Bottom-up estimating is a technique that involves estimations on a granular level for parts of a project. These are then aggregated to a total estimate for the entire project. It is often referred to as one of the most accurate ways of estimating. Estimating cost, duration or resource requirements of a project typically starts with a rough order of magnitude in the beginning. This is followed by more accurate estimates later in a project.
In this article, we will introduce the concept, cover the differences and interdependencies with other estimation techniques and provide guidance to and an example of bottom-up estimating in projects.
What Is Bottom-Up Estimating?
Bottom-up estimating is a technique in project management for estimating the costs or duration of projects and parts of a project (PMBOK®, 6th edition, ch. 220.127.116.11, ch. 18.104.22.168). The term bottom-up estimating gives a hint about the underlying concept: costs, durations or resource requirements are estimated at a very granular level. This means that the estimation is done for work packages (some might suggest activities though) which are the lowest and most detailed level of a work breakdown structure (WBS).
While the estimation is performed at the level of activities or work packages, the estimate for the whole project is the sum of all granular estimates.
The bottom-up estimation technique is also referred to as deterministic or detailed estimating PMI Practice Standard for Project Estimating, 2nd edition, ch. 4.2.3). It is often used as the so-called “definitive estimate” – a type of cost estimate that comes with an accuracy between -5% and +10% according to the Project Management Institute (PMI).
What Are the Differences between Bottom-Up, Top-Down and Parametric Estimating?
Analogous (top-down) and parametric estimating as well as expert judgment can be applied at any level of granularity. In contrast, the bottom-up estimation technique typically implies that it relates to the smallest component type in a project (e.g. work packages and activities).
However, teams can also make use of those techniques when doing bottom-up estimating. The duration of an activity, for instance, could be determined through analogous estimating by using the duration of similar historical activities. The resource needs could be determined through parametric estimating, based on observed parameters such as construction material per square foot or lines of code per developer and hour. Expert judgment can also be used where sensible.
How to Do Bottom-Up Estimating?
The following instruction relates to estimations for the most granular component level of a project (e.g. a work package or an activity). In projects that apply PMI methodology, these components have been identified in the processes “create WBS” (PMBOK, ch. 5.4) and “define activities” (PMBOK®, ch. 6.2).
The results of these granular estimations are then rolled up to calculate the estimate for the whole project.
There are three types of bottom-up estimates:
- Estimating the resource needs
(PMBOK process “estimate activity resources”, ch. 9.2),
- Estimating the time needed
(PMBOK process “estimate activity duration”, ch. 6.4),
- Estimating the costs
(PMBOK process “estimate costs”, ch. 7.2).
There are some interdependencies between these estimations: The duration of an activity typically depends on the resources assigned to the activity. The cost estimates are then calculated by multiplying the resource units with the time and the price per unit.
Example of Bottom-Up Estimating
This section discusses a practical example of the application of the bottom-up estimation technique. The example is based on the following work breakdown structure:
The work package owners are asked to estimate the resource needs (headcount), the duration and the total costs for each activity under their work package.
The following figure shows the granular estimates for the activities, their aggregation to the work package level and the entire project.
The requirements management team, for instance, might have used analogous estimating. In that case, they estimated their resource, time and budget needs based on observed values from previous workshops and specifications. Thus, they came up with estimates of 12 persons, 29 days and $104,400 for their workstream.
The testing team, on the other hand, might know how many test cases a person usually creates per day and how many cases a team member normally completes per day. They multiply these parameters with the number of expected test cases in the current project, i. e. they are applying the parametric estimating technique.
The light-blue rows in the above table show the estimates on the work package level (i.e. the sum of the estimates of the activities). The dark-blue lines represent the second level of aggregation – the sum of resources, costs and duration on a phase level (equivalent level to that of deliverables in other WBS types).
The orange cells contain the total aggregates for the whole project: a total headcount of 47, a sum of time needed of 274 days (which is not necessarily the project duration, see explanation below) and total cost of $893,700.
Note that the numbers of headcount and time are only the sums of the respective granular estimates. In reality, the headcount might be lower as some team members could work in different activities and work packages. For instance, a business analyst who writes specifications could also be deployed for testing in a later project phase.
The sum of the duration estimates of all activities does not necessarily equal the total duration of the project. This is because scheduling may lead to parallel activities or waiting time that is not estimated on the activity level. This is actually a part of the development of the overall schedule.
Advantages and Disadvantages of Bottom-Up Estimating
- Bottom-up estimates can be very accurate. This is because team members are estimating the piece of work they are responsible for. As they typically have the most knowledge of their work package, their estimates tend to be much more accurate than top-down estimates.
- Estimation errors can balance out across the components of a project. If the time or cost of one work package has been underestimated, for instance, this could be offset by an overestimation of another work package. Such errors might therefore not necessarily impact the budget baseline at the project level.
- Bottom-up estimating can be used in conjunction with other estimation techniques, e.g. the activity duration could be obtained through parametric or analogous estimating.
- The underlying assumption is that the project estimate consists of the sum of its pieces. This may ignore overhead and integration efforts that may occur in addition to the work defined in activities. This holds for large and complex projects, in particular.
- The bottom-up estimation itself requires a lot more resources than other techniques such as analogous estimating (top-down estimation).
- The cost estimation is based on the duration estimate. Both rely on the estimated resource requirements. Thus, an estimation error there would lead to inaccurate time and cost estimates as well.
- In practice, bottom-up estimates can be prone to the bias or the interests of the estimators. While this applies to all types of estimates (to some extent), it may be less manageable in bottom-up estimating. This is because these estimations are usually done by many different estimators, i.e. those responsible for a work package.
Bottom-up estimating can be a very accurate method to determine the definitive estimate of a project. It requires a certain amount of resources and an established work breakdown structure. The project must have been broken down to the work package and activities level before you can apply this technique.
Apart from estimating resources, time and costs for the planned work of a project, this technique can also be used to assess change requests, e.g. in the course of a cost-benefit analysis of such changes.
There are also several other techniques to estimate the costs or duration of projects and their components. Make sure you read our article on cost estimating and estimating activity durations to get an overview and comparison of the different approaches.