8 Types Of Estimation For Projects (With Definition)
By Indeed Editorial Team
Published 3 September 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies expect project managers to oversee all phases of a project, but creating reliable estimates is a significant challenge. By using the right type of estimation technique, managers can develop accurate budgets and project deadlines. Learning more about the different types of estimation for projects can help you excel in your role and accurately complete your work duties. In this article, we discuss what project estimation is, explore the different estimation techniques and learn the importance of using project estimation techniques.
8 Types Of Estimation Techniques
Here are eight types of estimation that managers can use for future projects:
1. Top-down estimation
A top-down estimating technique provides an overall timeframe for a project and establishes a deadline for completing a project. It divides the project into discrete phases and tasks. When the information gets segmented into smaller phases, it becomes easier to track the team's progress. A project manager might use top-down estimation when a client provides a specific deadline for project completion. For instance, if a client provides managers with a project deadline of 12 months, a top-down approach helps them consider the project timeline and estimate how much time every activity takes to ensure timely project completion.
2. Bottom-down estimation
A bottom-down estimation is the opposite of the top-down estimation and focuses on first creating a list of activities that require completion to finish a project. After creating a list of activities, a manager groups related tasks to develop different phases and create a realistic timeline for completing a project. As the project manager assesses the activity of every phase, it provides a more accurate estimation of the project deadline. This helps project managers understand the resources they require for meeting deadlines.
3. Analogous or comparative estimation
Another essential estimation type is an analogous or comparative estimation that considers the past project data and combines it with the top-down approach. For instance, if the project a manager is developing is like one, they have already completed, they can assume the average project duration. Managers can then apply the past information in their current project to create a realistic project timeline.
Based on the average project duration, managers can divide the tasks and activities to ensure they get completed within the deadline. Project managers typically use this technique for projects with less detail and limited estimation resources.
4. Expert judgment estimation
An expert judgement estimation depends upon the expertise of the team and project manager. Using their expert knowledge and experience, these professionals develop a project estimate and determine a reasonable deadline. Typically, this estimation technique works with experienced managers because it's simple and easy to implement. A project manager who previously worked on a similar project can use expert judgement to identify a project's deadline. Managers can use expert judgement for top-down and bottom-up project estimates.
5. Parametric model estimation
Like the analogous estimation technique, parametric model also uses past records. This technique considers the key differences in each project. Typically, when using this technique for larger models, managers create advanced algorithms. Interestingly, this method provides an efficient and effective estimation once the process gets established. For instance, a manager who works for a house cleaning company can use the parametric model to identify how many hours team members take to clean a house. It might take four employees two hours to clean a 2000-square-foot home.
If the home of a new and prospective client is 1000 square feet, the manager can estimate that it might take one hour to clean their house. In addition, if the house requires deep cleaning or one employee is sick, managers might scale their data to provide an estimated cleaning time.
6. Three-point estimation
Project managers often combine three-point estimation with the bottom-up approach to create accurate project estimates. The bottom-up approach ensures one estimated outcome, whereas the three-point estimation provides three results, including the most likely, the most pessimistic and the most optimistic. For instance, if the manager wants to understand the deadline for a project, they can use the three-point estimation technique.
This project estimation technique helps identify the soonest possible date, the most likely date and the latest possible date for project completion. After identifying the three points, they can take the average to create a more accurate estimate for a project and set realistic deadlines.
7. Quantity estimation
Project managers use the quantity estimation technique to create an itemised list of resources and materials required to complete a project. After creating a list, identify the cost of each item and add everything to calculate the cost estimate. Project managers might estimate quantity if a project requires physical supplies or resources. Typically, managers working in the construction company use this method to create an itemised list of resources they plan to use. It helps them understand if they have the required budget to cover the cost of resources and supplies.
8. Equipment factored estimation
Project managers might use the equipment factored estimation if the project requires different equipment. In this method, managers identify the cost of the process equipment they plan to use for a particular project. Managers multiply this cost with the installation factor, which includes the direct labour cost, materials and resources required for installing the machinery or equipment. For instance, if a project manager works for a company that supplies engineering equipment, the manager can use the equipment factored estimation to determine the actual cost of the machine and how much the company can spend on resources and labour.
What Is Project Estimation?
Project estimation is the technique of analysing available data to estimate the time, resources and cost required to complete a project. Often, a project manager uses estimation techniques to communicate expectations to stakeholders, clients and team members. Using estimation techniques, a project manager might create an estimate to determine how much a project might cost and what resources might be required to complete it.
An estimation helps determine the project scope and ensures managers have enough resources and realistic goals. Project estimation occurs at the starting of the project and managers might focus on these areas to develop accurate estimates:
Cost: Project managers estimate the cost of a project to create a quote and price to share with clients. These techniques help create accurate budgets and estimates for clients.
Time: Estimating how long a project might take to complete can help project managers create project schedules and deadlines for the team. It helps in establishing accurate project deadlines.
Risk: Managers might assess the risk to understand the challenges they might encounter throughout the project. This helps develop strategies to overcome the challenges.
Quality: By estimating the quality desired by clients, project managers can identify whether the project requires additional time, resources and money. When working on projects requiring safety and environmental regulations, estimating the quality level might benefit the company.
Resources: By understanding the resources a team requires, managers can provide the tools, materials, assets and software required to complete a project. Having all the resources can improve quality and enhance workplace productivity.
Scope: Estimating a project's scope primarily focuses on understanding what the team requires for completing the project. When managers develop a scope estimate, it helps them ensure that the team uses the right team members and materials to execute a project.
What Is The Importance Of Project Estimation?
Project estimation techniques are essential because, without a technique, it becomes challenging to plan a project. When a manager estimates the cost, time, material and resources, it helps to complete a project successfully. Project estimation techniques can help managers in the following ways:
Allocate resources successfully
Identify and assess the cost and scope of a project
Forecast better project deadlines
Create accurate budgets and proposals
Communicate expectations with clients
Provide valuable updates to clients and project stakeholders
Minimise and prioritise risk
Improve task scheduling
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