Bottom-Up Estimating Explained with Examples


Bottom-Up Estimating Explained

Project management involves lots of estimation. Part of a project manager’s work is to  come up with estimates from as early as the planning stage. Some of the common ones include the cost estimate, estimate at completion, and estimate to complete.

In case you are wondering about the role estimation plays in project management, we have an answer for you. It helps in coming up with the budget and timelines for the project. A good example is the cost estimate, which is used to draft the budget.

To arrive at these, one has to choose the best estimation technique. In this article, we take a look at the bottom-up estimation, which is used by project managers the world over. We will discuss what it is when it is done, how to do it, why it is different from other estimation techniques, and its pros and cons.

Let’s get started.

What is Bottom-up Estimating?

Bottom-up estimating is a unique technique in project management used to estimate the costs and duration of a project or its parts. It is considered as one of the most accurate ways of estimation. Keep in mind that such analyses begin with a rough order of magnitude before more accurate estimates are employed.

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You can easily establish that this technique estimates costs, durations, and resource requirements at a granular level just from its name. It is usually done for work packages, which is the smallest part of the WBS, even though several people also suggest project activities.

All in all, it deals with the most detailed level of the Work Breakdown Structure. This technique is also known as deterministic or detailed estimating. Most people also consider it the definitive estimate as it has an accuracy of between -5% and +10%, as provided by the Project Management Institute.

Note that there are three types of bottom-up estimates. These are estimating the project’s resource needs, estimating the time needed or duration, and estimating the costs. However, you will learn that these estimates have certain interdependencies.

Remember, the duration an activity takes depends on the resources provided. To calculate the cost estimates, you will multiply the resource units assigned to the project by the time and price per unit.

Why is Bottom-Up Estimating Different from Other Techniques?

This is simple. Whereas one can use other techniques such as top-down estimation, parametric estimating, and expert judgment at any granular level, bottom-up estimation only relates to the smallest component of the project: the work package and the activities.  It starts from the bottom, unlike other techniques such as the top-down estimation that starts from the top.



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However, this does not mean that other methods cannot be applied when doing bottom-up estimating. One can use the analogous estimating technique to determine an activity’s duration by comparing it with the timeline of similar historical activities.

Also, you are free to apply the parametric estimating technique to come up with the resource needs of given work activity. This can be guided by observed parameters such as code lines per developer an hour in software projects.

You are not also curtailed from applying expert judgment where you deem necessary when using bottom-up estimating. Once we move to the pros, you will learn that one of the most significant advantages of this technique is its conformity with others.  

How to Use the Bottom-Up Estimation Technique

This is by far the most essential part of our discussion. How do you use the bottom-up estimation technique to come up with your cost and duration estimate? Before we start, you should note that work package owners are usually required to estimate the duration and costs for all the work package activities.

  • Create a work breakdown structure

You need to break down the project to its smallest part before using the bottom-up estimation approach. This is what the technique is all about; estimating the project at its granular level. Once the WBS is up, assign the different tasks to the team members, clearly indicating who will take care of a given task.

Ensure that these tasks are broken down to their smallest levels to help you determine the actual time and cost needed for completing all of them. I hope you now understand why some people suggest that this method relies more on the project activities than the WBS.

Remember to identify the task dependencies too.

  • Delegation

You must ensure that responsibility is shared across the team. You cannot handle everything as the project manager. In fact, you do not have to know every detail in the system and be familiar with the technology used to estimate the effort required for the given tasks. You can engage the technical and business subject matter experts. However, strive to get feedback from all the team members and seek buy-in from all the stakeholders.

As the manager, you should empower all team members to be responsible and do all it takes to get the tasks done despite their challenges. 

  • Resources and Timeline

After coming up with the WBS, assigning tasks, and delegating to the team members, it is time to determine the projects’ resources and timeline. Therefore, lay all the specific resources and timeline of the project. You can use project management software such as Trello and many other platforms to break down your project to the smallest detail you will need.

Remember that bottom-up budgeting and cost estimation play an essential role in coming up with the best project budget and a realistic time frame for project completion. Remember to identify and determine the number of people and type of skillset needed for executing each task on the list. Also, identify any equipment they will need and all the supplies.

We advise that you engage the team members to polish your approach and develop the best assumptions. You should also involve subject matter experts. These are experts in resource-related requirements, such as a project or program manager who has handled many similar projects.

