Take a slow, thoughtful look at Joseph Phillips’ down-to-earth article, “Real World Project Management: Estimating Your Project Costs”. I’m enjoying it immensely, because it spells out a few things I’ve taken for granted.

At the moment, I’m thinking about his list of three approaches to creating estimates. They are:

    1. The ballpark estimate, also known as the rough order of magnitude (ROM): I’m guessing this one is self-explanatory, but Joseph states the range of variance is from –25% to +75%.
    2. The budget estimate (or top-down estimate): Usually based on previous experience with a similar set of tasks; Range of variance, –10 percent to +25.
    3. The definitive estimate (or bottom-up estimate): When it’s time to develop a work breakdown structure (WBS). Your reward for sweating it out with this approach is a –5% to +10% range of variance.

First, consider providing a cost range, rather than a range of variance. It puts the numbers right out there where everyone can see them, and still leaves you the space/grace for errors.

Second, many experienced project managers have probably developed their own personal strategies for avoiding the ballpark estimate. When it comes to projects that require at least moderate personal interaction, there are few good (or honest) reasons to give in to a client’s pleas for a “number off the top of your head”.

What really got me thinking, however, was items 2 and 3… Well, actually, somewhere in between. There are times that call for a “2b”, when parts of a budget can be drawn from previous experience (did you know that was called analogous estimating ?), and certain sections demand a long, searing look, deliverable by deliverable.

When do you use the definitive estimate (if ever)? Does yours evolve at defined phases? or in fits of inspiration, as you recognize that enough information has now been gathered? And, have you ever done it “off the record”, when a client was unwilling to wait for (or foot the bill for) a lengthy work breakdown process so early in the game?


2 Responses to Cost Estimates: The Basics of the Basics

  1. Penina says:

    That’s a wise comment and a good point. All players need to keep in mind that an estimate is just that: an Estimate.

  2. Elizabeth says:

    I would never use the phrase ‘definitive estimate’ in conversation with my stakeholders! It gives the impression it is not an estimate at all, but a fixed amount. People only hear what they want to hear, and using ‘definitive’ in a discussion about budgets will end in tears!

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