It is essential to do a cost estimation roughly for a project before the management approve the project. This is an initial estimation of the cost. Usually, a detailed cost estimate, which will be far more different from the initial one. It is very important and also difficult for the project manager and team to prepare a good cost estimate. However, they usually use several methods to prepare the cost estimate but most commonly used methods are: Analogous or top-down estimate and Bottom-up estimates.
In Analogous estimating, we use “Analogy”, that is we use a previous similar project cost as a reference for our existing project. In this method project managers look into the past projects to precisely sort out the same kind of deliverables. The organizations usually store all of their project work and cost related data in an archive and this archive plays a vital role when the project manager need those for their current project. The project manager and other senior members (like the sponsor) use these information by making appropriate corrections or change. This method is less expensive but if we don’t use professional and expert judgement it can also be less accurate.
Bottom-up estimates is a technique in which project manager and team work to prepare the estimates for the activities written in the work breakdown structure (WBS), and then add them up into for the total cost estimation of the project. In this technique the team members usually show a good team work because the whole team is involved in this estimation process. This method is more accurate then analogous estimate but it is time consuming.
(1) Billows, R. How to So Analogous Estimating. 4 PM.com
(2) Billows, R. Bottom-up estimating. 4 Pm.com