Estimates are just that, an estimate of future costs.
The accuracy of estimates can vary greatly and generally range between -50% to +50% of the cost of the project depending on the type of estimate used.
Project managers commonly use the following types of estimates for their project estimates:
Rough-Order-of-Magnitude (ROM) Estimates
- ROM estimates are used early in the project life cycle, typically during the project selection and approval stage when few details are available
- Used by stakeholders decide if a project is within their means
- ROMs can range in accuracy between -50% to +50%
- Sometimes called a “green thumb” or “gut’ estimate
- ROM estimates are always refined during the project planning process
Budget Estimates
- A budget estimate is an estimate of the funds allocated for the project
- This is the maximum amount of money an organization or stakeholders is willing to spend on a project
- There is a difference between an estimate and a budget
- Estimate approximates the cost of the project
- Budget is what is allowed to be spent on the project
- Budgetary estimates can range between -10% to +25%
Definitive Estimates
- Definitive estimates are detailed and accurate cost estimates
- They are created after the project’s scope and requirements are well defined
- Definitive estimates are created during the latter stages of the project when engineering or construction is usually about 40% complete
- Definitive estimate accuracy ranges between -5% to +10%
When providing or discussing project estimates, be sure to note which of the three types of estimates were used to generate the estimate.