6 Successful Project Estimation Techniques

There are many different types of estimation techniques used in Project Management with various
streams like Engineering, IT, Construction, Agriculture, Accounting, etc. A Project manager is often
challenged to align mainly six project constraints - Scope, Time, Cost, Quality, Resources,
and Risk in order to accurately estimate the project. The common questions that come into the
mind of a project manager at the start of the project are–

 How much work is to be estimated (scope).

 How to estimate the project (techniques).
 How much time it will require to complete the project (Schedule).
 Who will be doing the project (resources)?
 What is the budget required to deliver the project (cost)?
 Any intermediary dependencies that may delay or impact the project (Risks).

The 3 Major Parts to Project Estimation

 Effort estimation
 Cost estimation
 Resource estimate

While accurate estimates are the basis of sound project planning, there are many techniques used
as project management best practices in estimation as - Analogous estimation, Parametric
estimation, Delphi method, 3 Point Estimate, Expert Judgment, Published Data Estimates, Vendor
Bid Analysis, Reserve Analysis, Bottom-Up Analysis, and Simulation. Usually, during the early
stages of a project life cycle, the project requirements are feebly known and less information is
available to estimate the project. The initial estimate is drawn merely by assumptions knowing the
scope at a high level, this is known as ‘Ball-park estimates’, a term very often used by project
managers.

Project Estimation Techniques

1. Top-Down Estimate

Once more detail is learned on the scope of the project, this technique is usually followed where
high-level chunks at the feature or design level are estimated and are decomposed progressively
into smaller chunks or work-packets as information is detailed.

2. Bottom-Up Estimate

This technique is used when the requirements are known at a discrete level where the smaller
workpieces are then aggregated to estimate the entire project. This is usually used when the
information is only known in smaller pieces.

3. Analogous Estimating
This technique is used when there is a reference to a similar project executed and it is easy to
correlate with other projects. Expert judgment and historical information of similar activities in a
referenced project are gathered to arrive at an estimate of the project.

4. Parametric Estimate

This technique uses independent measurable variables from the project work.  For example, the
cost for construction of a building is calculated based on the smallest variable as the cost to build a
square feet area, the effort required to build a work packet is calculated from the variable as lines
of codes in a software development project. This technique gives more accuracy in project
estimation.

5. Three-point Estimating

This technique uses a mathematical approach as the weighted average of an optimistic, most likely
and pessimistic estimate of the work package. This is often known as the PERT (Program
Evaluation and Review Technique).

6. What-If Analysis

This technique uses assumptions based on varying factors like scope, time, cost, resources, etc., to
evaluate the possible outcomes of the project by doing impact analysis. In a usual scenario, the
project estimate is done by conducting estimation workshops with the stakeholders of the project,
senior team members who could give valuable inputs to the estimation exercise. The high-level
scope is broken down into smaller work packages, components,

and activities, each work package is estimated by effort and resources needed to complete the
work package. The project may be detailed into the smallest chunk that can be measured.

The following activities are done during the workshop:

 Break down the scope into smallest work package, components or activities (WBS)
 Sequence the activities in the order in which they will be performed
 Identify the effort required to complete each activity
 Identify the resource estimate to complete each task or activity
 Identify the dependencies to complete each activity
 Identify the possible risks and assumptions
 Define the resource and cost estimate to the completion of each activity, component and
work package

The above exercise gives an exact estimate of the project and the outcome of the workshop may
be a project plan and a project schedule with effort, resource, and cost estimates.

Happy learning!
WHY IS PROJECT ESTIMATION IMPORTANT?
Every business has a budget and wants to know the costs before they're willing to begin a project. A
project estimate is your prediction of how much time and money is needed to complete a project.

How to create a project estimate & budget in 8 basic steps:

1. Know your team’s expertise & job responsibilities

2. Understand how your company's PM process works
3. Expand your PM skill set
4. Study your team's history to create better project estimates
5. Ask more of the right questions
6. Apply a work breakdown structure
7. Estimate projects with TeamGantt
8. Start planning and estimating your project

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Step 1: Know your team's expertise & job responsibilities

Sometimes project managers are too focused on the numbers, and not the people. Good project
management process—estimation techniques included—are built on solid relationships. Solid working
relationships tend to make the project estimation process easier, because the more you know about
someone’s work and process, the easier it is to create estimates for their work. Want to be even better at
estimating projects? Ask your team to be a part of the estimation process. A stronger understanding or
collaboration with your team will help you to get your projects to come in closer to your project budgets.

A good project manager knows his or her own role well and has the following responsibilities down pat:

 Build a project plan out in a few hours

 Set up and facilitate a communications plan
 Read a spreadsheet, understand it, and translate it for anyone who asks what it's about
  Build a status report based on metrics provided by his or her favorite PM tools

One of the biggest problems PMs face is having a solid understanding of what each team member does on a
daily basis.

