The building blocks of Estimation

Estimation is the ability to predict an uncertain quantity ahead of time. Project management involves estimating for the resources, time, money, effort, and duration of an activity or project. For a project to succeed, accuracy in estimation is crucial. Underestimating can lead to loss of business or goodwill with customers. Accuracy category Expected accuracy Rough order estimate (ROM) -25% -75% Definitive estimate -5% – 10% During pre-sales we might use ROM. Following re-estimations, we can be more precise. Each industry has its own estimation model, but they all use the same estimation building blocks: Analogous (TOP-DOWN) estimation: This is a gross value estimation approach that adjusts for known differences. It uses historical data from similar activities/projects. This method is not accurate but requires little time, project information, and technical expertise. Example: To estimate a similar project that was completed 3 years ago, we could use the actual cost of construction and adjust for inflation or construction costs. 2. BOTTOM UP estimation Now, estimate the leaf items and then add them up for the whole item. This is illustrated in the below picture. This method is more time-consuming, requires technical expertise and requires detailed project information. However, it provides accurate estimates. Example: To estimate the total cost of a large building construction, you will need to estimate the components such as the foundation, each room, lift, common area and bore well. Add security bay, sump, swimming pools, and car parking to get the total estimate. 3. Parametric estimation: Uses historical data to estimate. Example: To calculate the total cost of construction for a flat, use PRICE PER SQFT * AREA per SQFT. Three point (PERT), estimation: Make three estimates: Optimistic (o), Optimistic(p) estimate (best case), and Pessimistic [p] estimate (worst). The Beta Distribution is usually assumed. The formulas below calculate the mean estimate and standard deviation. This concept is derived from PERT (Program Evaluation and Review Technique). Estimate = (o+4m+p) / 6

Standard Deviation = (po) / 6 (note: Most likely estimate is not used in this equation).

Example: A job that is expected to take 6 days can be completed in 4 days and 10 days in the worst case. Then Estimate = (4+4 * 6+ 10) / (6 = (4+24+10)) / 6.33 days Standard Deviation = (10-4 / 6= 6/6 = 1 Day 8 6 2 19 4 9 5 7 25 44