Bottom-Up Estimating in Project Management

Bottom-up estimating is a project management technique is an essential estimating technique. It is used while estimating the project cost, duration, or resources. It starts with gathering the details at the lowest level of the work breakdown structure and estimating work for each work package. The estimate of the entire project is the sum of (cost, duration, or resource ) for each work package.

In this article, we will learn about the bottom-up estimates process and the advantages and disadvantages of bottom-up estimating in project management.

It would be unreasonable to say how long it will take to write a whole book without considering the time required to complete each activity. Therefore, the book’s contents are decomposed into chapters, paragraphs, sentences, and even words. The duration (and therefore cost) of each discrete unit is estimated, then added up the quantities to give an estimate for writing the entire book.

The point is that activities can be decomposed into smaller tasks to make estimating easier. Since bottom-up estimating requires decomposition and aggregation, it is necessary to consider two techniques: decomposition and aggregation.

During Bottom-up estimation, the project team takes ownership of the activities, ensuring that all components are considered for estimation. The project manager can comprehensively understand each work package, which also helps in risk identification and reduction in overall project risk.

Why Bottom-Up Estimation in Project Management is Important

Using this estimation method, you must first understand that the project has both duration and cost constraints, predefined chiefly defined in the project charter. You must thoroughly analyze and evaluate everything required to complete the project with the given constraints. It is essential to have a well-defined work breakdown structure to implement this technique successfully.

The bottom-up estimation method is often used in project management because it is the most reliable technique for estimating cost, duration, and resources. It is most reliable because the project is broken down into smaller parts, and each part is evaluated independently. Since each part is independently evaluated, this estimation technique is the most time-consuming technique yet, the most accurate

How to do bottom-up estimating

Bottom-up estimating is done to estimate project cost, duration, or resource needs. There is interdependency while calculating these estimates, as duration is directly related to the resources assigned to the work and costs depend on time and resource requirements. So how do you do bottom-up estimating? As per the PMI methodology bottom-up estimating involves two important processes i.e. creating WBS and defining activities.

Create a work breakdown structure or WBS

First, you’ll need to create your work breakdown structure, or WBS, to estimate the time/cost required for each step in the process. Work breakdown structure examples are often created using the mind mapping technique, which helps you to visualize better how the project will be completed. Under each step, you will list all the tasks that need to be completed so that the overall project can be considered complete. At this point in your estimating process, it’s a good idea to include all the resources you expect will be needed for each work package.

Determine Resource and timeline

Bottom-up estimating is estimating how many resources are needed to complete a project. It usually starts by assigning tasks from the work breakdown structure (WBS) to team members, and then the resource estimates the time/ cost required for each study. Considering the expertise, knowledge, and skill required to complete each task is essential. Therefore team leader is often involved in this process.

Delegate estimating to team

During this step RACI chart or RAM is often used to assign the task to the team, enabling the team members to estimate the actual time/cost it will take to complete various tasks rather than relying on an assumption. The process can be tedious; therefore, you want to delegate this responsibility to the team member who is most familiar with the work.

To charge estimating to a team member, you need two essential components: the task and the person who will do the estimating. First, identify and break down all of the tasks into smaller subtasks. This process of breaking down tasks into subtasks is known as decomposition.

Next, decide who will do the decomposing or estimation for each sub-task. There are several estimating techniques. One method estimates the time each person will take to do a particular subtask. Another way is to create a single detailed plan and then split it among the team members. The third option is to assign time to an entire subtask (or set of subtasks) and let everyone work on their assigned tasks at their rates and times.

Aggregate team estimates

After assigning the activity to the resources using the RAM( Responsibility assessment matrix) such as the RACI chart, the estimates for each activity are documented, and with the help of expert judgment, lead & lags, and reserve analysis the duration, cost, and resource requirement is estimated. It is also important to create the basis of estimate for risk identification and integrated change control.

On completion of bottom-up estimation, the process results in cost estimates, duration estimates, or resource requirements.

Bottom estimation example

The cost and duration of a construction project estimated using bottom-up estimating are determined by dividing the work into small work packages. For instance, the construction of a house project can be divided into work packages such as Architectural design, excavation, foundations, walls, windows, paint, flooring, electricity, heating, plumbing, etc. These work packages are further divided into individual activities.

After the activities are defined, each activity’s cost and duration are determined and rolled up to the work package and the deliverable level. The aggregated value of time and cost helps in the estimation.

Bottom-Up vs Top-Down vs Parametric Estimating

Bottom-up estimating or Top-down

The top-down estimating approach is usually done during the initial stage of the project. The cost and duration estimate for deliverables are determined before the deliverables are divided into the work packages and activities. This approach is also preferred when working on repeated projects as the process has already been established for the repeated projects. In contrast to bottom-up estimates, this process is fast but less reliable.

For instance, if the new project is similar to a previous project done by the organization, then the estimate for the new project can be calculated using the estimates from the earlier projects. The cost of the previous project was USD 100,000, so the estimate for the new project would be 100,000 if a similar amount of work is required.

Bottom-Up vs Parametric Estimating

Parametric estimating is a statistical-based estimating technique in which the relationship between the variables is used for an accurate estimate. It usually requires extra information when using a PERT formula or algorithm for calculations. For example, if a wall of area 100 Square feet is to be painted and the cost of painting each square foot is $5, then the total estimated cost would be 100*5 = $500. Therefore the parametric estimation is based on a mathematical model.

The parametric estimating technique is easy to demonstrate and is a fact-based technique, so it is easy to get estimates approved by the stakeholders. Once the variables and the mathematical model are developed for the project, the models can easily be used in other similar projects.

However, the parametric technique requires reliable historical information, therefore if the historical data is not available or not reliable then this technique cannot be used. It is also very important to build an accurate model to determine project estimates. Any error in the model can result in inaccurate estimates which will, in turn, results in project failure.

Bottom-up vs Three-point Estimating

The three-point estimation technique is the average of three estimates, namely the optimistic estimate, the pessimistic estimate, and the most likely estimate. This technique can be used to estimate the cost and duration of a project, and it is more accurate than the Analogous and Parametric estimating techniques. The optimistic estimate is the best-case scenario; the pessimistic is the worst-case scenario, and the most likely is the most realistic scenario. Subject matter expertise is essential in this method.

E = (O + M + P) / 3

Where “O” is optimistic, “M” is most likely, and, “P” is pessimistic

The PMBOK uses t(E), t(O), t(M), and t(P) as variables for time estimates, and c(E), c(O), c(M), and c(P) as variables for cost estimates.

Example of a three-point estimate

Three point estimate = ( 11 + 20 + 14) / 3. This results in the final estimate of 15 days.

Pros & Cons of bottom-up estimating

Advantages of bottom-up estimating in project management

The bottom-Up analysis is the most accurate technique because the team member responsible for performing the task is involved in the estimation process. This technique can also be used in combination with other estimating techniques.

The Bottom-up estimating technique helps reduce the risk of cost and duration overrun by providing accurate estimates, which in turn increases the project success rate.

The bottom-up estimation technique is significantly helpful in the projects which are new to the organization or in projects for which no historical information is available

Disadvantages of bottom-up estimating in project management

Even if reliable historical data is available for estimation, the bottom-up estimating technique requires estimating each activity; therefore, it is not scalable.

It is the most time-consuming technique; therefore, it is not helpful in repeated projects and organizations with high volume project load.

It requires proper planning and time to perform bottom-up estimates, therefore it cannot be used in projects that have duration constraints.

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