Technique 10.19 – Estimation

By Alissa Johnson

Below is a summary of section 10.19 - Estimation from BABOK® version 3.

Technique 10.19 – Estimation
Description
Estimation is used to support decision making by predicting attributes such as:

cost and effort to pursue a course of action expected solution benefits
project cost business performance
potential value anticipated from a solution costs of creating a solution
costs of operating a solution potential risk impact

 
Representing the results of estimation as a range, with minimum and maximum values along with probability, may present a higher degree of effectiveness for stakeholders. This is referred to as a confidence interval and serves as a measure of the level of uncertainty. The less information that is available to the estimator, the wider the confidence interval will be.
 
Estimation is an iterative process, being reviewed as more information becomes available, and revised when appropriate. Many estimation techniques rely on historical performance records from the organization to calibrate estimates against prior experience. Each estimate can include an assessment of its associated level of uncertainty.
 
Elements:
The estimators should have an agreed-upon description of the elements to be estimated, and when developing and delivering an estimate, constraints and assumptions should be clearly communicated.
 

  1. Common Methods:

Top-down: examining the components at a high level in a hierarchical breakdown.
Bottom-up: using the lowest-level elements of a hierarchical breakdown to examine the work in detail and estimate the individual cost or effort, and then summing across all elements to provide an overall estimate.
Rough Order of Magnitude (ROM): a high-level estimate, generally based on limited information, which may have a very wide confidence interval, a wide range of possible values and a high level of uncertainty.
Rolling Wave: repeated estimates throughout an initiative or project, providing detailed estimates for near-term activities (such as an iteration of the work) extrapolated for the remainder of the initiative or project.
Delphi: a combination of expert judgment and history. There are several variations on this process, but they all include individual estimates, sharing the estimates with experts, and having several rounds of estimation until consensus is reached. An average of the three estimates is used.
 

  1. Accuracy:

The accuracy of an estimate is a measure of uncertainty that evaluates how close an estimate is to the actual value measured later. When there is little information, such as early in the development of a solution approach, a Rough Order of Magnitude (ROM) estimate is delivered. A definitive estimate, which is much more accurate, can be made as long as more real-world data is collected. Definitive estimates that are used for predicting timelines, final budgets, and resource needs should ideally be accurate within 10% or less.
 
Teams can combine the use of ROM estimates and definitive estimates throughout a project or initiative using rolling wave estimates. A team creates a definitive estimate for the next iteration or phase (for which they have adequate information), while the remainder of the work is given a ROM estimate. As the end of the iteration or phase approaches, a definitive estimate is made for the work of the next iteration or phase and the ROM estimate for remaining activities is refined.
 

  1. Sources of Information

Information from prior experience along with the attributes being estimated are considered. Common sources of information include:
Analogous Situations: using an element (project, initiative, risk, or other) that is like the element being estimated.
Organization History: previous experiences of the organization with similar work. This is most helpful if the prior work was done by the same or a similarly-skilled team and by using the same techniques.
Expert Judgment: leveraging the expertise of those who have performed the work in the past, internal or external to the organization. When using external experts, estimators take into account the relevant skills and abilities of those doing the work being estimated.
 

  1. Precision and Reliability of Estimates

When multiple estimates are made for a particular attribute, the precision of the resulting estimate is a measure of agreement between the estimates (how close they are to each other). By examining measures of imprecision such as variance or standard deviation, estimators can determine their level of agreement. The reliability of an estimate (its repeatability) is reflected in the variation of
estimates made by different methods of estimating or by different estimators. To illustrate the level of reliability and precision, an estimate is often expressed as a range of values with an associated confidence level.
 

  1. Contributors to Estimates

The estimators of an element are frequently those responsible for that element. The estimate of a team is usually more accurate than the estimate of one individual, since it incorporates the expertise of all team members. When an organization needs a high level of confidence in the estimate of some critical element, it may call on an external expert to perform or review the estimate. The organization may compare an independent estimate against their internal estimate to determine what adjustments may be needed.
 
                                                         Usage Considerations       

Strengths Limitations
Provides a rationale for an assigned budget, time frame, or size of a set of elements. Only as accurate as the level of knowledge about the elements being estimated.
Enables a realistic budget or schedule for work. Estimates can vary widely from the actual values.
Refining an estimate throughout a work cycle, incorporates knowledge & helps ensure success. Using just one estimation method may lead stakeholders to have unrealistic expectations.