Estimating projects is part and parcel of project management for any project. However, estimating projects with accuracy is not always so successful.
In fact, many of the issues in project management can be traced back to failed attempts at estimating projects. Whether that be projects that run overtime or budget, are short in resources, or a load of other issues.
Estimating projects is a skill that you need to acquire to plan better and thus have a better chance at delivering a successful project.
Here is everything you need to know about estimating projects for your next project endeavor.
Why Does Estimating Projects so Often go Wrong?
You may have found that many times your estimates about a project turn out to be wrong.
Poor project estimation can lead to a project running overtime or going over budget, team members may have more work than they can chew, or milestones may be missed.
But why is it so hard to properly estimate a project?
The answer lies in the nature of estimation in general. When you estimate something, as a human you are susceptible to cognitive errors and different biases. Both these things and the general subjectivity of estimation lead to the possibility of error.
One of the main factors or theories explaining why estimation so often goes wrong is known as the planning fallacy.
The planning fallacy is a bias that humans have of being overly optimistic.
In the case of estimating projects, this means that a project manager will be overly optimistic in estimating how much time it will take to complete a task. Usually, this means assuming a task will take less time than it actually does.
Daniel Kahneman and Amos Tversky coined the term planning fallacy. They suggested that the planning fallacy happens as a result of our habit to assume the best-case scenario and ignore historical evidence.
The planning fallacy can affect all elements or parts of estimating a project.
The Different Parts of Estimating Projects
Estimating projects means being able to accurately forecast the multiple moving parts of a project.
This estimation provides your client with a picture of what work or scope is within. Your project.
Primarily, you can boil down project estimation into four main parts.
These parts of project estimation include effort estimation, cost estimation, time estimation, and resource estimation.
Let’s go over each of these four parts in turn.
1. Estimation of Effort
Estimation of effort is pretty much all-encompassing and includes everything from time, capacity, skill requirements, and resource availability.
You need to know what effort is needed for the project in order to draw significantly accurate estimates which can be concluded even at the early stages of a project’s life cycle.
2. Estimation of Cost
Apart from time, which we will discuss below, the cost is one of the main constraints on project management.
Estimating cost efficiently is essential as without the required budget you and your team will be unable to complete the project, and this could lead to a project failure.
By efficiently estimating project costs from an early stage in the project lifecycle, you can ensure you have the required budget to complete the project as well as set client and stakeholder expectations.
3. Estimation of Time
Time is one of the main project constraints. It is a sign of a successful project that it was completed within the defined schedule and there were no unnecessary delays.
Estimation of time ties in with your resource management. By having a project schedule, you will be able to identify when you need each of your resources.
You are also able to indicate to clients and stakeholders when they can expect results.
4. Estimation of Resource
The resources of a project are the assets you will need in order to complete a project. This includes everything from people, tools, equipment, materials, software, etc.
If you were to not estimate the resources needed in order to complete a project you will find it very challenging to plan how to manage them.
Resource management is the way you ensure that you are equipped with all the necessary resources needed to work efficiently and complete the project to its successful close.
Now that you know which elements of a project are most commonly estimated, let’s look at the most popular techniques used in estimating projects. But first why even draw these estimates?
Importance of Project Estimates
No project is completed or done without the necessary planning. Planning for a project itself takes many parts including creating planning documents such as the project plan and the project management plan.
Without accurate estimates, it is practically impossible to be able to efficiently plan for your project.
You need to be aware of how long the project will take, what resources you will need and when, as well as what costs can be expected and when you need these funds.
All these elements are important to be able to complete your project and deliver successful outcomes.
Techniques Used in Estimating Projects
There is a range of techniques used by project managers to come up with project estimates.
When a project is initiated and in the early stages of the project management life cycle the project requirements are not completely clear which offers less information for estimates to be made.
Therefore, it is common for estimates that are drawn at this stage to be based primarily on assumptions with the scope of the project (as much as is known) being used,
Let’s look at the six most common techniques used by project managers to draw project estimations.
The six techniques we will look at are top-down estimation, bottom-up estimation, analogous estimating, parametric estimation, three-point estimating, and what-if analysis.
1. Top-Down Estimation
The top-down method or technique is used when more detail of the project is known.
This technique involves assigning an overall estimate for the project and then breaking it down into phases, work, or tasks. For example, you would come up with an overall budget or time for the project and then break it down into the individual tasks of the project.
This estimation is usually based on the project’s work breakdown structure. To learn more about the work breakdown structure check out our blog post.
This technique while being quick and easy is not the most accurate, especially since it does not account for possible changes that may occur during the project.
2. Bottom-Up Estimation
Opposite to that of the top-down approach, the bottom-up estimation technique starts by considering each individual task or aspect of the project and estimating them.
Once you have these individual estimates, you combine them to come up with your overall estimate.
So, for example, you will estimate how long each task of your project will take and then combine the sum of the times to provide an overall estimate of how long the project will take to complete.
Since this technique takes into account each individual task or activity it is typically more accurate than the top-down technique. This technique also allows you to manage your project while it is in progress and check what is actually happening against your estimates.
This technique is time-consuming, however, and requires more resources. You also need to have the right information available to approach estimation with the bottom-up estimation technique.
3. Analogous Estimating
Analogous estimation also known as comparative estimation is the estimation technique that uses past projects to help draw estimations for the current project.
This method is usually used in combination with the top-down estimation technique.
Obviously, this method is reliant on the fact that you have similar projects that you can base your estimations on.
This technique is great if you are looking for a rough figure as your estimation is quick and easy to do and does not require a tone of information. Although, again this technique is not the most accurate method you could adopt.
4. Parametric Estimation
The parametric model of estimating also uses past project data. However, unlike the analogous estimation, this method attempts to adjust in reference to the differences in the projects being compared.
The parametric model estimating takes details of past projects and pro-rates them in order to estimate the current project being worked on and whose estimations are being drawn.
5. Three-Point Estimating
Arguably the most accurate approach, the three-point estimating technique establishes more accurate and realistic estimates and moves away from ballpark figures and guesses.
This method is even at times used for creating bottom-up estimates.
This technique adopts a mathematical approach and weighs the average of a pessimistic, optimistic, and most likely estimate. The average of these three is the project estimate.
The Program Evaluation and Review Technique or PERT uses a variation of this three-point estimation technique.
6. What-If Analysis
What-if analysis is a technique that creates estimates based on different factors such as time, cost, scope, resources, etc.
What-if analysis creates assumptions from these factors by evaluating potential outcomes of the project through impact analysis.
In this technique, estimates are done by conducting what is known as estimation workshops with stakeholders and other senior team members.
In estimation workshops, the following is done:
- Break down the scope into smaller components
- Put the components or activities into the order of performance
- Identify what effort is needed for each component or activity
- Identify which resources are needed for each task
- Identify any task dependencies
- Identify any potential risks
Project estimation is necessary for project planning. If you want further assistance investing in a project management tool is very beneficial.
nTask is a project management tool that offers a range of features at three reasonable pricing plans.
you can use nTask’s timesheets features to help estimate and record how long each task in a project will take your team members.
There is even a load of other tools and features to help you plan your next project and create accurate project estimates. Try this out by signing up for the app, or you could book a demo to talk to one of our sales representatives.