But here’s the thing, to be a great project manager that can estimate project costs and schedules
successfully, you MUST engage in the work. You can’t be a desk jockey. You have to dig into the work
along with your team. Take the time to understand all of the things that will cause your project to go
over budget. We’re talking about: the people, the budget, and the scope. If you keep track of these three
things, you will be a better project estimator.

One of the biggest problems project managers face is having a solid understanding of what each and
every team member actually does on a daily basis.

How to get to know your team's tasks & skill sets

So, how are you supposed to understand Jim’s role on the team and how his work will impact an
estimate?

You have to talk to Jim.

As a project manager, one of the best things you can do is to be genuine and honest about what you
don’t know. If you really want to know how or why someone does their job, just ask them! It might
sound silly, but most project managers feel like they’re supposed to know everything. You don’t, and
that’s okay.

Remember: it’s better to admit what you don’t know and ask your team questions. Doing so gives you
an opportunity to connect with your team on an individual level, and it will help you to understand the
inner workings of different types of projects—and their appropriate budgets. After all, figuring out the
steps one person takes to create a deliverable will work wonders in helping you calculate a true and
accurate project estimate.

Step 2: Understand how your company's project management process works

Once you’ve got a good grasp on who does what and how, you need to figure out how all of your
project’s moving parts fit together—or could fit together.

You may work for a company that abides by a singular process like agile, waterfall, etc. In that case, you
should study that process, know all of your dependencies, and run with your estimates. If you work in a
place that’s more liberal with process and likes to experiment, make it your mission to understand how
things are done and what might happen to your project schedule if you shift things around.

For instance, if you work in construction project management, will there be a huge impact if you plan
for your baseboards to be painted before the carpet is installed? Sure, you can do it, but will it affect the
quality of the work or the time needed to get the work done? (I’ve done my share of home improvement
projects and can comfortably say the answer is “yes.” When the carpet installers scratch up those newly
painted baseboards, your client will not be happy to learn they will need to be repainted.)

Do everything you can to understand your process, but don’t just read a book or a manual.

Do everything you can to understand your process, but don’t just read a book or a manual. You can use
the rigid methodology taught in books to start conversations about how your team employs a method.
However, it’s important to talk to your team, ask questions about what you don’t know, and feel free to
ask how, why, and when things are done. The more you know, the better you can strategize with your
team or your clients to find alternate ways to make project estimates work and save on effort.

Also related, always be sure to include your team in any discussions related to estimating projects and
process. When estimating projects, talk about the process you might envision taking on. This will
certainly impact how you think about effort and scope. You’d never want to sign on for a project that the
team is not invested in.

Always be sure to include your team in any discussions related to estimating projects and process.

Step 3: Expand your project management skill set

Approach your job as though it’s continuing education. No matter where you work, things will change.

I work in the web industry, but I’d never sell myself as a web designer or a developer. That being said,
I’ve learned enough about design and code over the course of my career to make me somewhat
knowledgeable. I would never step into a project and say, "I’m the best resource to design or code this,"
but I know enough about how things are done to ask the right questions and make the proper
assumptions about how they should or could be done. This helps immensely when estimating project
scope and timelines.

I learned a lot of web skills early in my career and have had to stay on top of industry trends and major
changes ever since. In addition to that, I had to learn a whole new set of people, processes, and clients
every time I started a new job with a new company. A career in project management means you have to
always stay on top of trends, changes, and deliverables in your industry. It isn’t easy, but it’s worth it
because it will directly affect your success as a project manager.

So how can you stay on top of things and improve your project estimation process?

Read relevant trade publications, websites, and blogs. Attend training and networking events. There are
growing numbers of local meetups and conferences on project management and estimation.

A career in PM means you have to always stay on top of trends, changes, and deliverables in your industry.

Step 4: Study your team's history to create better project estimates

Without a doubt, historical data can help you with new projects; when history is documented, you can
analyze the information to help you create better estimates. A great place to start is asking your team to
track their time on tasks, which will give you a better sense of a project’s overall level of effort. It’s not
about cracking the whip or playing big brother and hanging over someone’s shoulder—it’s being honest
about the effort and being profitable at the same time.

It goes without saying that every project is a unique snowflake! Project managers encounter tremendous
variety in clients, communications, team members, technology, and more. Seeing how long your team
spent on a certain task or deliverable will give you a sense for estimating a similar task on a new project.

As project managers we tend to underestimate, thinking we’re doing our clients and our team a favor.
But we’re not! Underestimating a project does everyone a disservice and causes stress when estimated
budgets and timelines are not met. Check your tracked time and use it to create a realistic project
estimate. If nothing else, review your project history to make sure you’re not habitually underestimating
project costs or hours.

TeamGantt Tip: Check out the project baseline feature in TeamGantt to check your actuals. You can
mark your originally planned schedule, compare it against your actual work as the project progresses,
and note where there might have been issues and how those issues might have impacted your level of
effort. This will help you to determine if you should have estimated the project differently, if you had it
to do over again.

