ROM Estimate, Budget Estimate, Definitive estimate

Project Estimates are the approximates of resources (costs, time, or effort) needed to complete project activities. They are just predictions that are based on the information known at any given point of time. The accuracy of these predictions (estimates) improves as a project progresses,  as more detailed information will be available and more project assumptions will be tested. Depending upon the customer, and the current stage of project, sometimes, a general (less accurate) estimate is required, and at other times you may require a fairly accurate estimate. Based on their degree of accuracy, there are 3 major types of Project estimates, they are Rough Order of Magnitude Estimates or ROM Estimates, Budget Estimates, and Definitive Estimates.

3 Types of Project Estimates

Project Estimating is one of the most important aspects of project management. Projects have limited resources, so to manage a project efficiently and effectively, the ability and process of estimating the required resources (cost, time, and level of effort) are always crucial. Based on their degree of accuracy, there are 3 major types of Project estimates, they are Rough Order of Magnitude Estimates or ROM Estimates, Budget Estimates, and Definitive Estimates.

1. Rough Order of Magnitude Estimate or  ROM Estimate – Accuracy (-25% to +75%)
2. Budget Estimate – Accuracy (-10% to +25%)
3. Definitive Estimate – Accuracy (-5% to +10%)

ROM estimate is a general (less accurate) estimate, while the Definitive estimate is fairly accurate. We shall discuss the different Estimates in detail.

Rough Order of Magnitude Estimate or ROM Estimate or Ballpark Estimate

Rough Order of Magnitude Estimate or ROM Estimate is a general (rough or less accurate) estimate. It is made in the early stages of the project life cycle, generally in the Project Initiation Phase. This estimate is generally requested, by a client to make a decision to go ahead with the project by checking whether the project cost and project schedule are broadly acceptable or not.

The accuracy of the ROM estimate is low and varies between -25% and +75%. ROM estimate’s variance seems to be rather large, but it should be understood that it is at the start of the project when detailed information is limited or not yet available. So, having a rough estimate with such an accuracy variance should be acceptable. As the project moves forward, more details will be available (Progressive Elaboration) and gradually the accuracy of estimates will also improve.

ROM Estimate – Important points

• ROM estimates are made very early in the project life cycle or the Project Initiation Phase.
• The accuracy Range of a typical ROM estimate is -25% to +75%, it may also vary between -50% and +50%. We can see that accuracy is very poor.
• Many times, Project managers calculate this estimate by looking at any similar projects executed in the past. 
• ROM Estimates use Top-down estimating for coming up with estimates.
• The time required to calculate ROM estimates is very low.

Budget Estimates 

• The accuracy of budget estimates is better than ROM estimates, and the accuracy range is -10% to +25%. 
• Budget estimates are made at a later time in the project after the ROM estimates. Typically, Budget estimates are made during the Project Planning phase.
• Both Top-down and Analogous Estimating can be used to develop budget estimates.

Definitive Estimates

A Definitive Estimate is very different from ROM Estimate. The definitive estimate is more accurate and more time taking to develop. The accuracy of Definitive estimates typically varies between -5% and +10% or -10% and +10%.

The definitive estimate of a project can arrive only when sufficient information is available. Definitive Estimates are generally prepared in the Planning phase or late phases when the detailed project scope is available. If a client requests a Definitive estimate, then he should make sure to provide all the detailed designs and scenarios of the project. It is not possible to arrive at a Definitive Estimate without detailed information.

The Bottom-up estimating technique, which involves the decomposition of work, is employed to calculate Definitive Estimates. Preparation of Definitive Estimates requires a great amount of time and effort.

Definitive Estimates – Important Points

• Calculating Definitive estimates requires detailed information.
• As the project progresses through the project life cycle, the accuracy of Definitive estimates will gradually increase.
• Accuracy Range of a typical Definitive estimate is -5% to +10% or -10% to +10%. More Accurate.
• More time and effort are required to calculate Definitive estimates.
• Definitive estimates are calculated as the project progresses in time, i.e.. when the project will have a detailed scope, most probably in the planning or other later phases of the project cycle.

Now, that you understand the types of estimates based on their accuracy, it is also important to understand how these estimates are calculated. This is where the different types of estimation techniques come in.

There are 4 types of estimating techniques.

1. Analogous Estimating
2. Parametric Estimating
3. Three-Point Estimating
4. Bottom-up Estimating

Also, check the comparison of the different Estimating Techniques.

Other References

NASA – Rough Order of Magnitude (ROM) Costs and Detailed Cost Estimates

http://www.sceaonline.org/ — The Society of Cost Estimating and Analysis

Costing Estimating and Assessment Guide — from the Government Accountability Office (GAO)