Simplify project estimation with 6 intuitive methods

Project management requires careful preparation. A project manager needs to know how much money, expertise, and time team members will require to accomplish the intended goals.

Although you can’t pinpoint the precise resources needed to deliver a successful project before you begin, you can reliably predict these totals using project estimation techniques. With a rigorous project planning and management process, you can produce resource and cost estimations that ensure your team has what it needs to succeed. 

These estimation methods require accurate information and ongoing communication with stakeholders to ensure their veracity. If you’ve never produced an estimate, the process may seem intimidating. However, your estimates will become more reliable once you familiarize yourself with the process, consult your peers, and gain some experience.

What is project estimation?

When project management generates an estimation, they consider every aspect of the initiative. They review data from previously completed work, similar projects or tasks, and expert input to establish expected timelines and budgets. Managers consider everything the team needs from start to finish (e.g., time, money, and resources) to deliver the required outcomes. 

The estimator considers vital information about technical elements from:

• Subject matter experts

• Industry professionals

• Project team members

They then balance those factors against the client’s needs. A project manager can better understand a client’s requirements by learning about their:

• Expectations

• Definition of success

• Best- and worst-case scenario budgets

After gathering information, leadership combines their historical data, expert opinions, and best judgment with client input to generate a project budget and resource list. 

How to properly execute a project estimation

Project estimation is a rigorous process. You must consider crucial elements of the project plan, such as staffing, funding, and timing, to determine the project’s viability. Only then can you establish a capacity plan. 

Here’s a breakdown of the information needed to calculate an estimation:

Cost

An accurate estimate of the work’s total cost allows you to deliver the project within budget and allocate funds to cover unexpected issues, such as scope creep or risk emergence. 

A cost estimate includes two types of expenditures: direct and indirect costs. Direct costs describe any specific expense required to produce the desired income. These can include:

• Labor

• Resources 

• Services

• Equipment

• Risk mitigation 

Indirect costs are general expenses that support multiple projects simultaneously. They cover fees for:

• Project management

• Security

• Utilities

• Rent

• Quality control

Scope

A scope statement or statement of work (SOW) establishes a project’s scope, outlining crucial information for the initiative’s success. The document contains essential info for a project estimate, including: 

• Objectives and deliverables

• Tasks

• Timelines

• Milestones

• Assumptions and potential risks

• Stakeholders

• Key meetings

Time

Once you’ve defined the scope, you can estimate the project’s duration. Account for these factors to ensure a precise time estimation: 

• Meetings

• Reporting

• Communication

• Testing

You must also prioritize activities according to corporate deadlines, such as fiscal years or quarterly reporting periods. 

Time estimates should also consider the following factors:

• Task duration: You’ll find it easier to estimate overall time requirements after breaking a project into smaller steps.

• The level of detail for each project phase: Vague time estimates may come into focus as you uncover more project details.

• Unexpected obstacles:  Supply delays, equipment failures, and accidents can impact the project’s timeline.

• Client completion times: Clients often underestimate task duration. Build a buffer into time estimations for any work that requires their input.

Resources

Project management can use the SOW or scope statement to forecast requirements for various resources, including:

• Staff

• Vendors

• Contractors

• Equipment

• Materials

The following factors may impact your resource management estimations:

• The team: Account for vacation time, parental leave, sick days, and other reasons team members may not be available to work.

• The industry: Client expectations vary across industries. For example, some sectors take longer to deliver approvals.

• Published data: Project management journals may shed light on resource requirements for specific projects.

• Commitments: If a project’s required resources are contracted for other jobs, determine when you’ll need them and avoid scheduling issues.

• Past performance: Reference the resource plans from prior successful projects to inform future estimates.

Risks

Project risk management involves identifying, assessing, and mitigating potential threats to project delivery. Common risks include:

• Scheduling risks: Falling behind or getting ahead of schedule can impact the availability of resources, such as labor, equipment, and facilities.

