In Project Management, Bottom-up Estimating, as the name suggests, is estimating from Bottom to top. The components of Work Break Down Structure (WBS) are estimated starting from bottom to the top. The cost, duration, or resources of individual work packages or activities, which are located at the lowest level are estimated in detail. When an activity cannot be estimated with a reasonable degree of confidence, then the work within that activity is decomposed further to form more detailed activities. This process continues till you can estimate your activities with reasonable confidence. These detailed estimates at the lower levels are aggregated or summarized or “rolled up” to higher levels to get the total estimate for the entire project. Bottom-up estimating is referred to as one of the most accurate estimating techniques.
Definition of Bottom-up Estimating
Bottom-up estimating is a method of estimating project duration or cost by aggregating the estimates of the lower-level components of the WBS. When an activity cannot be estimated with a reasonable degree of confidence, the work within the activity is decomposed into more detail. The resource needs are estimated. These estimates are then aggregated into a total quantity for each of the activity’s resources.
Accuracy of Bottom-up Estimates
The accuracy of bottom-up estimates is high and is more compared to Analogous or parametric estimates. The bottom-up estimation technique is also referred to as deterministic or detailed estimating. It is often used as the so-called “definitive estimate” – a type of cost estimate that comes with an accuracy between -5% and +10% according. Accuracy of bottom-up estimates is typically influenced by the size or other attributes of the individual activity or work package.
Bottom-up estimating involves entire project team in estimation process, consequently this estimating technique develops better team commitment compared to other estimating techniques. As team is involved in estimating, there is a possibility of padded estimates, thus the Bottom-up estimates are typically more compared to other estimates.
How to Do Bottom-Up Estimating?
Bottom-up estimating involves estimating for the most granular component level of a project (e.g. a work package or an activity). In projects that apply PMI methodology, these components have been identified in the processes “create WBS” (PMBOK, ch. 5.4) and “define activities” (PMBOK, ch. 6.2).
The results of these granular estimations are then rolled up to calculate the estimate for the whole project.
Bottom-up estimating can be used to estimate resources needed, Costs, and also time needed. Thus there are three types of bottom-up estimates:
- Resource Estimates – Estimating the resource needs (PMBOK process “estimate activity resources”, ch. 9.2),
- Duration Estimates – Estimating the time needed (duration) (PMBOK process “estimate activity duration”, ch. 6.4),
- Cost Estimates – Estimating the costs (PMBOK process “estimate costs”, ch. 7.2).
There are some interdependencies between these estimations: The duration of an activity typically depends on the resources assigned to the activity. The cost estimates are then calculated by multiplying the resource units with the time and the price per unit.
Bottom-up Estimating – Important Points to remember
- Bottom-up estimating can be used estimate Resources, Duration and Cost.
- Bottom-up Estimates are more accurate.
- Bottom-up estimating requires the maximum amount of time and effort to estimate, when compared to all other estimating techniques.
Advantages and Disadvantages of Bottom-Up Estimating
- Bottom-up estimates can be very accurate. This is because team members are estimating the piece of work they are responsible for. As they typically have the most knowledge of their work package, their estimates tend to be much more accurate than top-down estimates.
- Estimation errors can balance out across the components of a project. If the time or cost of one work package has been underestimated, for instance, this could be offset by an overestimation of another work package. Such errors might therefore not necessarily impact the budget baseline at the project level.
- Bottom-up estimating can be used in conjunction with other estimation techniques, e.g. the activity duration could be obtained through parametric or analogous estimating.
- The bottom-up estimation process itself requires a lot more resources than other techniques such as analogous estimating (top-down estimation).
- The project must have been broken down to the work package and activities level for you to apply bottom-up estimating technique.
- The overhead and integration efforts that may occur in addition to the work defined in the activities are often ignored. For large and complex projects, these aspects cannot be ignored and should be factored in.
- The cost estimation is based on the duration estimate. Both rely on the estimated resource requirements. Thus, an estimation error there would lead to inaccurate time and cost estimates as well.
- In practice, bottom-up estimates can be prone to the bias or the interests of the estimators. While this applies to all types of estimates (to some extent), it may be less manageable in bottom-up estimating. This is because these estimations are usually done by many different estimators, i.e. those responsible for a work package.
Bottom-up estimating can be a very accurate method to determine the definitive estimate of a project. It requires a certain amount of resources and an established work breakdown structure. The project must have been broken down to the work package and activities level before you can apply this technique.
Apart from estimating resources, time and costs for the planned work of a project, this technique can also be used to assess change requests, e.g. in the course of a cost-benefit analysis of such changes.
Other commonly used Project estimating techniques
Also check the comparison of the Estimating Techniques.