mean more successful projects.
2. Top-down estimation
Top-down estimation is the most common method of estimating projects. It starts by taking a broad view of the project and then breaking it down into smaller chunks.
This project estimation method works well when a project is at an early stage or where there are many unknowns. It can be useful for providing a projection to determine viability or to start the initial scoping.
Top-down estimation also offers the ability to be more or less precise with project estimation. This makes the approach better suited to different needs than other project estimation methods.
For example, a top-down estimate may be useful when explaining a project to a C-level stakeholder who is more interested in the broader picture than the nitty gritty.
3. Bottom-up estimation
Bottom-up estimation, as expected, is the reverse of top-down estimation. When you have a clear idea of fine details of the project but are not entirely sure of the broader form of the project, bottom-up estimation allows you to work out an estimation of the entire project.
Start with the finer details of the project, pull in the team to help estimate those details, and then roll them up to the project as a whole.
This can be a very good way of forecasting and estimating the total cost of the project as it will allow you to start with a true understanding of how much project elements actually cost. However, it is more time-consuming.
4. Analogous estimating
If you are experienced at executing a project just like the one you are looking to estimate, this project estimation method can be extremely useful.
Using a previous projects’ scope of work, resource schedules, budgets, and timelines, you can prepare a very accurate estimate of your current project.
However, remember to adjust your estimations based on current scenarios and only to use the actual realized information rather than previous estimates, which may be inaccurate.
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5. Parametric estimating
Parametric estimation is an extremely precise way of estimating a project. Whether you’re looking at timeline, cost, or resource requirements, parametric estimates are more accurate than other forms of estimate because of how they are calculated.
Parametric estimation uses the costs or timescales of individual project elements to estimate the overall cost or timescale of a project.
A construction project, for example, can benefit greatly from parametric estimating.
Let’s say your project is the construction of a 12,000 sq. ft. building and you know the average cost of constructing 1 sq. ft. is $100 plus or minus 10%. If the total construction area is 12,000 sq. ft. plus or minus 0%, then the total estimated cost of executing the construction is $1,200,000 plus or minus 5%.
Parametric estimations are typically accurate at scale or at high costs where it is more difficult to massively under- or overestimate a fixed cost.
However, you need to be careful when properly estimating fixed costs using either previous experience or industry data. The source of your data must be accurate.
Parametric estimating should also take into account:
- Economies of scale: Volume discounts may apply to certain aspects of the project, especially in construction, and this can dramatically affect the estimate
- Risk factors: These may be environmental, dependent on the time of year, or something else
- Resource constraints: Parametric estimations are calculated using best-case scenarios that might not be possible in your project’s circumstances
The best tool for better project estimation
Now that you have a better understanding of what project estimation methods exist and how to use them, you’re probably wondering about project estimation tools.
Project estimation tools offer easy ways to properly plan out a project and then help guarantee its success. They do this by making project management easier, more efficient, and more effective.
Implementing project estimation tools into your project management workflow will help you keep projects on track and deliver on time.
Hubstaff Tasks is an Agile project management tool that offers advanced and dedicated project estimation tools.
Hubstaff Tasks allows you to:
- Automate stand-ups and check-ins
- Allowing you to clearly identify roadblocks
- Helping you monitor project progress
- Use Kanban-style workflows to manage project tasks
- Meaning projects can be analyzed visually in seconds
- Helping you to monitor the project timeline and make improvements or revisions if necessary
- Make use of over 40 project templates
- Allowing you to draw on tried and tested project structures and speed up your project estimations
- Implement project Sprints
- Decide what’s the priority and how much team each task will take
- Manage task assignments and team members
- Add due dates, assign tasks, and more
All of this data is helpful when it’s time to estimate projects in the future.
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Start estimating projects now
Now you have a full view of how to estimate projects, what project estimates should include, what the best methods of estimating projects are, it’s time to get started.
If you closely follow the methods above and make sure to allow for risk factors, changes in circumstance, and resourcing issues, your project estimates will be clear, concrete, and easy to implement.
Check out tools like Hubstaff Tasks and implement methods like parametric estimation or three-point estimation for better forecasts and better projects.