• Technical risks: Essential tools may fail, or your team may require special training to use them. 

• External risks: Market and environmental changes (e.g., supply chain disruptions or natural disasters) can impact the outcome of long-term projects.

6 successful project estimation methods

Numerous project estimation methods exist, each tailored to specific project needs and information environments. Once you’ve decided on an approach, you can employ specialized project management software to help you calculate estimates.

Here are six popular project estimate techniques you should be familiar with:

1. Top-down

The top-down estimation strategy forecasts a project’s overall duration, costs, or resource needs. Once you have the total, you can allocate assets according to project phases or deliverables. The work breakdown structure (WBS) helps you establish an accurate breakdown of tasks by deconstructing project deliverables into individual jobs and sub-tasks. 

2. Bottom-up

Bottom-up estimation works in the opposite direction, asking you to estimate the resources needed for individual tasks or phases and then calculate the total. This technique improves estimate accuracy but requires more time. 

3. Three-point estimation

Three-point estimating combined with the bottom-up method results in even greater accuracy. Identify the optimistic, pessimistic, and most likely projections. Then, average them to arrive at a final estimate. 

Three-Point Estimate = (Optimistic + Most Likely + Pessimistic ) / 3

4. Comparative or analogous estimation

Analogous estimating reviews successful projects from the past that are similar to the current project. You can apply those insights to generate cost, scope, and time forecasts. This method is best suited for routine projects.

5. Parametric estimating

The parametric model uses detailed data from past projects. Parametric estimation is often used alongside analogous estimating techniques to improve the accuracy of predictions.

Consider this simple example: If the IT department took 40 hours to update 160 work terminals, you can calculate that they need 15 minutes per terminal. If the team performs a similar update on 210 terminals, the project will take about 52.5 hours.

6. Expert judgment

An experienced project manager may know a specific project’s time and resource requirements thanks to extensive past experience. It’s best to check with multiple experts or combine this method with other estimation techniques. 

Why is project estimation important for your team?

Project estimation controls projects and sets them up for success. Inaccurate estimates lead to missed deadlines and cost overruns that threaten a project with failure.

Here are the primary benefits of accurate project estimation:

Improved risk management

A comprehensive plan mitigates risk by accounting for scope creep and unexpected obstacles. To build in these buffers, you need a solid estimate of the minimum time required to complete the project (aka the critical path). Team members can then prioritize tasks to safeguard project outcomes when challenges arise. 

Increased accountability

When you’re transparent about the time, funding, and resources available for each project phase, team members can respect those boundaries and hold each other accountable. Share your estimates within your project management software so everyone can reference them.  

Greater stakeholder and client confidence

Accurate estimations require a project plan that identifies essential tasks, requirements, and dependencies. Keep this information on hand and demonstrate how it informs your estimates to reassure project stakeholders and clients. 

Estimate your projects with Tempo

Project estimation is too complex for project managers to rely exclusively on spreadsheets and calculators. With so many factors to consider, they need project management software to do the heavy lifting and ensure accurate calculations.

Tempo provides a comprehensive suite of tools to aid in your project estimation.

Resource planning and management

With Tempo’s Portfolio Manager, you can estimate costs, resource needs, and staffing for your project teams. This resource management platform helps you manage multiple teams simultaneously, overseeing shared resources so everyone has what they need to meet their project plan.

Project managers can also use these insights with Tempo’s Capacity Planner to make informed decisions about hiring and assigning resources. 

Resource and cost management

Tempo Timesheets and Financial Manager allow project teams to track time, costs, and progress across multiple projects. Analyze historical data to improve the accuracy of parametric estimates. 

Project roadmaps 

Tempo’s project roadmapping tool, Strategic Roadmaps, provides visibility into your initiatives by ordering the required tasks into one intuitive diagram. Visualizing the project helps your team identify the critical path and generate a bottom-up estimate of the necessary timeline and resources.