But what is the reality on the ground? In a PMI report, 14% of the surveyed IT projects were deemed as failures. However, this approach may be the only one available in some special circumstances, such as projects where time and resource is limited, or when a single source specialist supplier involved in the project’s delivery.įor more advice on cost estimating for projects, get APM and ACostE’s cost estimating guide here.Organizations aim for their projects to be successful and to meet client expectations as well as their internal objectives. The ethereal approach is generally a last resort, ideally reserved for low-value elements of work or situations where a robust estimate is not considered critical. Your estimates shift based on those quotes and costs with a degree of control removed.
That estimate is un-auditable and has to be accepted at face-value. That external source provides their own estimation of their costs, using their own methods. These values are often created by an external source taken on for usually low-value elements of work, or by other organisations with acknowledged expertise, such as vendors, catalogue prices or subject matter experts. In some cases, you will need to accept estimated values into the estimating process. Lower level baseline estimates typically skew towards the positive – ‘most likely values’ are inherently and implicitly optimistically biased. As a consequence, it is not unusual for bottom-up estimates to be lower in value than top-down estimates. However, as the approach focuses on the aggregation of smaller estimates, there is a higher risk that these will exclude any allowance for emergent work (scope creep).īottom-up estimates are usually based on the most likely values for low-level activities. Bottom-up estimates are often used to gain stakeholder buy-in as a result. For very immature projects with little definition, a bottom-up approach is probably not the right way to go.īottom-up estimates are at a level that feels more tangible than those created using the top-down approach. The level of detail available to you will be influenced by the maturity of the project, product or service and the quality of the data collected in the organisation. A bottom-up approach requires a good definition of the task to be estimated it is frequently referred to as detailed estimating or as an engineering build-up. In a bottom-up approach to estimating, the project team breaks the client’s requirement down, identifying the lowest level appropriate to create a range of estimates, covering the project scope based on the task definition available. As a result, top-down estimates are typically larger numbers than those created by a bottom-up approach.
This can help reduce the risk of overlooked work activities or costs. The main benefit of top-down is the chance to use more holistic data from previous projects or products, including unmitigated and unforeseen risks, and scope creep. Top-down estimates generally take less time and effort to produce than bottom-up estimates (see below). Top-down estimating is exactly as it sounds – you review the overall scope of your project, identify the major elements of the work and estimate them separately from the rest of the project.Ī top-down approach is frequently used for creating rough order of magnitude (ball-park) estimates at an early stage of the project, when the level of detail available is limited (they can also be used for validation purposes). These are explored in more depth in the APM-ACostE Estimating Guide. There are three main approaches to estimating your costs – here’s how they’re best deployed. You may deploy different cost-estimation techniques at different stages in a project’s development, and it’s important to revisit your estimations and revise them as the project goes on. They’re also vital if you want to give your project focus. KPMG’s survey in 2015 backed up those findings.Ĭost estimation is a tricky thing to get right – it will always be speculative, based on what you know at the time. Back in 2001, the National Audit Office found that bad cost estimation was the reason for 70 per cent of public sector construction project failures, or blown budgets. Underestimate the costs of your project, and it could be dead in the water.