We learned in lecture this week that Analogous Cost Estimating is quick, less accurate, less costly, tasks don’t need to be identified, gives PM idea of management expectations, and overall project costs are capped. Whereas Bottom Up Estimating is more accurate, takes time and money, gains buy-in from the team, based on a detailed analysis of project, and provides a basis for monitoring and controlling.
Which cost estimating technique do you use at your company? If you were a PM, which cost estimating technique would you use?
For my company, it depends on the project/technology and stage. For example a project for a CAR-T cell immunotherapy would use a bottom up estimating because it would be a well-defined and understood project and would be more accurate. Whereas for a medical device that we wouldn’t have as much familiarity with in developing, we would use Analogous estimating because the estimates could be prepared with little detail and understanding of the project and it would be quick. Once we would have more information at a later stage with more details and understanding of the project, we would do a bottom up estimate.
Analogous Estimating:
This technique is used to estimate the project cost when very little detail about the project is available. Therefore, this technique does not provide a very reliable estimation. The primary benefits of this technique are its lower cost and quick results.
In analogous estimation, the cost of the project is estimated by comparing it with similar projects previously completed by your organization. Here you will look into your organization’s historical records (i.e. in organizational process assets) for previously completed projects similar to your own. You will select the project which is closest to your project and use your expert judgment to determine the cost estimate of your current project.
Its also called a Top-down estimating.
Bottom-up Estimating:
The bottom-up estimating technique is also known as the “definitive technique”. This estimation technique is the most accurate, time-consuming, and costly technique for estimating the cost of a project. In this technique, the cost of every single activity is determined with the greatest level of detail at the bottom level and then rolls up to calculate the total project cost.
Here, the total project work is broken down into the smallest work components. Each component cost is estimated and then, finally, it is aggregated to determine the project’s cost estimate.
In my point of view, Bottom-up Estimating is the most accurate technique.
But this technique can only be used when every detail of the project is available.
This is a time-consuming and costly technique but gives the most reliable and accurate result
As you both discussed, you prefer Bottom Up Estimation. I am inclined to agree with you on most projects. However, there might be instances, such as small, fast projects, that might require Analogous Cost Estimating because they simply don't cost enough to put in the effort to create an entire Bottom Up Estimation.
For example, if my boss were to ask me to quickly give him an estimation of a project within the next couple of hours or minutes, I would not sit down and start an entire Bottom Up Estimation project. However, if it was an indepth project that the company was investing a lot of time and money on, then yes, the BUE would be the preferred option.
Every estimate is an expectation of the normal last cost of a project for a given extent of work. Each estimate is related to uncertainty, and in this manner is additionally connected with a probability of invading or under running the anticipated cost. I would pick Parametric estimating as it involves the examination of expenses and recognizable proof of cost drivers to develop cost models. The approach basically associates a cost and labor data with parameters depicting the thing to cost. Also, this procedure is utilized as a part of the prior periods of a project when there aren't any particular data about the project, however, there is recorded information from past comparative activities.
For my company, they used bottom-up estimation. As they like everything as much accurate as it could be based on analysis and facts. However, there is always some exception based on the volume of the project and what is the profit margin. If I was a PM role, I would prefer bottom-up estimate as most of us do. I think it delays the start of the project, but it could save a lot of money and time. It is considered as risk management to the project and helps for better planning when it's based on studies and analysis, not on estimated.