Remember, to come up with an accurate schedule; you must determine the resources needed and when they will be able to complete the said tasks.

  • Aggregation

Once you have estimated the lower-level packages in your work breakdown structure, identified all the required resources, and noted the task dependencies, you should sum up all the estimates and get the totals for each deliverable.

You will get the total number of days and cost of every work package. When you sum up all these, you will end up with the full project estimate.

This process should help you identify the work required for the project activities, sum them up, and estimate the work input for high-level deliverables. This is definitely the best means of yielding scheduling figures for more extensive work packages.

To help you understand this, here is a diagram:

The arrows point to the direction of estimation, which is from bottom to top, hence the name bottom-up estimation technique.

This is a simple example of how a bottom-up estimate looks like. You may come across other technical ones. However, they all apply the same principle to come up with the estimated values. You can clearly see that all the project has been broken down into portions. The work package has been further decomposed into activities, with their cost estimates. These have been added further to come up with the aggregate.

The demolition, installation, and quality assurance rows are the work packages. Under every work package are the activities needed for their success. The cost estimate of the work package is arrived at by summing up the total costs of the activities.

I hope that you now understand why this estimating technique is referred to as bottom-up estimating. It looks at the cost of every activity in a work package before summing them up to come up with an aggregated value.

However, note that the aggregate of the duration estimates of the activities may/does not equal the project’s total duration. The forecast does not usually consider the waiting time or parallel activities that may lengthen the project. Therefore, the estimate mainly helps in coming up with the overall schedule of the project.

Benefits and Disadvantages

Advantages

The bottom-up estimation technique has its fair share of pros, making it better than the other estimation methods used by project managers. Let’s take a look at these:

  • Accuracy

One of the reasons why project managers love this technique is because of its accuracy. It can be very accurate if used well. This is primarily because it makes team members estimate the work they are directly responsible for, which is a significant advantage. They are the only ones who best understand their work package.

  • Works with other techniques

You can use this estimation method together with other common estimation techniques. For example, while using this technique to come up with project estimates, you can engage the parametric and analogous estimating techniques to come up with the activity duration.

  • Balancing

When using this technique, the estimation errors can easily balance out across the given project’s components. If you underestimate the time of a given work package, it could be balanced by an overestimation in another. Balancing such errors mean that they will not interfere with the budget baseline, especially at the project level.

It is also worth mentioning that breaking down the work packages to measurable levels will make your team highly confident of achieving your project plan. It also helps you achieve project buy-in and avoid instances of budget overruns.

Also, a well-decomposed work package reduces the chances of scope creep and gives you more control of your project.

Disadvantages

Even with its fair share of advantages, this estimation technique also poses several disadvantages. Whereas some of these may be common in all estimation techniques, others are unique to this method. Let’s take a look.

  • It is costly

The bottom-up estimating method is costlier than other techniques. It requires more resources compared to the analogous or top-down estimation.

  • Prone to bias

This estimation technique can easily suffer from the bias or interests of the estimator. Even though this is common to all the methods, it is aggravated in this estimation technique and can be challenging to manage. Keep in mind that bottom-up estimation is done by those responsible for the work package, and therefore takes in the input of several different estimators.

  • It may fail to reflect certain aspects.

This estimation technique captures the total of the different pieces of the project estimate, ignoring the overhead and integration efforts needed on top of the roles defined in the project activities or work package. This mainly counts for large and complex projects.

It does not include the waiting time and parallel projects, which may further increase a given work package duration or the entire project.

Also, note that this estimation technique is concerned with determining the cost and duration. The cost estimation is usually arrived at by considering the duration estimate, and all rely on the resource estimation. Therefore, whenever an estimation error is made, it heavily reflects on the time and cost estimate. You will definitely end up with the wrong time and cost estimate.

Conclusion

Bottom-up estimation is definitely one of the most accurate methods of coming up with the definitive estimate of any given project. However, one needs a quality resource collection and a concrete work breakdown structure to be successful.

To apply this technique, you must break down the project into its tiniest parts: the work package and activities. Remember, it does more than estimating the resources, time, and costs of a project’s activities, as it can also be used to evaluate change requests.

Even though there are multiple cost and duration estimation techniques, bottom-up estimating is highly recommended as it can be used together with all the other estimate techniques. However, remember that even though it is highly accurate, some mistakes may heavily impact your estimates.

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