One of the reasons projects fail is the lack of thorough estimation. As the project manager, you must put in more effort during the planning phase to ensure your projection isn't way above your budget. Some early-stage estimations required for a project are cost estimation, estimate to complete, and estimate at completion.
The bottom-up estimating technique is an excellent method that helps you arrive at an accurate estimate. It gives you an eagle-eye view of your project requirements and timeframe. With an accurate estimation, you will know how to harness your team's potential for executing the project.
What is bottom-up estimating?
The bottom-up estimation (sometimes also referred to as the detailed estimating approach) technique is a crucial project management technique used by project managers to estimate the total cost, resources required, and duration of completing a project at a granular component level. It arrives at the total cost of the project and duration estimate by aggregating the estimates of each small component in the work breakdown structure.
Bottom-up estimating is a detailed method that deals with all activities in the work breakdown structure. It breaks down the project into bits, taking note of every detail, gathering all necessary information, preparing the budget, and designing the project timeline. With this estimating approach, team members will be assigned tasks required at each project level and given a deadline to complete tasks.
Bottom-up estimating is a quantitative approach that brings about accurate results, especially when the project scope details are available. It gives you a precise estimation of the project resources one by one and allows you to manage costs. You can get an estimation for the entire project by calculating the costs of each work package and summing up everything from the bottom to the top to arrive at an overall project estimate.
Bottom-up estimation is considered a definitive estimate and an accurate method of estimating. According to the Project Management Institute, it brings about -5% and +10% estimate accuracy. Bottom-up estimating stands out from all other estimation techniques because it allows the project manager to take a granular look at each project component and arrive at an accurate estimation.
Bottom-up estimation technique vs. top-down estimation technique
The top-down estimation technique is also referred to as the analogous estimation technique. It is a cost-estimating technique that relies on expert judgment and historical data. It allows project managers to calculate the anticipated cost of a project by using the known cost of a similar project completed in the past as a parameter. Analogous estimation is often used as a rough estimate at the earliest stage when there is no detailed information about the project.
Unlike bottom-up estimation, analogous estimation is less accurate. The accuracy of this technique will depend on the similarity between the past and new projects. No two projects are the same. Each project will have its unique traits and circumstances. Using a previous calculation for a new project has a probability of estimation error.
Aside from more accuracy, bottom-up estimation is better than the analogous approach because it fosters team cooperation and commitment. Unlike the sole decision of the project manager, bottom-up estimation involves the whole team coming together to determine the costs and schedule. Each team member will know the importance of their role in the project's success, thereby making them or more committed.
Bottom-up estimation technique vs. parametric estimation technique
The parametric estimating technique is used to estimate project costs with historical data and project parameters. It relies on statistical relationships between historical data and other variables.
The project will be divided into smaller units or deliverables using parametric estimating. The cost and timeline for each project unit will be determined using historical data and observed parameters. The value of the estimate of each component will be aggregated to determine the total cost and life cycle of the entire project.
The parametric estimating technique is often used in large and complex projects. Although it also considers and scales historical data such as cost and schedule of previous similar projects, it provides more accurate results compared to analogous estimation techniques.
Parametric estimating is different from bottom-up estimating because, unlike the latter, it does not estimate all tasks required for the completion of the project to arrive at a final estimate. It considers just about 80% of the necessary tasks to be accomplished to arrive at the final cost estimate quickly.
Aside from that, a parametric approach can be applied to either a total project or a project segment. In contrast, the bottom-up technique requires all details of the project.
How to use the bottom-up estimating technique
Create the work breakdown structure
The first task is to create the work breakdown structure by breaking the whole project into smaller chunks called work packages. Work packages are each component of functions involved in the project. Break down the project into the simplest task, and no task is too small. This step is essential since the bottom-up estimation technique focuses on estimating the project at the granular component level.
Breaking down the tasks into the smallest chunk is also necessary to accurately estimate the timeline and cost of executing each of them.
