THE 3 PARTS OF PROJECT ESTIMATION (and the 6 Best Techniques to Tackle It)
As a project manager (PM) you are tasked with a wide-scope of activities and, in today’s world, collaboration both internally and externally is key. But it is a PMs duty to create and align the project around its classic metrics and barriers, namely:
Scope, Time, Cost, Quality, Resources, and Risk
Understanding these well within an organization means a PM can accurately forecast a project's multiple moving parts and this is called project estimation which in-turn can provide an accurate picture or scope of work for the client. PM’s are estimating everything from the volume of work to be undertaken to who will work on the project and if budget is required.
This can sometimes seem unwieldy but it boils down to three major parts:
ESTIMATION OF EFFORT
You can probably glean what this is from the heading so I won’t state the obvious. What must be considered is what effort entails; are we talking time, capacity, resource availability, skill requirements? Manage and know this pool of features well and the estimation can become significantly more accurate, earlier in the project life-cycle.
ESTIMATION OF COST
Once effort is assessed, knowing the cost should be a simple equation, the answer to which is very helpful to a client.
ESTIMATION OF RESOURCE
Knowing the time and capacity already you can understand how much resource (human or otherwise) you’ll likely desire to provide. Knowing cost ahead of this can provide a red-flag if it seems likely that a project will be over or underserved.
These estimates can be ball-park, but should get more accurate as you progress. Having a system in place can help automate the above as well as providing a role for an accurate forecast earlier in the cycle.
ESTIMATING EFFECTIVELY AND ACCURATELY
There are multiple schools of thought on project estimation but the following six techniques are the most adopted.
This method aids in the reduction of ball-park estimates and given most services companies are likely to be delivering projects in a similar vein to historical ones, this technique makes a lot of sense. Essentially by starting with a completed yet similar project to the one about to be undertaken as a reference point, you simply correlate the estimates and actuals from that project and apply it to the same or similar activities about to be undertaken.
This method analyses the estimates required, such as time or cost, on a smaller part of the project and then multiples it up. If there are multiple deliverables the technique can be applied to each one individually. A drawback? The data feeding the metric you calculate on must be robust, as even a minor miscalculation early can result in a wide gap to accuracy in the final estimate.
PERT stands for Program Evaluation and Review Technique (exciting), but the essential premise is you take a best-case scenario and a worst-case scenario and average it out to provide an average “likely” outcome.
This could probably be considered the most in-depth technique as you workshop with the client (who can provide exactly the outcomes they desire) each estimate in terms of the classic metrics mentioned at the beginning of this piece, and then you conduct an impact analysis on each.
By knowing the risks that could occur and the assumptions of your client, this method can provide the most accurate forecast as each individual element has been mapped; that said it is likely to be the most time-consuming. A term to know is Work Breakdown Structure (WBS), sometimes used here as you deconstruct the project into its major units or phases. An element of good estimation overall is the ability to build-in ‘contingency’ that aids the maintenance of risk control and keep an eye on profitability, but What-if Analysis is arguably the best technique to use for this.
As the name would suggest, you literally work from the bottom-up, exploring each individual element (e.g. resource) and sub-element (e.g. labor) of the project and build up the picture of what the project will eventually become. The estimate is essentially the total sum of elements created. Again a resourcing tool here can really help as you’ll want to account for all staffing overheads including holiday or illness.
Kinda the reverse of Bottom-up. Evaluate the overarching features of the project first and then disseminate them into their component parts. This technique might also include elements of parametric estimating and/or What-if Analysis, especially WBS, as estimating in project phases is typically more accurate.