Accurate cost estimation is fundamental for project managers, but this can be daunting when multiple variables are involved. That’s where bottom-up estimating comes in.
Bottom-up estimating involves breaking a project into smaller parts to see the time and cost required for each task. You then combine these estimates to provide a more accurate overall project assessment.
This article will examine bottom-up estimating, including how it works, when to use it, and its benefits. So, grab a cup of coffee, sit back, and get ready to learn more about this powerful project management technique.
What is bottom-up estimating?
Bottom-up estimating aims to break down a project into smaller tasks and estimates the time, effort, and required resources to complete each task.
Examining a project’s tasks and focusing on the fine details allows the team to view the overall project before it begins, prioritizing any needs.
Consider a company launching a new product. The project manager will break the project into duties like market research, product design, engineering, manufacturing, and marketing. The team then estimates the resources required to complete each task successfully. For example:
- market research takes two weeks and requires one full-time researcher
- product design takes four weeks and needs one full-time designer
- engineering takes six weeks, with two engineers working part-time
- manufacturing takes three months with three full-time workers
- marketing takes four weeks with two part-time marketers
Bottom-up vs. top-down estimating
Regarding project estimations, there are two main approaches: bottom-up and top-down estimating. Let’s take a closer look at the differences.
Bottom-up estimating involves breaking the project into smaller steps and estimating each cost.
Top-down involves estimating the overall cost and duration of the project, then breaking that down into smaller tasks. This approach is quicker and easier than bottom-up estimating but may need to be more accurate.
Top-down estimating is best used when a rough estimate is required quickly, and there needs to be more information to conduct a bottom-up estimate.
Both approaches have advantages and disadvantages, and your chosen method will depend on the project and the level of detail required.
Bottom-up estimating is more accurate and provides greater transparency and accountability, but it can be time-consuming. Top-down estimating is faster and easier but may not be as accurate, especially for complicated jobs.
Benefits of bottom-up estimating
You can track progress throughout the project by involving team members in the estimation process and addressing every task. This level of transparency helps foster a sense of ownership and accountability among team members, which can improve overall team performance.
Another significant benefit of bottom-up estimating is identifying any issues and risks during the project. By estimating each task individually, you can locate dependencies, spot bottlenecks, and determine complex tasks which may impact the project’s success. This makes it easier to prioritize your efforts and focus on mitigating issues before they become substantial problems.
Accuracy of bottom-up estimating
Because bottom-up estimating involves addressing every factor that goes into a project, it is considered the most accurate estimation technique.
Use caution, as some potential uncertainties can impact the accuracy of the estimates. Unforeseen circumstances like delays, staff sick days, or changes in project scope can affect timings. Additionally, the accuracy of the calculations can depend on the experience and skill level of the team.
A step-by-step guide to bottom-up estimating
1. Define the project scope and deliverables
The project scope defines what the project will deliver, and the deliverables include what the project will achieve.
All stakeholders should clearly define the project scope to ensure everyone understands what the project will and won’t deliver.
To do this, project managers should consider the following questions:
- What is the purpose of the project?
- What are the goals and objectives?
- What are the constraints and limitations?
- What are the expected outcomes, and how will they be measured?
Once the project scope is determined, it’s time to move on to the deliverables, which should be specific, measurable, and achievable. For example, suppose the project is to develop a new software application. In that case, the deliverables might include a detailed project plan, a functional specification document, the source code, and the final tested application.
A clear project scope sets the foundation for the rest of the process. It ensures accurate estimates and deliverables, keeping the project on track and within budget.
2. Create a work breakdown structure (WBS)
A work breakdown structure is a hierarchical breakdown of a project into smaller components. The WBS should include all the deliverables, sub-deliverables, and tasks required to complete the project.
To create a WBS, project managers should follow these steps:
- Identify project deliverables: Break the deliverables down into more manageable components. For example, if the deliverable is a project plan, the components include a project charter, stakeholder analysis, risk assessment, and resource plan.
- Define sub-deliverables: Define each component’s sub-deliverables required to complete the feature. For example, the sub-deliverables might include a stakeholder list, a stakeholder analysis matrix, and a stakeholder communication plan for the stakeholder analysis component.
- Identify tasks: For each sub-deliverable, identify the tasks required for completion. The tasks for the stakeholder list sub-deliverable include identifying the stakeholders, collecting stakeholder information, and reviewing stakeholder requirements.
