Bottom-up estimating involves estimating smaller components of something and then using the sum total of the estimates to determine the overall estimates. For projects, this approach is used for estimating things like budgets and schedules and is done as project work is being broken down or decomposed and estimated. This is because it takes into consideration each component, so there are few things for which the process does not account. Lance can use this approach because he has a devoted project team who can assist with estimates and because the stakeholders are more concerned with accuracy than speed.
Comparison of Top-down and Bottom-up Estimates in Microsoft Project
Not all project activities will be scaled in a similar way due to specific project characteristics. Therefore, the resulting estimates will be less accurate than bottom-up estimates.
Bottom-Up Estimating Defined
This method uses a detailed work breakdown structure and is best for projects you’re committed to. Each task is estimated individually, and then those estimates are rolled up to give the higher-level numbers. (If you use the right project management software, it will roll up the estimates for you). This process makes you think about what’s required in order to take a step back to see if the big picture still makes sense. You’ll receive more accurate results than the top-down method, but it’s also a greater investment of time.
The process of predicting resources, cost, and time required to meet the project objectives is known as estimating. Bottom-up estimating starts by breaking the project down into individual activities and then having a subject matter expert create estimates for each activity. Parametric estimating relies on a mathematical model to predict project costs based on selected project characteristics. Such an approach relies on the known and fixed scope of the project, as without a clear scope it is impossible to list all project activities.
What are the disadvantages of the bottom up estimating?
In the top-down approach you will estimate the duration of deliverables and/or major deliverables. In bottom-up estimating you provide detailed estimates for each individual task making up your deliverables. Generally, top-down estimating is done first and then later followed up with bottom-up estimating.
Generally, while top-down and bottom-up can be very distinctly different they are often used in all types offinancial approacheslike checks and balances. For example, while a top-down investment fund might primarily focus on investing according to macro trends, it will still look at the fundamentals of its investments before making an investing decision.
However, the last few projects he has worked on have exceeded the estimates provided, so he has decided it is worth the effort to be more accurate. Bottom-up estimating is preferred over top-down estimating, where management imposes cost and time figures on a project without having gone through any detailed analysis to substantiate their results.
Vice versa, while a bottom-up approach focuses on the fundamentals of investments, investors still want to consider systematic effects on individual holdings before making a decision. Planning is one of the most important aspects of a successful, enterprise-wide performance management process. Two of the most common planning approaches are top-down planning and bottom-up planning methods. Although these two models represent two opposing strategies, they share similarities in the way a company identifies its key objectives.
1 week TOTAL $243, weeks After completing bottom-up estimating, two things are clear for Lance and his team. Luckily, this is something that could be reused in the future, reducing the amount of time involved. Second, this process produced a more accurate estimate, which turned out to be more favorable.
Such calculations ignore the design and material differences between your friends’ houses and your house. The variables impacting the cost of the project are known as cost drivers. These can be both physical, such as the size of the house, and functional, such as the capacity of a production plant. Additionally, the estimates are completed by the individuals completing the work, who are the most knowledgeable of it. Breaking work down and involving project team members in planning both take time, and neither is free.
- Each task is estimated individually, and then those estimates are rolled up to give the higher-level numbers.
- This method uses a detailed work breakdown structure and is best for projects you’re committed to.
It is time and cost efficient, objective, and consistent across different projects and it can be adjusted to various project types and can be validated with statistical methods. The resulting figures are used to create work schedules and a budget.
What is the difference between top down and bottom up estimating?
Bottom-up estimating involves the estimation of work at the lowest possible level of detail. These estimates are then aggregated in order to arrive at summary totals. By building detailed cost and time estimates for a work package, the probability of being able to meet the estimated amounts improves substantially.
Then, individual estimates are developed to determine what specifically is needed to meet the requirements of each of these smaller components of the work. The estimates for the smaller individual components are then aggregated to develop a larger estimate for the entire task as a whole.
In project management, this type of estimating is used to create a schedule or budget. Typically, the project work is broken down, or decomposed, into smaller components and an estimate of duration and cost is assigned to each component. The schedule is determined by aggregating the individual duration estimates, while the budget is determined by aggregating the individual cost estimates. Bottom-up estimating is an extremely helpful technique in project management as it allows for the ability to get a more refined estimate of a particular component of work. In bottom-up estimating, each task is broken down into smaller components.
Lance is a construction project manager who needs to change his approach to estimating. He usually does not spend much time estimating, confident in using his experience with similar projects as a reference point.
Because a large number of individual estimates is required, this approach is costly and takes a lot of time. Its use can be justified on large projects with a fixed-price contract and a critical deadline. Bottom-up estimating is a way to approximate an overall value by approximating values for smaller components and using the sum total of these values as the overall value.
IT Project Blog
A quicker and cheaper alternative to bottom-up estimating utilizes a mathematical model that allows the prediction of the cost of a project based on certain characteristics. The cost is derived from the correlation of the characteristics of the project to projects from past experience. For example, from the houses your friends and relatives have built, you might know that building 1 square meter costs roughly $1,000. Therefore, you would estimate that building a 150-square meter house will cost you $150,000.
At a very basic level, the top-down approach attempts to move from the general to the specific, while the bottom-up approach finds its way from the specific to the general. In companies, both approaches are often combined to form a countercurrent process. Bottom-up investors are usually those who employ long-term, buy-and-hold strategies that rely strongly on fundamental analysis. This is due to the fact that a bottom-up approach to investing gives an investor a deep understanding of a single company and its stock, providing insight into an investment’s long-term growth potential. Top-down investors, on the other hand, can be more opportunistic in their investment strategy, and may seek to enter and exit positions quickly to make profits off short-term market movements.
Compared to the actual cost of $240,000 and 20 weeks, his original estimate of $200,000 and 16 weeks was off by $40,000 and 4 weeks, causing the project to be over budget and behind schedule. If he used bottom-up estimating, the difference would have only been $3,000 and 2 weeks and would have caused the project to be under budget and ahead of schedule. Another disadvantage of bottom-up estimating is that it can be costly.