In the project cost management section of the lecture, Dr. Simon talked about two different ways to come up with a budget: analogous estimating (“top-down”) and bottom-up estimating. Analogous estimating is much faster, however, less accurate because it is tweaking results from a similar project or eyeballing it. Bottom-up is more time-consuming, but also more accurate. It was mentioned in the lecture that the bottom-up is not always possible especially when you are doing something for the first time; it would be difficult to know how much that costs. Top-down could get your project funded, however, a cap might be placed on the budget based on this estimate. This estimate could have been too low if the project becomes significantly larger than anticipated. On the other hand, bottom-up could give you too high of an estimate and result in a lack of funding for the project. These examples show that these two can be used for different situations, but has anyone used either of them or prefers one to the other?
In an ideal world the bottom up approach should be preferred. In my mind, the only major limiting factors to a bottom up approach is securing funding and hard project deadlines, which is what an "ideal world" would eliminate. As you have mentioned, a bottom up approach allows the project to be more accurate which should always be the number one priority. The top down approach is best when the aforementioned limiting factors are present because it sets preliminary restraints on a project that has not be fully started yet.
I agree with @anthonynjit . Although the analogous approach is quicker and less costly, its downfalls include being less accurate, considering little detail and understanding in preparing estimates, and caps on overall project costs. On the other hand, the bottom-up approach offers a more accurate estimation requiring the project to be defined and understood. The bottom-up approach would be ideal in most instances. In the event that there's a smaller project or a project that introduces new concept to the company, top-down estimating may be used. I have not personally had the opportunity to witness these methods firsthand but would prefer the bottom-up approach over top-down. Top-down infers uncertainty whereas bottom-up offers deliverables.
If I was in charge of the budget I would mostly use a top down estimate and have a factor increase that is calculated depended on the largest investment. So if the top-down budget is $10 Million dollars and the largest investment is $1 Million, then I would increase the budget by at least 10% or more. This may over budgeted but I think it a better option compared to simply estimating dependent on loose information gathered from analogous projects. The budget can also be updated as the project goes along it's life cycle as in many case that it what happens when under budgeting occur. The bottom up approach would be very time consuming and well be less attractive of a project budget as it will have to account for every single purchase.