Estimate resources and timeline
After you have established a work breakdown structure, the next step is to estimate activity resources, that is, the number of resources required to complete all activities outlined in WBS. You need to be meticulous to get a realistic cost estimate and budget at this stage.
You need to determine the number of human resources required to execute each sub-project and identify the required skill set, expertise, and equipment. You also need to assign a realistic time frame to complete each task. All projects should be executed within a definite time. Efficiency is a crucial component of project execution.
To make accurate assumptions, you must delegate tasks to team members according to their expertise. This will help you get the cost of resources assigned to each member's task and duration estimates.
Although, as the team leader, you are the team leader who will be responsible for the success and failure of the project. However, you can not be in charge of all the sub-tasks or work packages. You do not have to possess all expertise and knowledge required to complete each project task.
You need sub-project managers and work package owners to manage tasks. These people have the technical and analytical skills and experience required to complete each stage of the project.
Tasks can be grouped into work packages and assigned to a work package owner or sub-project manager. A work package is a group of similar tasks within a project. A work package is the smallest unit of the project. 3 to 4 team members may be assigned to a work package.
For instance, tasks are grouped into engineering, design, and marketing departments. Each head of the department can be a sub-project manager heading the team executing all engineering-related tasks.
The work package owner will be responsible for creating work package descriptions and cost estimates for the sub-project, monitoring performance and deadline adherence, and giving feedback to the project manager.
As the project manager, you have to assign roles to your team members based on their key competencies and experience. You receive feedback from all team members and ensure they all adhere to their deadlines. As a leader, you should motivate your team members to be committed to their assigned tasks and ensure they achieve success regardless of any obstacle.
The last step is the aggregation of costs. After you break down the project into smaller units and go through all the previous steps, the next step is to aggregate all estimated resource requirements to get the project's total cost.
To get the cost estimate for the entire project, you need to sum up the total costs multiplied by the number of days required to complete each work package. The result is your total project estimate. The technique is called bottom-up because it analyses the cost of each activity required before summing them up to arrive at an estimate.
Bottom-up estimating example
A project manager has been assigned the software development project of a new health tech company. The project manager, who has previously handled similar projects, attempted to use a top-down approach to compare the similar software development project he had executed. Then he realized this project might be a bit different since health is a sensitive subject matter which may require a unique approach. He decided to use a bottom-up estimation method.
First, using his expert knowledge, he analyzed the project and broke it down into work packages and sprints; Business Analysis, Design and prototyping, Coding and development, Testing and quality assurance.
The business analysis work package requires one business analyst whose bill is $30 per day. The design requires two UI/UX designers who will collect $30 per day. They need two front-end developers and three back-end developers who charge $50 per day. Lastly, there is a need for three testing and quality assurance experts who bill $20. Each sprint is to be completed within 15 days. Each team must complete its task within 15 days, making the project timeline 60 days. However, additional 30 days were set aside for unforeseen delays.
The cost of each work package;
- Front-end and back-end software development: $50 ×5 per day.
- Business analysis: $30 per day.
- UI/UX designing: $30 ×2 per day.
- Testing and quality assurance: $20 ×3 per day.
They also provided other overhead and indirect costs that may arise within the project timeline. Such cost covers issues arising during the quality assurance process, maintenance of any future bug, WiFi and Internet connectivity glitch, inadequate storage, cost of visiting business partners, and communication. This cost is called a contingency reserve required to resolve identified contingencies.
Another 10% of the total project cost was also set aside for management reserve, the cost of managing unforeseen risks.
Now to estimate the cost of the project,
Cost estimate : ($250× 15 )+ ($ 30 × 15 )+( $60 × 15)+ ($60× 15) + ($50( Contingency reserve ) = $6050
10% management reserve = 10% of $6050 = 605.
Aggregate estimate = 6050+605= $6655
Advantages and disadvantages of bottom-up estimation
The benefits of using bottom-up estimation for your project are numerous. Likewise, it has some disadvantages you may want to consider before using the technique.
