Rough Order of Magnitude Estimate Explained: Concept, Examples


Rough Order of Magnitude Estimate

Rough order of magnitude (ROM) estimates are used in many fields to provide a quick calculation for a first-order approximation of a value. The project manager can redefine the value of the estimate with more extensive analysis. ROM is a handy technique for doing a quick assessment and using other statistical methods to find the rough estimate’s error.

Rough order of magnitude (ROM) estimates are one of the most powerful tools you can have when trying to understand or judge any project’s size. It is beneficial when dealing with technical debt and estimation techniques such as planning poker. ROM estimates are also helpful in getting a quick idea of the effort involved in a project.

What is Rough Order of Magnitude

Rough order of magnitude estimates refers to a cost estimate type that applies at the beginning of various projects. It entails the implementation of the project, strategy developments, construction projects, and IT projects. It primarily involves the initial phases and preparation of projects for the establishment of project feasibility tests.

ROM primarily gives decision-makers and stakeholders a rough estimate of the total cost of the project magnitude. It gives the probability of the total cost of the project. According to PMBOK, ROM has an accuracy of between -25 to +75. ROM enables stakeholders to decide whether to continue with a particular project based on the estimated level of effort, depending on the cost and completion time.

The calculation of ROM is straightforward and has formulas for both upper and lower boundaries i.e.

Upper boundary=ROM estimate x (1+75%)=ROM Estimate x 1.75

Lower boundary =ROM estimate x (1-25%)= ROM Estimate x0.75

Coming up with a ROM estimate may be challenging at times. However, the project manager can use parametric and analogous estimates to determine the ROM after that calculate the boundaries using the above formula.

Rough order of magnitude estimate is usually based on a high degree of prejudgment and may increase variance levels. At the initial stages of a project, the stakeholders and project managers typically have limited information and are generally uncertain about the expected costs. The data needed for the technique may sometimes be insufficient.

Step by Step to do Estimation Using Rough Order of Magnitude

According to Guardian estimating manual, with the initial square foot data cost from RS means, the following steps take place in estimating rough order magnitude:



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1.    Estimating the size of projects

 The project manager and the stakeholders can evaluate the project’s scope by comparing the costs from the same buildings around the area for construction projects. However, they can also determine the extent by calculating the approximate size using the Guardian manual’s space planning table.

2.    Approximating the square foot unit cost

The square foot can be established using median cost or the ¾ or ¼ cost values depending on the target value of quality for the particular project. Additionally, the team can use the project costs table in the Gaussian guide to evaluating the project’s cost per square foot.

3.    Adjust the cost per square foot to account for project size

The square foot of a building project is mainly affected by the size. Two building constructed in a locality with the exact specifications will have different S.F cost. The larger facility will have a lower S.F compared to the smaller building. The difference results from the economic scale’s reduced contribution and the more significant structures’ exterior walls. To identify the project size, the company has to incorporate the project size modifier tables and graphs. They will then use the value of the cost modifier to calculate the adjusted cost per square foot. A project manager can calculate ROM by multiplying the cost modifier by the square foot unit cost.

4.    Calculate the building cost

To calculate the building’s total cost estimate, the company will multiply the evaluated square foot quantity by the cost per square foot. The building cost estimation is majorly to predict the cost, quantity, and price of the resources a company requires to complete its project scope.

5.    Adjust the building cost for location and time factors

The project manager modifies the estimated building cost to correspond to the time and location of the construction. To adjust the price, the project manager has to calculate a location and time multiplier. The order in which the manager modifies the time and location doesn’t matter. However, it is crucial to adjust all of them.

6.    Make more adjustments if it’s appropriate.

Calculation of ROM using the Guardian approach excludes the design fees. Therefore, if you require a construction cost estimate and design fee in your project, it’s advisable to include the design fees. ROM calculations incorporate various items; therefore, a company can add the additional things they feel are crucial in the project.

Comparison of Rough Order of Magnitude with Other Estimates in Project Management

During a project, the estimate’s cost varies depending on the type of estimate an organization decides to settle on. The various types of estimates include:

  • Definitive estimates

According to PMBOK, the definitive estimate is the most accurate type of assessment. The accuracy lies between -5% to +10%. However, this accuracy is only achievable if the project manager outlines all the project’s details correctly, and if reliable information for the estimated work is readily available.

As compared to Rough order of magnitude estimates developed in the initial stages of a project, the definitive estimates are created later when the project is already in progress. The Rough Order of Magnitude estimates are usually less accurate and precise; therefore, the project manager can substitute it with a definitive test to eliminate the calculated estimates’ impreciseness.

