Bottom-Up Estimating

Updated on April 25, 2024
Article byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Bottom-Up Estimating?

Bottom-up estimating refers to a strategy that involves projecting the cost of every element or component at the lowest possible level of detail and then summing up all the elements to obtain the final estimate. Businesses can utilize this strategy to estimate or predict the overall cost of time or resources for a certain project.

Bottom-Up Estimating

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It helps project managers of any organization to address problems associated with the projections without making too many adjustments. This strategy involves In the initial stages of any project, people may utilize their general estimates. However, as that project progresses, the detail level rises and their estimates’ accuracy increases.

Key Takeaways

  • Bottom-up estimating refers to a method that project managers in a business utilize to predict the completion date and cost of a particular project by gathering all the details from the granular level. Such a strategy helps effectively utilize cost, time, and resources.
  • There are various benefits offered by bottom-up estimating in project management. For example, it can provide accurate estimates and saves time for the team members involved in a project.
  • Incompatibility with projects having a short timeline and the involvement of multiple estimators are two noteworthy bottom-up estimating disadvantages.
  • Typically, the top-down estimating approach is less accurate than the bottom-up estimating strategy.

Bottom-Up Estimating Explained

Bottom-up estimating refers to a management technique that helps people in organizations determine the timeline or total cost of a particular project via the examination of the work at the lowest possible level of detail. Usually, individuals deriving such estimates are members of a project team. They possess hands-on knowledge concerning the proposed work. Hence, they are generally in an ideal position to comprehend the related work requirements.

One may wish to include as many relevant elements as possible at the time of making the estimates. This means the projections can be more comprehensive and accurate. Such a strategy formulated by project managers directly influences how the project team members allocate all the available resources. Moreover, it directly influences the profit structures’ design.

Managers overseeing various components within an organization commonly utilize this strategy to create project-related estimates. Some of the areas where this strategy is popular are construction, engineering, manufacturing, and software development. Note that usually, the completed projection is crucial for persons providing the funds for the project and stakeholders.

How To Use?

One can follow the steps below to use this strategy effectively:

#1- List Every Task For A Certain Project

The first step involves covering all tasks, as this is the foundation of this approach. Regardless of the level, the task might be time-consuming or exhausting. Note that project managers need to segregate the tasks and then estimate the project’s cost and duration.

#2- Figure Out Timeline And Resources

Next, project managers must set a duration or timeframe that is realistic with regard to project completion. They must match the resources’ skill set with the task to improve efficacy. This decreases the cost and time input for execution. Moreover, individuals must ensure to include the equipment-related requirements in the projection. After that, they must cross-check the total estimation.

#3- Delegate To Different Team Members

All team members share equal accountability and responsibility for a project’s failure and success. They are responsible for the accurate and proper completion of various parts of a project. Also, one must note that the feedback received from stakeholders and team members can be utilized for performing optimization procedures.

Examples

Let us look at a few bottom-up estimating examples to understand the concept better.

Example #1

Let’s say David owns a store that manufactures customized chocolates. The last time he gave a quotation for a box of 20 assorted chocolates, he miscalculated the total cost. As a result, David failed to make a higher profit. This time, he decided to utilize the bottom-up estimating strategy to make an accurate estimate.

As part of the strategy, David laid out all the elements required for each of the chocolates. Moreover, he accounted for the time required to procure the ingredients, coordinate customer service, etc.

Having everything on a list allowed him to view the project’s scope. Moreover, it enabled him to make an accurate estimate for this order.

Example #2

In 2018, a report published by the National Academy of Sciences placed low confidence in the Environmental Protection Agency or EPA estimates concerning landfill methane emissions. Per the conclusion reached by that report, the technique utilized to project methane emissions from landfills was outdated and not field-validated.

The current estimates with regard to emissions are mainly based on the waste stored at a certain landfill. However, the top-down measurements concerning methane emissions resulting from airplanes in recent times show that the actual emission levels were higher than estimates obtained using a bottom-up estimating strategy by a significant margin.

According to a professor at the University of Illinois, Jean Bogner, the emissions aren’t necessarily related to the waste quantity. He suggests that a combination of enhanced bottom-up and top-down strategies is required.

Advantages And Disadvantages

Let us look at the benefits and limitations of bottom-up estimating in project management:

Advantages

  1. This technique offers a clear picture of all components of the project to the team members. This allows them to obtain an accurate estimate.
  2. The strategy allows project managers to get a more comprehensive idea regarding the overall work package and anticipate possible roadblocks that may materialize in the future.
  3. It allows people to execute a project with more efficiency and effectiveness.
  4. The technique allows individuals to resolve issues concerning the estimates without having to make significant alterations. This makes it easier for the team members to avoid mistakes.
  5. Another key advantage is that it improves efficiency and productivity.

Disadvantages

  1. A key bottom-up estimating disadvantage is that it requires a project manager to start from the very beginning for every new project. This is because the point of this approach is to prepare an estimate on the basis of a certain project’s components. Hence, it is not scalable.
  2. This strategy is incompatible with projects with a short timeline.
  3. In this case, the duration estimate is dependent on the cost projection, which raises the chances of miscomputation impacting the overall endeavor.
  4. This approach involves multiple estimators. Hence, people may obtain biased results.

Bottom-Up Estimating vs Top-Down Estimating

Confusion regarding the meaning and purpose of bottom-up and top-down estimating can lead to people making incorrect project-related decisions. Hence, one needs to know the following key differences between the two concepts. 

Bottom-Up EstimatingTop-Down Estimating
This strategy is ideal for projects that are one-of-a-kind or unique.Such a technique is ideal for recurring assignments or any work a team must complete as soon as possible.
It helps determine how much time each sub-task of a project will take.This strategy helps people determine how long the entire project will take to complete
It helps make more accurate estimates as the approach involves a comprehensive analysis.This technique provides a less accurate estimate.

Frequently Asked Questions (FAQs)

1. Which is a good condition for bottom-up estimating?

If a fixed-price contract exists, individuals can consider using this approach for the project.

2. Is bottom-up estimating used in agile estimation?

Yes, a person may utilize this technique effectively in agile estimation. An individual completing the task can better say how much effort and time it would require to complete a certain work item. As a result, they can provide more dependable and practical estimates for a project.

3. How accurate is the bottom-up estimation technique?

Since this method involves using all known factors to figure out the requirements of a project, many consider it more accurate than the majority of the techniques utilized in project management.

4. What is the difference between bottom-up estimating and parametric estimating?

Bottom-up estimation involves breaking down the whole project into separate activities and having an expert create the estimates for every such activity. On the other hand, parametric estimating involves depending on a mathematical model to estimate project-related costs on the basis of selected project features.

This has been a guide to what is Bottom-Up Estimating. We explain its examples, comparison with top-down estimating, advantages, and how to use it. You can learn more about financing from the following articles –

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