When performing project management, one of the most critical facets is the project estimation. Every project requires budgets and it is normal for the stakeholders in wanting to know how much spending would be invested for the project. As a result, project estimation needs to be established prior to the launching of the project, and estimates are regularly revised during crucial project milestones.
Rough order of magnitude (ROM) is one of the most commonly used terms whenever you are initiating a project within your company. It is one of the components during project estimation. This article will elaborate on the rough order of magnitude (ROM) along with the other important things circulating this term such as the calculation, examples, how to develop, and so forth.
What is Rough Order of Magnitude (ROM)
The rough order of magnitude is the cost calculation that could be used for multiple programs. The examples of works that fall under this category are policy formulation and execution, IT projects, and construction projects. Rough order of magnitude is most widely used during the planning and start-up stages of a project. For instance, when creating a project business case or finding out how much funding is expected to be used for the project. It is the first estimation for the life cycle of a project, which includes the amount of effort and cost to accomplish the project.
According to the Project Management Body of Knowledge (PMBOK), the expected accuracy of a ROM is -25% to +75% while some other sources suggest -50% to +50% of accuracy. Hence, the project’s actual cost should be in the range of 75% until 175% or between 50% and 150% of the ROM estimate. As the name suggests, since this is only the rough estimation, there are possibilities of inaccuracies of the values. Hence, the rough cost estimation should be optimized as the project progresses since more information could be obtained throughout the implementation phase to further narrow down the wide range of the possible outcomes. The other factor that ought to be considered is the opinion and involvement from the stakeholders as well as the experts of the subject matter.
Rough Order of Magnitude in Project Management
In project management, a ROM calculation is applied to provide partners and decision-makers with the rough overview about the project’s order of magnitude. It is used during project screening, in choosing which project to undertake as in forecasting the project before they get funded before implementation.
There are several known ways to develop ROM estimations. One of the ways is by using the analogous technique. ROM estimates could be established by referring to available resources from the relevant previous projects. This could be done by referring to the cost of a past project in coming up with the estimation for the new project while simultaneously considering a number of necessary adjustments and factors. The other way is parametric estimating which is by roughly estimating the new value by referring to a unit price.
In the latter part, we will provide the formula on how to calculate the range of your project’s ROM estimate. The calculation may be quite simple to be done but it should be noted that the main obstacle in the early stages of cost estimating is to present the wide range of values to the stakeholders. Hence, a project manager should not only be knowledgeable in providing the cost estimation but also requires a full understanding and justification for the estimation determined. That aside, a project manager must be equipped with the skills in refining the estimation whenever new information is obtained that may aid in lowering the cost or improving the performance of the product or project.
How to Calculate Rough Order of Magnitude
The following is the formula to calculate the upper boundary and lower boundary:
Upper Boundary = ROM_Estimate x (1 + 75%) = ROM_Estimate x 1.75;
Lower Boundary = ROM_Estimate x (1 – 25%) = ROM_Estimate x 0.75.
Click Here to download 3000+ Project Management Documents: Complete Library of Project Management Templates, Processes, Plans, Checklists, Forms, Tools, Presentation Slides and Infographics. Suitable For All Industries.
Coming up with the ROM estimate is generally more complex compared to estimating the upper and lower boundaries. The ROM estimate could be determined by implementing analogous technique or parametric estimates as mentioned earlier.
The formula earlier is used to calculate the ROM range. However, you may also access to ROM calculator which is available online if you prefer not to calculate it manually. The calculator will automatically provide the range of your ROM estimate for your project. That aside, while the estimation is commonly calculated in cost units (such as Dollars), it should be noted that the calculation may be used to estimate time or effort for the project. Hence, it is crucial to be adaptive to other external factors under these circumstances.
Rough Order of Magnitude Examples
In easing your job of providing a ROM estimate, you may want to search for any rough order of magnitude template available on the internet. Most of the samples are free to be used and could be edited easily.
Below is an example of a rough order of magnitude template which categorizes the level of effort:
Categorizing the components of the project as described above may provide a clearer overview of the project especially during the important initiation stage. This kind of estimation visualization also makes it more friendly to the subject experts in providing their opinions on the estimations. Aside from the sub-topics mentioned above, you may also consider including the target market, product specifications, and the requirements of the project.
However, when developing a ROM estimate, it should be noted that the project is still in the early stage, hence it is best to keep the information brief and simple. There are no significant needs to provide fully-detailed descriptions and dropdown of the components for the project.
Differences between Rough Order of Magnitude, Budget Estimate & Definitive Estimate
Aside from the rough order of magnitude, there are other ways that could be used to estimate the cost expected at the end of the project or product. Two of the other examples are budget estimate and definitive estimate. How do these three methods contrast from each other? Let’s have a closer look at the differences between rough order of magnitude, budget estimate, and definitive estimate.
ROM estimate is used at the beginning phase of a project to provide a rough estimate on the expenses that may be spent until the project is completed. A top-down estimation approach is commonly applied here with the references by subject matter experts’ opinions and knowledge. It is a simple calculation and does not require a long time to be developed. The ROM estimate is not fixed. It could be constantly updated throughout the completion of the product and as the project progresses, the accuracy of the ROM estimate should improve as well.
The budget estimate, on the other hand, mostly apply the analogous technique. This will result in better accuracy of estimation compared to the ROM estimate. While it also uses a top-down estimation approach, the variance is a whole lot smaller compared to ROM estimate which is at -10% to +25% of accuracy.
The third technique is the most accurate among the other ways mentioned here. The variance of accuracy for the definitive estimate is as small as -5% to +10%, indicating that the estimation ought to be as close as possible to the final cost of the project. This technique differs from the other two techniques in the way that it applies the bottom-up estimation technique instead. A more detailed breakdown would be applied to create a more precise estimation. The definitive estimate is commonly done during the planning phase and should be retained until the project is completed. Due to the more complex and effort needed to ensure the high accuracy of estimation in this technique, the definitive estimation may take a longer time to be developed.
To conclude, a project manager ought to be skilful in developing project estimation. Rough order of magnitude (ROM) estimate is commonly done during the initiation phase of projects to decide which project should be chosen from the available options. The other common time to use ROM is during the life cycle of the project which is important to conclude the approximate value of the project’s final cost. It should be noted that attempting to try is important even though the estimation variance is large and inaccuracies are prone to happen. It is better to outline inaccurate information and updating regularly when opportunities slip in instead of not having information at all. Hence, ROM estimation should be done and you are guaranteed to be familiar with and develop your skills in performing this throughout times. Although ROM estimate is considered the lowest level among any other estimation techniques, it is still relevant to be applied to any project or product.