What Are Project Estimation Techniques? (How to Apply Them)

By Indeed Editorial Team

Published June 17, 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.

Project managers combine various estimation techniques to determine the resources they require for a successful project. These estimates help managers develop optimal budgets, prepare for changes in expenses or resource availability, develop projections, and maintain high cost-efficiency. Understanding the role of project estimation can help you make optimal use of your resources and create more accurate estimates for successful projects. In this article, we examine project estimation techniques, consider the elements they comprise, review six estimation techniques, and outline steps for applying them.

What are project estimation techniques?

Project estimation techniques are a combination of various systems you adopt to predict the cost or resources necessary to complete a project. You can use this estimation to develop a budget for project approval with stakeholders or clients. Making estimates forms a fundamental process in project management as it affects other project components. For instance, hiring the required professionals to execute a project depends on accurately estimating the cost of human resources.

Usually, in determining the relevant cost or resources necessary for a project, you can consider the project's scope. Beyond this, monitoring and controlling expenses are vital. Monitoring costs allows you to make more accurate project estimates as you can identify relevant changes and update your estimates.

Elements of project estimation

Here are some elements you can consider when making your project estimates:

Cost

The cost of a project is an essential component of making project estimates as accurate cost estimates influence budgets. You can also use these estimates to determine your clients' quotes, ensuring your projections are sufficient for profitability. This element of project estimation also considers possible changes in cost, such as inflation and increases in taxation.

Time

Estimating the timeline for a project can help you establish a schedule and project a time for completion. Including time in a project estimation also helps you balance time and resource constraints. Time as an element of project estimation also helps you consider human resource capabilities. For instance, you can consider the speed, experience, and competence of personnel when delegating project processes.

Related: What Is a Project Schedule Template? (And Its Benefits)

Quality

The quality of a project or its end product influences its timeline and resources. The higher the quality of a project or its end product, the longer and more cost-intensive it's likely to be. Considering quality can also help you identify industry requirements, special protocols, and relevant regulations. By identifying these specific requirements, you can determine the timeline for paperwork or the associated costs of sourcing high-quality materials.

Resources

While the cost of resources is an essential component of project estimation, it's also important to determine the nature and availability of relevant resources. These resources can include tools, software, materials, assets, and personnel. When evaluating the personnel for the project, you can consider their level of competence, certifications, skills, professional experience, and availability. Identifying relevant resources also helps you forecast possible changes in cost or other challenges. Considering the type of resources also improves the accuracy of your timelines and cost estimations.

Related: What Is Resource Management and Why Is It Important?

Scope

The scope of a project determines its relevant materials and the complexity of the steps leading to its completion. Where a project has a narrow scope, the steps and the relevant resources are fewer. Projects with a broader scope usually involve highly skilled professionals, advanced machinery, complex processes, and other cost-intensive resources. This consideration usually affects the project's timeline and resource estimation.

Risk

Every project has some challenges it can encounter or risks associated with it. This makes assessing these risks an important part of project estimation. Risk assessments can consider the costs and time required for resolving these risks. By outlining these risks in your estimations, you can make the team more resilient as they overcome challenges. This assessment also helps you remain flexible while working to deliver a project within its set deadline.

Related: A Guide to Risk Management Process (With Practical Examples)

6 project estimation techniques

Here are six techniques you can consider when conducting your project estimation:

1. Top-down estimation

This estimation technique involves starting an estimation by setting a deadline. With this deadline in place, you estimate the relevant resources and costs for project completion. The information you collect at this stage then determines the processes and milestones you establish for a project. This approach is highly effective when there's already a specific date in a client's mind. You can use this technique to optimize the team's performance in challenging situations and track their progress through milestones.

2. Bottom-up estimation

This estimation technique reverses the top-down approach as it begins with a detailed examination of a project's requirements. This examination helps project managers determine the relevant steps for a project. By identifying the steps, you can determine the time and resources required at each stage. You can then use this data to determine a definite deadline and set timelines and milestones.

3. Analogous estimation

This estimation technique, also known as comparative estimation, is common when determining the timeline of a project. You can use this approach to develop realistic deadlines for your projects by comparing the steps and timeline of another similar project. It's helpful to distinguish between the projects you compare when using this technique. Distinguishing helps you identify changes and developments from the former project and review their implications for the new project. When making this distinction, you can consider developments like policies, inflation, production volume, and certification requirements.

4. Parametric model estimation

This approach to project estimation also relies on the estimation of former projects but improves on the analogous technique. This technique improves by emphasizing the key differences between a former and a current project. To address the various changes between projects, you can use advanced algorithms to derive an accurate estimation. You can also apply this model when estimating the relevant resources for smaller projects by deriving the resources per unit. For instance, if a team member debugs a software in eight hours, you can determine the time necessary for each line of code.

5. Expert judgment estimation

This estimation technique relies on your expertise as a project manager. Your familiarity with the demands of a project allows you to provide a viable deadline and estimate. Using this technique proves to be one of the easiest and fastest ways of estimating project costs, and typically requires years of experience to master.

6. Three-point estimation

The three-point estimation technique combines the features of a bottom-up approach, analogous estimation, and expert judgment approach to make more precise estimates. This technique provides three possible outcomes for your project, including the most likely, the most pessimistic, and the most optimistic. You can use the average of these outcomes to make more inclusive estimations as you consider possible hindrances.

How to apply project estimation techniques

Here are some steps you can consider when conducting project estimates:

1. Determine the estimate's objective

Determining the objective of your estimate plays a fundamental role in its effectiveness. The objective of your estimate addresses varying concerns, including the project's scope and the recipient of the estimate. Considering the project's scope can help you determine the availability and cost of relevant resources. The recipient of the estimate is also important as it influences the structure of the estimate. For instance, an estimate you're developing for your department has a different structure from one intended for a client. A client's estimate can include comprehensive terms and processes to ensure effective communication.

Related: Complete Guide to Objectives for Managers (With Examples)

2. Outline the features of the project

Determining the objective of a project helps you outline its features. At this stage, the various elements of an estimation come into consideration. These elements help you develop a more in-depth understanding of the project's relevant resources, timeline, scope, or risk. Outlining these features can help you outline relevant steps of the project, determining milestones, and the necessary resources for each step. This step can also help you determine your unique project management approach.

3. Choose an estimation technique

After outlining the features of your project, you can determine the most suitable estimation technique. You can compare estimation techniques by listing their features or benefits and checking them against your project objectives. Determine other techniques or software for your project processes at this stage. For instance, if your project involves research for product design, you can determine the best method and software for conducting research.

4. Collect data

With an estimation technique in place, you can determine the relevant data for your project estimate. You can conduct research to derive these data and use your chosen tool to store relevant details on costs and resources. Your data collation can also extend to relevant best practices, cost objects, and trends.

5. Document your project estimate

Documenting your estimation can help you present your department or client with a comprehensive proposal. This document can also serve as a reference for similar projects to identify changes and trends in relevant industries. You can also use this document at various project stages to adjust milestones and review relevant costs.

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