# PMEducation

ESTIMATING METHODS

This discussion pertains equally well to Time estimates and Cost estimates. An Estimate is the most likely (not "padded") Time or Cost. It is your "best guess". And if it seems bigger than expected, don't be afraid to say so!

A number of estimating methods are available. Choosing the best method will depend upon how much information you already have, how much time you can spend doing the estimate, and how accurate the estimate needs to be.

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Usually in the early stages of a project there is not much information to work with, taking a large amount of time for estimating is not warranted, and a "rough" estimate is good enough.

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Estimating methods can be applied at the Project level, the Work package level, or the Activity level, or even the sub-activity level. Generally the lower the level of estimating, the more accurate the result will be.

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Here are commonly used Estimating methods that will serve you well in your projects:

Overview, Order of Magnitude Estimating:

By 'instinct' a gross comparison to similar projects. This is the least certain method, but the fastest. Useful for comparing projects and deciding which one(s) to go forward with. Known as a Class "D" estimate. In the order of -50% to +75% certainty of accuracy.

Analogous Estimating, Factoring from Other Projects:

Uses historical, actual, data from similar, previous projects. May be factored for complexity. This method can apply to individual Activities or the project as a whole. "Rules of Thumb" (Heuristic rules) can be employed in this method and are recognized by expressions like, "This usually takes half the project time", or "This usually costs 10% of the construction cost", for example. This method is more certain than the Overview method but takes a little more time to do. Useful for pre-budget planning of Time and Cost. Known as Class "C" estimate. In the order of +/- 50% certainty of accuracy.

Parametric Estimating, Take off by Unit:

Uses historical, actual, data from previous projects (such as: "hours per overhaul" or "cost per square meter") then factors up or down to account for the project being estimated. This method can apply to individual Activities or the project as a whole. This method is more certain than the Analogous method but takes even more time to do. May be suitable in your organization for budgeting time and cost. Known as Class "B" estimate. In the order of +/- 25% certainty of accuracy.

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Piece by Piece, Estimating Standard Handbooks:

Publications are available which provide tables for applying estimates to individual Activities and even components of activities. This method requires a detailed 'walk through' the project after detailed planning and design is completed. This 'fine tuned' method provides the greatest estimating accuracy but takes the most time to complete the estimate. Working from the lowest Work Breakdown Structure level, and starting from zero (known as the zero based or bottom-up approach), sub-Activity estimates are added together to obtain Activity estimates. Critical Activity time estimates are added together to provide the duration for the entire project. The sum of all Activity cost estimates provides the cost estimate for the entire project. Useful for defining the project Time baseline and Cost baseline, for which the Project Manager will be accountable. Known as Class "A" estimate. In the order of +/- 10% certainty of accuracy.

Additional Ideas:

Occasionally, especially in the less accurate estimating methods (above), a group might participate in providing estimates. Group decision making provides a consensus and can yield more accurate estimates provided the group has sufficient expertise in the field of estimating.

Also, especially if Group decision making has been used, you might have a range of suggested estimates. Which one to use? Various formulas taking the optimistic, the pessimistic, and the most likely (or average) estimates in the range can be used to provide a single number estimate. These formulas are variously known as Three point formulas, Triangular formulas, PERT formulas, and Beta formulas. Click the blue button for useful information about Three Point Estimates

Sometimes we ask an expert for an estimate.That expert must be using one (or more) of the above methods. It is important to know which method they are using, so we can understand the certainty of accuracy.

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In the estimating process, by engaging Stakeholders with technical knowledge, you can obtain additional input information for more accurate estimates. In addition, Stakeholder engagement increases buy-in to the decisions and the likelihood of actually meeting estimates increases greatly.

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CONTINGENCY AMOUNT

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Finally, to allow for some buffer in your estimates you will want to include Contingency Reserves on every estimate. These are additional amounts added to your Activity or Work package estimates to cover known risks that might occur. As Project Manager (PM), Contingency Reserves are included in your project baseline. A further buffer might be added to the project baseline as a Management Reserve to be used by a higher level of management (above the PM) for completely unknown things, if they happen.

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Final thought: Any project can be estimated 100% accurately, after it is finished!