- Organize the WBS: Organize the WBS by arranging the deliverables, components, sub-deliverables, and tasks in a hierarchical structure. The top level of the WBS should represent the project deliverables, and each subsequent level should describe the components, sub-deliverables, and tasks required to complete the project.
3. Estimate the resources required for each task
Now it’s time to estimate the resources required for each task, including time, cost, and labor. Consider factors like complexity, a team member’s skill level, and resource availability.
Be sure to take note of project dependencies to help dodge time-consuming delays.
You could examine archives for historical data from similar projects, conduct expert interviews, perform bottom-up estimating, or use parametric estimating techniques to accomplish this. Each method has strengths and weaknesses and depends upon the project.
4. Aggregate the estimates
This step combines estimated resources and durations of a task to create a project plan and budget. It includes the total time, cost, and labor required to complete the sub-deliverable.
To do this effectively, consider any risks or uncertainties that might impact the project. For example, suppose a task depends on the delivery of a component from a supplier. In that case, the project manager may need to factor in delays or quality issues from the supplier.
Availability of resources is another one to note. If the estimated resources exceed the available resources, the project manager may need to adjust the project plan or budget accordingly.
Conversely, if the estimated resources are less than the available resources, the project manager may need to consider reallocating resources to other tasks or accelerating the schedule.
5. Review the estimates
Analyze the estimates to determine their accuracy, identify gaps or inconsistencies, and make necessary adjustments.
During this, compare the estimated resources and durations against actual data from previous projects or industry benchmarks. Consider changes in scope that may have occurred since the estimates were first created.
Based on this analysis, the project manager may need to adjust estimates for individual tasks or the overall project plan and budget.
For example, the project manager may want to increase the allocated resources if the estimations are lower than expected. Conversely, suppose the estimated duration for a task is longer than expected. In that case, the project manager may need to explore ways to streamline the job or allocate additional resources to complete it within the planned schedule.
Project managers should also consider any risks or uncertainties impacting the project and adjust the estimates accordingly. For example, suppose a task depends on delivering a critical component from a supplier. In that case, the project manager may want to adjust the estimated duration to account for potential delays or quality issues.
In addition to adjusting the estimates, project managers should communicate any changes to stakeholders and update the project plan and budget accordingly. This ensures all stakeholders know the project’s progress and any changes that may impact the project’s timeline or budget.
6. Define and assign the resources
Once you’ve completed the estimates, define the resources required for each task and assign them to the appropriate team members. This may involve working out the types and number of personnel, equipment, and materials needed.
Remember to factor in potential sick days and holidays, so you’re not left short — and it’s a good idea to have some contractors or freelancers on the books as backup, just in case.
7. Monitor and control the project
Continuously monitor and control the project to ensure it stays on track. This involves tracking progress, identifying variances from the planned schedule and budget, and taking corrective action.
Establish a system for collecting and analyzing data on the project’s performance. This might include project management software, status reports, and project dashboards to track tasks, identify any delays or issues, and assess the project’s overall health.
Effective monitoring and control of the project require strong communication and collaboration among stakeholders, including project team members, sponsors, and customers. Project managers should regularly communicate the status and any issues to stakeholders, provide updates, and seek feedback to ensure that the project is meeting the needs of everyone involved.
How project management software can help bottom-up estimating
Project management software is a valuable tool for bottom-up estimating. Here’s how:
- Task management: Project management software can help you organize your project into individual tasks and sub-tasks.
- Resource allocation: It can help you allocate personnel, equipment, and materials to each task with the click of a button.
- Estimating tools: Many built-in tools do the number crunching for you. These may include templates, calculators, burndown charts, and other features that help estimate resources accurately.
- Collaboration: Team members can work together from one central hub, share their estimates, and receive updates in real-time, helping everyone stay on the same page.
- Data analysis: By looking at historical data on similar projects or tasks, you can identify patterns and trends that can help you estimate resources more accurately.
Bottom-up estimating allows project managers to create a more accurate and realistic project plan. But keeping a grip on all the moving parts can be time-consuming and tricky.
Project management software can help project managers do more in less time.
Organize tasks, allocate resources, facilitate collaboration, and analyze data, all with just a few clicks. Backlog, our project management software, offers this, plus integration with a wide range of tools like Cacoo and Typetalk. That means that no matter how expansive the project, everything the team needs — from burndown charts to chat groups — is all in one place for easy, effective collaboration.