Top-down vs bottom-up estimations

Abstract

When starting a new project, an important task for the project manager, is the estimation process. This can both be an estimation regarding cost and time-frames. It is important to get the project off to a good start, given that success of the project depends on the estimation - both in regards to time and cost. When estimating (or in other words 'predicting the future'), the project manager can use the following methods:

- Top-down estimating
- Bottom-up estimating

By choosing the top-down approach, the project manager chooses to make an overall scope of the project. From here, the major elements of the project is being listed and estimated separately. This approach creates a rough idea of the project size and the different timeframes of the project elements. The advantages of using the top-down approach is less time consuming and requires a limited amount effort. The estimates created by this method often turns out larger than the ones, which has been found using the bottom-up approach.
The bottom-up approach is on the other hand a very time-consuming and costly method, but it gives a more accurate estimate of the project time and cost. By using the bottom-up approach, the cost and time frame is being calculated for every activity related to the project. The values and time frames are then aggregated in order to estimate the total cost and project time. The bottom-up approach is often used in order to gain stakeholders to buy in on the project.

Big idea

The term 'estimating' in terms of project management can be defined as "the process of predicting the cost and time needed to deliver project products". The estimation part is an important step on the way to a get a good product, which satisfies the costumer and/or the user, when it is delivered in the end. The estimation proces is used in order to predict the cost and the duration of a given project, which is making it possible to make the decisions, which will benefit the project. When estimating, it is also possible to make a decision regarding the viability of the project, when the financial requirements has been determined.
The duration of a project is important to know in regards to costumer expectations and in order to know when the product can be delivered. From the estimation process, the project manager can use the determined time frames for time scheduling, which is relevant informations for interested stakeholders. During the project, the project manager can hold the real time data up against the estimated values in order to monitor the performance of the project.
Project estimations can be a fast task, but it can also be very time consuming. This all comes down to how the project manager wishes to prioritize the estimation, and is a decision on whether the time used on estimating is worth the effort in the end. The estimation process can be carried out by using top-down estimating as well as the bottom-up estimating.

Top-down estimating

Top-down estimating, also refered to as analogous estimating, defines the way of estimating based on the information which is available about the project at the moment. The tool often uses similar projects as guide lines in regards to tasks, cost and project durations. The top-down approach is a fast and efficient way of estimating, but can leave out information, which is unique to the particular project, and the result can therefore be different from the real price and duration.

Bottom-up estimating

The bottom-up estimating approach is to be used, when a detailed estimate is needed for the project. By using the bottom-up estimation, the project cost and duration is estimated on a task specific level, allowing the project manager to plan each and every task. The task costs and durations can then be aggregated in the end, which will result in a very detailed project estimate. This approach also makes it possible to estimate the amount of resources needed for the project.
An example of a bottom-up estimating process can be seen from the following figure.

Example of bottom-up estimating. Can be found at https://project-management.info/bottom-up-estimating-definition-example-pros-cons/

The bottom-up estimating is performed at the lowest level with-in the 'Work breakdown structure', which is where all of the activities within a given project has been named and listed.

The big differences between the to estimation techniques is that the top-down estimating can be used for any level of of the project phase, even when information may be limited. On the other hand, it is fairly common that the bottom-up approach is used, when a lot of knowledge has been obtained about the project.

Application

The two different tools used for estimation purposes can be used in different times of the project phase.

Top-down estimating

The top-down estimating strategy can be put into work when

• the project has a limited amount of information available
• the project manager wants a fast and cheap estimation of the project cost and duration
• the project manager needs to see the big picture and an accurate estimate is not needed

Top-down estimating can be done in four different ways:

• a single-point estimate
• a ratio estimate
• an estimate range
• a three-point estimate

Bottom-up estimating

The bottom-up estimating can be used for estimating

• the needed time for the project (aggregated task durations)
• the resources needed for the project
• the project cost

The bottom-up estimating technique should be put into work when the project is in a place, where it needs accurate predictions regarding future. This can be, as shown in the bulletpoints, in regards to duration, cost and resources.
The different estimates can also depend on each other. The task duration will often depend on the resources, which has been assigned to the specific task. The cost is estimated from the time- and resource estimates by multiplying them with the price per unit. This is differentiated from company to company.

Limitations

The two different estimation techniques each have their limitations, when being used for cost- and duration estimations. These will be listed below:

Top-down estimating

The main limitations, or consequences, which is present when using the top-down estimating technique, is listed below.

• The use of the top-down estimation gives a rough and not quite accurate picture of the project.
• When comparing the current project to an earlier finished reference project, the assumptions regarding similarities between them has to be correct. If the assumptions were wrong, the determined estimate would then be useless for the project.
• The potential inaccuracy in regards to the results, makes it harder to make decisions and project planning based on the estimates found from using the top-down approach.

Bottom-up estimating

The main limitations, or consequences, which is present when using the bottom-down estimating technique, is listed below.

• The bottom-up estimation technique is expensive to do, both in regards to effort and time, and from this resources needed for the process.
• The estimation regarding the cost of the project relies on the estimated time frames, which is then relying on the estimated resources needed for the project. From this, the estimation could be incorrect, if error occurs in one of these estimates.
• If the project is at a large scale, the estimates made with the bottom-up estimation could be ignoring the possibility of integration efforts in regards to the listed project tasks.

Annotated Bibliography

Provide key references (3-10), where a reader can find additional information on the subject. The article MUST make appropriate references to the and reference material provided in class – either incorporating it as a source, or critically discussing aspects that are missing from it but covered by this article. Summarize and outline the relevance of each reference to the topic (around 100 words per reference). The bibliography is not counted in the suggested 3000 word target length of the article.