Here are three techniques for estimating project costs.
Top Down
- Top-down estimates are used to produce a cost estimate or timeline of a project without any detailed information
- Sometimes referred to as analogous estimating because it relies on existing information of similar projects to produce a ballpark figure for the total cost
- It requires the knowledge of the actual cost of a previous and similar project as the basis for the new estimate
- Top-down estimates are quick and efficient and are generally faster and easier to produce that bottom-up estimates
- Requires a good dose of Expert Judgment
- Top-down estimates rely on assumptions about the project which can lead to inaccurate estimates
Bottom Up
- Bottom-up estimates are considered to be the most accurate estimating technique because it involves breaking a project down into smaller tasks to estimate the resource time and effort required for each task
- Tasks are added together to calculate the total project cost and timeline including resource requirements
- Bottom-up estimates are not quick because it takes time to break the project down to the task level for the detail needed to produce the estimate
Parametric
- Uses a mathematical model of the project characteristics to estimate the project costs
- Relies on good and current historical data to produce the parametric model and identify the variables such as cost, duration, or resource requirements
- Parametric estimating can be used to estimate whole projects or segments of the project, and may be combined with other estimating techniques
- Some believe parametric estimates are more accurate than bottom-up estimates