In cost management, one of the most important decisions is choosing the right estimating method: analogous (top-down) or bottom-up. Each has trade-offs between speed, accuracy, and level of detail.
Analogous estimating uses data from previous projects to estimate costs quickly. This approach can be helpful in the early phases of planning when limited detail is available. However, it’s also risky - projects that appear similar may differ significantly in technical complexity or resource needs. Teams that rely on top-down estimates to secure funding, may run into major cost overruns during execution.
By contrast, bottom-up estimating is more granular. It involves estimating costs for each individual task in the WBS, then aggregating them to form the total budget. While time-consuming, this method offers a clearer picture of resource needs and helps avoid surprises. It also fosters team engagement, as subject-matter experts provide input based on their experience. One challenge is the temptation to pad estimates to account for unknowns, which can inflate budgets unnecessarily.
Earned Value Analysis (EVA), which is crucial for tracking Cost Variance (CV)and Schedule Variance (SV) allows for proactive cost control throughout the project. For medical device projects where budget accuracy is critical but uncertainty is high, a hybrid approach initial top-down followed by progressive bottom-up refinement might work well.
How should project teams decide between speed and accuracy when selecting a cost estimating method, especially in projects with high uncertainty?
When deciding between speed and accuracy in cost estimating, project teams should consider the project's phase, and the level of uncertainty involved. In the early stages, analogous estimating can provide quick, broad estimates to secure initial funding and set expectations. However, as the project progresses and more details become available, transitioning to bottom-up estimating can enhance accuracy and resource allocation. This hybrid approach leverages the strengths of both methods, ensuring initial speed without sacrificing the detailed accuracy needed for effective cost control. Additionally, incorporating Earned Value Analysis (EVA) throughout the project can help monitor and adjust estimates, balancing the need for precision with the realities of project execution. How might teams effectively manage the transition between these estimating methods to maintain both speed and accuracy?
I definitely agree with the last post that using a hybrid method using both analogous and bottom-up estimation methods is an effective approach. I think to confront the uncertainty aspect in a project, integrating the risk management team with their risk analysis tools would be incredibly beneficial. That way contingency plans are also included in the initial analogous estimation to show stakeholders. Again this will only be 100% accurate if there is an adequate amount of contingency plans in place that cover all of the potential problems that may arise in the project.
This integration of risk management and risk analysis would also increase the accuracy of Earned Value Analysis (EVA) as mentioned in the original post. That way the projects Planned Value is correctly acknowledged so there is no incorrect calculations for cost variance and schedule variance. If the project does not utilize risk management and the risk analysis tools, project members could be tricked into thinking their project is well under budget at a certain time. That is until they hit a problem that causes delays and costs which could have been avoided or mitigated.
@ms3548 I think the way to managing the transition from broad to bottom-up estimating is to treat it as a planned-hand off. For example, scheduling a formal review point once enough detail is available, like a completed WBS or when the basic design of the product is set, the team can pause and then update their estimates from the ground up. The bottom-up process has a clear start point and doesn't get delayed or overlooked. Another thing is documenting the assumption behind both estimates to help track what's changed and why. This makes it easier to justify updates and helps the team spot scope creep or potential risk issues that need addressing. Should estimate updates be tied to specific milestones, or kept based on detail discovered at the time?
When deciding between speed and accuracy in cost estimating—especially in high-uncertainty projects like those in the medical device field—a hybrid approach truly offers the best of both worlds. Starting with analogous estimates allows for swift decision-making and early-stage planning, while transitioning to bottom-up estimating ensures more accurate budgeting as project details emerge. This transition should be intentional and tied to key project milestones, such as the finalization of the WBS or design freeze. To manage this effectively, it’s crucial to document all assumptions made in both estimating phases, so that any updates or variances are traceable. Additionally, integrating risk management from the start helps anticipate cost impacts, enhances the accuracy of Earned Value Analysis, and reduces the likelihood of budget surprises later on.
Deciding between speed and accuracy in cost estimating really comes down to project context and risk tolerance, especially in high-uncertainty environments like medical device development. In early stages, top-down estimating is often the most practical approach because it allows teams to quickly scope out a ballpark budget, gain initial approvals, and start stakeholder conversations. However, project teams should recognize this estimate as preliminary and flexible, not fixed. As the project progresses and more details become available, bottom-up estimating should be included as tasks are better understood. This method increases accuracy, enhances team involvement, and reduces financial surprises. In high-stakes industries where regulatory compliance, patient safety, and technical complexity are at play, accuracy becomes more important than speed, especially before committing to major expenditures or product milestones. To balance both of these methods a hybrid approach starting with top down estimates, followed by progressive bottom-up methods can be ideal.
Estimating costs is one of the medical device project planning steps in the planning phase of a project. It enables teamwork in identifying resources needed, setting budgets, and making critical decisions. At times, there is a compromise between precision and speed, especially in the early phases of a project when little information is available.
Rapid estimates can be done for funding applications and go/no-go decisions in the early planning phases. Such estimates are helpful, but tend to rely on benchmark assumptions which usually lead to underestimating costs related to testing, regulatory submissions, or manufacturing. Highly detailed estimates, while accurate, prove to be time-consuming in obtaining which might slow down decision-making processes and project momentum.
Determining which approach to adopt depends on the project phase and the risk involved. Early on, rough order-of-magnitude estimates might be adequate, whereas precise data-driven projections are required during later phases, particularly those associated with FDA submissions or manufacturing.
Should teams focus more on sustaining project initiatives with rapid assessments or concentrate on preparing for unexpected costs further in the process?