Step 5: Ask more of the right questions

Whether you’re estimating a project based on a Request for Proposal (RFP), a discussion, or a brief
written message, you need to know every possible detail of the project before you can provide a realistic
estimate. This often means that you have to ask more questions.

By asking questions, you'll be able to create a project estimate based on what your clients need, not what
you think they need. You can use our project management software to help estimate your RFP.

Here are some things to think about when making an accurate time and budget estimation for projects:

 What is the goal of the project?

 How will you and your client determine if the project is successful?
 What returns will you and your clients see as a result of the project?
 Who will participate from the client side?
 What range of services does the project require?
 What is your client’s budget for the project?
 Is there technology involved? If yes, what is the technology?
 Does your client employ anyone with expertise on the topic?
 What is the timeline for the project, and will your client require your services after your work is
complete?

This list could go on and on depending on the level of information you’re provided. Be persistent and
get the answers you need. And, if your client is not inclined to answer every question, take it as a sign. If
it’s too much to answer a set of questions to help you form a good estimate now, will it be too much for
them to be a good partner when the project is underway? Use your judgment in this respect. Not every
estimate becomes a real project, so not every request needs to become a real estimate.
One of the biggest culprits behind misestimated projects is the lack of pertinent information and background
provided on would-be projects.

Step 6: Apply a work breakdown structure for your project estimation

If you think about a project, you can naturally break it down into phases, tasks, and subtasks. If you can
map it all out and apply a time estimate to each element, you should be able to create a solid project
estimate. There's a project planning and estimation technique called the work breakdown structure
(WBS) that makes it easy.

What is a work breakdown structure (WBS)?

A fixture in classic project management methodology and systems engineering, the work breakdown
structure is a deliverable-oriented breakdown of a project into smaller components. A work breakdown
structure is composed of a hierarchy of specific elements; an element may be a product, data, service, or
any combination thereof. A WBS also provides the necessary framework for detailed project cost
estimating and guidance for schedule development and control.

Creating a work breakdown structure for any plan helps you get granular about project tasks.

Why use WBS for planning and estimation?

Creating a work breakdown structure for any plan or set of tasks helps you get granular about the work
that needs to be done on any given project. Below is a very basic WBS for a very common deliverable—
moving to a new house! Check out the tasks and every aspect related to the event that the author has
taken into consideration. Is anything missing?
If you estimate your projects based on units—whether it be weeks, days, or hours—using a WBS will
help you understand very quickly if your project estimate will exceed the intended budget. Let's take this
project estimation example further and assign estimated hours to each step. Just remember, it could
change when you dig into the actual work. (These time estimates should be based on a combination of
experience and hypotheses.)

Current House

Pack: 8.5 days total

* Sum of tasks includes wrapping objects, packing in boxes, prepping for movers. Rooms and estimated
timing is as follows:

 Kitchen: 1 day
 Bathroom: half day
 Bedroom 1: half day
 Bedroom 2: half day
 Living Room: 1 day
 Dining Room: 1 day
 Basement: 2 days
 Garage: 2 days
This type of exercise can be extremely helpful during the sales process when a client tells you they have
X dollars to spend. Based on your estimates, you can easily map a set of tasks or deliverables to
something that works for both the dollar amount and the client’s goals. And, if a potential client comes
back and says, “Well that seems a little more than we want to spend,” you can lean on your work
breakdown structure to negotiate the cost down based on what's included in your scope.

For instance, if I had to cut down the cost/time on moving based on my hours, I could likely remove the
“cleaning” step from my “moving” WBS (though I’m sure someone might be unhappy about that). Use
the WBS to your advantage this way, and you'll not only create a project estimate that maps to a specific
budget, you’ll work out a solid set of project requirements.

Using these project estimation techniques as a foundation for your project will help you with the next
step: turning it into a project plan. We’ll discuss project planning more in the next chapter.

Step 7: Estimate projects with TeamGantt

Another easy way to estimate a project and allocate resources is to use one of your favorite project
planning tools. TeamGantt makes it easy to set up and estimate a potential project. In fact, it gives you a
more formalized way to list out your work breakdown structure and assign tasks and timelines to your
team. You can create those estimated project timelines based on effort and assign resources (or people)
within an online gantt chart. From there, you can schedule people against other project work.
Create your first project plan with TeamGantt.

Step 8: Start planning and estimating your project

Are you ready to dig in and estimate a project of your own? Try out a test run: make up a project of your
own and list out all of the steps that need to go into completing it. Run it by one of your team members
and see what they think. Did you miss anything? Did you underestimate the hours? Doing a test run will
get you ready for your first real estimate, or hone your skills for your next one.

You’ll find that there is no right or wrong way to create a project estimate. Your own dark art of
estimating projects will include a mixture of project knowledge, historical review, client inquisition, and
a ton of gut instinct.