  • Preliminary estimates

Preliminary estimates range from -15% to +50%. It’s also not precise. However, it is more significant as compared to the rough order of magnitude

  • Budget estimates

The accuracy of budget estimates ranges from -10% to +25% or -15% to +30%. They are more precise and exact as compared to a rough order of magnitude. Budget estimate come in handy when a project requires allocation of budget across its work breakdown structure. On the other hand, ROM may not allow for an appropriate allocation and breakdown of a budget due to its rough nature.

  • Final estimate

The accuracy range of the final estimate is 0% and doesn’t deviate from the initial cost at completion. It may not be practical to achieve this level of accuracy during the initial stages of a project. However, it can be attainable in a scenario where the work breaks down, the arrangements have been established, all the necessary details are available, and one or more precise estimations are applied.

Example/Application of Rough Order of Magnitude Estimate

A project manager working on a hotel construction wanted to estimate the total cost involved in the building by using a rough order magnitude technique. The first thing he did was to quantify the areas he was working with to enable all the team members to get a clear picture of the total estimates he was working on.

The projects entailed the construction of the arrival court area, hotels, residential areas, quiet pools, restaurants, family pool space, spa, kid’s room, etc. The primary role of identifying this area was to determine the sleek regions of those boundaries. Hence, not to double the cost estimates and ensure they cover up every aspect of the project.

The next step was to identify the materials used in the construction of this area and include the total cost estimate cost. The project manager after that, broke down the work into different categories and estimated the total cost for each class, as shown below

CategoriesCostTime
Arrival court area$750,0008 months
Hotels$5000,00017 months
Residence areas$1000,00015 months
Quite pools$800,0009 months
Restaurants$2000,00016 months
Family pool$980,0007 months
Spas$1500,0005 months
Kids area$800,0006 months

The work breakdown structure enabled the project manager to view the work he was required to do and facilitated faster development of the project by allocating effort estimates to each category. It also enabled him to account for every decision he made and estimate the project cost at each stage.

The structure also enabled the manager to cover all control and mile points. It ensured no significant ideas are left out and could estimate each stage’s cost. The work breaks down structure is specifically essential in project management since the project manager can correct an error in any sector without interfering with the whole project. The estimates’ variances are significantly low compared to combining all the stages in one budget and determining its costs.

Best Practices on how to Use Rough Order of Magnitude Estimate

Rough order of magnitude estimates may vary depending on various factors such as price. However, there are certain levels of acceptable variation beyond which the ROM won’t be good. Therefore, the project manager must make accurate estimates on the project to avoid certain uncertainties. Most projects usually take several years to be completed. Longer projects typically make it difficult for the project manager to calculate the total estimate of the cost of labor and raw materials over a long time frame. The project manager may get some input estimates correct. However, it is expected that the longer the project takes, the more variation it may call at the final cost.

Developing an accurate rough order estimate requires enough experience and excellent skills. For ROM to be effective and reliable, all the stakeholders and the project manager should participate in effort estimates. All the members should be aware of the rough order estimate and understand that its accuracy level lies in between plus or minus 50%. The variance can also be as high as 100%, depending on the source. It can also have a variance of between -25% to +70%. The primary issue is to give a ballpark estimate by incorporating the details available at the particular moment.

ROM estimate’s variance is usually large compared to other types of estimates. However, this shouldn’t discourage an organization from using it. It’s always significant to have some information at the start of a project than to lack it. Thus ROM gives the information that is present at the beginning of a project. Its, therefore, good practice to create room for more details and information as the project progresses.

Development of Rough Order of Magnitude Estimates

During the initial development of ROM estimates, it’s best to estimate the cost and time. Categories significantly help project managers who may not be able to provide a total cost of forecasts at the beginning when the information is scarce.

The manager can divide the estimates into low, medium, and high-level efforts. This scale helps avoid the variability that occur when the project manager tries to pull a variety of numbers from limited resources. It also sets the expectations that the ROM estimate’s variance is high and needs attention.

Low effortMedium effortHigh effort
Hours :60 to 100 hours to completeHours :90 to 500 hours to completeHours :500 to 3000 hours to complete
Cost :$2000 to $6000Cost :$20,000 to $ 60,000Cost :$120,000 to $600,000
Duration :2 to 5 weeksDuration: 3 to 7 monthsDuration :7 to 14 months
Number  of resources:2 to 4Number of resources:5 to 12Number of resources:12 to 30

Using this category as in the table above, highlights the work from top down to a range of information that is reliable. The primary reason for developing the categories of the effort is to break the work into a set of activities that can be measured and make sense.

Conclusion

For a company to succeed in the project management field, the stakeholders and project managers require the knowledge and skills to estimate the project’s total cost. They will only have slight variance if the details were slightly inaccurate. To have all estimates accurate, you must have all the necessary inputs correct before calculating the total cost. If you are a project manager and have no idea how to estimate the total cost of the project you are working on, this article provides you with all the knowledge you need to kick start your project estimate.

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