Pros of bottom-up estimation technique
It has a higher level of accuracy
The most significant advantage of bottom-up estimating is accuracy. Compared to other cost estimating techniques, bottom-up estimates provide more accurate results. The method allows the project manager to break down the project into its simplest form and have a clear picture of the costs.
The project manager isn't just relying on expert opinion. Every team member will calculate the cost of their tasks based on their expertise and experience. No task will be left out, however small, and provision is also made for foreseen and unforeseen circumstances.
Techniques like top-down estimating rely on historical data and opinions that may not represent the peculiarity and changing business climate at the project's time. The parametric method does a detailed cost estimation but does not estimate the cost of every task. It is often restricted to the cost of about 80% of the tasks. This will likely affect the accuracy of the estimate.
Risks are shared and reduced
Bottom-up estimation is teamwork. Each work package owner takes ownership of their tasks and error risk. Everyone shares the burden and is focused on mitigating the risk of inaccuracies. The risk will also be reduced since the project management team is engaged in a thorough bottom-up analysis.
Risks are anticipated at every stage of the project from the top down. The manager can assess change requests at any stage and leverage each team member's expertise to make necessary adjustments.
Estimate errors can be balanced
Cost estimation may not be 100% accurate. However, with bottom-up budgeting, you can balance an overestimation or underestimation.
For instance, if you underestimate a work package's cost or time frame, you can balance such errors by overestimating another work package. As such, it prevents inadequacies that may affect the budget baseline and erode the success of your project.
It also gives project managers a flexible error mitigation option. If the project manager makes any estimate error, aside from balancing out, they can perform a cost-benefit analysis to devise a solution.
It fosters team collaboration and better result
Unlike hierarchical top-down estimation that relies on top management insights and opinions, the bottom-up approach harnesses the potential of the team members. It gives them a sense of responsibility and ownership. Making them part of the planning process and decision-making will boost their morale to be committed to the project's success against all odds.
It can be used with other techniques
Bottom-up estimating is not a rigid technique. You can incorporate other methods used in estimating projects into a bottom-up approach.
You can use parametric or analogous estimating to estimate the resources required for a particular project component or activity. For instance, if you use a bottom-up estimation approach in software engineering, you can use parameters like code line per developer and hour.
Cons of bottom-up estimation technique
It is time-consuming
The bottom-up estimating technique requires thorough analysis across all stages and tasks needed for a project. As such, it cannot be performed within a short period. That means a great deal of time that is supposed to go into project completion is wasted at the planning stage. Compared to other techniques, it also requires more time and effort.
In contrast, the top-down approach is more efficient. It takes only the manager and stockholders to analyze the project and create a budget.
It depends on elaborate detail
Bottom-up estimation can not work if there is little detail about the project. The project must be broken down into smaller tasks and activities for you to analyze. There is a likelihood of inaccuracy if all required details are not available.
It is not scalable
Although no two projects are the same, some details can still be extracted from past projects. Bottom-up estimation requires the project manager to start from the ground level in any project. It requires a total breakdown and analysis of all components to get the desired result.
Some vital system-level costs may be overlooked
In addition to the tasks in the WBS, some overhead and integration efforts are likely to occur. Large projects often account for such details because bottom-up estimates tend to focus only on the WBS's activities. Ignoring such aspects can affect the project at the working stage.
Higher risk of personal bias and budget padding
All cost estimation techniques are prone to the bias of the estimators and the likelihood of padding. However, with the bottom-top approach, the risk is high because many estimators are responsible for estimating their work packages. This means there will be more bias and estimation errors that may be tough to manage.
In conclusion, bottom-up estimating is a comprehensive approach that requires more resources and time. Although most project managers are turned off by the time and cost it consumes, you can't underestimate the importance of the accuracy of your bottom-up estimate.
On the other hand, estimating rules are not set in stone. You don't have to use the bottom-up estimating technique every time. Consider the peculiar need of your project and choose the method that works for you. You can also use the hybrid estimating technique by incorporating other techniques into the bottom-up approach.