Show Generating revenue is the light at the end of the project's tunnel, but one of the first steps toward profit is accurate estimating. Creating a proper estimate involves detailing every expenditure you expect to make throughout the duration of a project. Compiling this information will help you charge the client enough to make a profit on the job, and will also guide you in keeping the project within budget. Generally, there are two styles of estimating used in home technology installations: bottom-up and top-down. Each entails accounting for each item and labor cost, but there are particular projects and instances where one may be better than the other. It's important to know which method of estimating is best applied depending on the situation. BOTTOM-UP ESTIMATINGIn this style, project managers tally their costs upward, starting at the bottom and accounting for each expected cost. In sum, the total costs should equal the finished project. It's a basic method of estimating, but the benefit is that it's the most accurate means of estimating a project's total cost. Accuracy is achieved just through the process of starting at the very foundation of a project and working your way up through each cost on the project work breakdown structure. However, because of the effort needed to detail each and every possible expense – labor, equipment, indirect, direct – using the bottom-up approach is time-consuming. Thus, streamlined and efficient processes are critical in bottom-up estimating, like using standardized work packages and formalized structures. Bottom-up cost estimating – because of its accuracy – is best applied
in large, multifaceted projects. Reining in costs and keeping to a budget is usually critically important in such projects, and bottom-up estimating allows you to work in just that manner. TOP-DOWN ESTIMATINGThe top-down approach starts with identifying every major aspect to the project. In home technology installations, you will typically start with the components and features of the job. Then, you will create different labor categories that apply to each task. The cost of the project is measured by estimating how much labor will go into each piece of the job. The set cost of the labor category is multiplied by each relevant task. The top-down approach requires a history and knowledge of project pricing to accurately estimate. Smaller-scale installations are commonly the best environment for top-down estimating. While there is no inherent differentiator or drawback, each method of estimating has its own benefits in certain elements and situations. It's up to you, as the project manager, to know the best method for the best outcome. Estimating •The process of forecasting or approximating the time and cost of completing project deliverables Types of Estimates •Top-down (macro) estimates: analogy, group consensus, or mathematical relationships Why Estimating Time and Cost Is Important •To support good decisions Factors Influencing the Quality of Estimates 1. Planning Horizon Estimating Guidelines for Times, Costs, and Resources (Work Package Estimates) 1. Have people familiar with the tasks make the
estimate Top-Down versus Bottom-Up Estimating Top-Down Estimates •Are usually derived from someone who uses
experience and/or information to determine the project duration and total cost Bottom-Up Approach •Can serve as a check on cost elements in the WBS by rolling up the work packages and associated cost accounts to major deliverables at the work package level. Conditions for Preferring Top-Down 1.
Strategic Decision Making; Conditions for Preferring Bottom-Up 1. Cost and time important; Estimating Projects: Preferred Approach •Make rough top-down estimates Top-Down Approaches for Estimating Project Times and Costs 1. Consensus methods Bottom-Up Approaches for Estimating Project Times and Costs 1. Template methods Level of Detail •Level of detail in the WBS varies with the complexity of the project, the need for control, the project size, cost, duration, and other factors. •Excessive detail is costly. •When there is excessive detail, there is a tendency
to break work into departmental assignments; therefore, this sometimes fosters a focus on departmental outcomes rather than on deliverable outcomes •Insufficient detail is costly. Types of Costs Direct Costs Overhead Costs General and Administrative Overhead Costs Refining (or Adjusting) Estimates Reasons for Adjusting Estimates Adjusting Estimates Estimating Database Templates Collecting and archiving data on past project estimates and actuals provides a knowledge base for improving project time and cost estimating. Mega Projects: A Special Case Are large-scale, complex ventures that typically cost $1 billion or more, take many years to complete, and involve multiple private and public stakeholders. •High-speed rail lines, airports, healthcare reform, the Olympics, development of new aircraft Often involve a "double whammy". White Elephants Over budget, under value, high cost of maintaining (exceeds the benefits received) Reference Class Forecasting (RCF) Process Three Steps of the RCF Process •Select a reference class of projects similar to your potential projects. Why are accurate estimates critical to effective project management? Without accurate time and cost estimates project control is ineffective. Inaccurate estimates can make the difference between profit and loss. How does the culture of an organization influence the quality of estimates? Organization culture can influence project estimates depending on the importance the organization places on estimating. What are the differences between bottom-up and top-down estimating approaches? Under what conditions would you prefer one over the other? Top-down time and cost estimates Top-down is good for rough estimates and can help select and prioritize projects. Bottom-up time and cost estimates Bottom-up is better if time to estimate is available, estimating cost is reasonable, and accuracy is important. What are the major types of costs? Which costs are controllable by the project manager? 1. Direct, direct overhead, and general and administrative costs. Why is it difficult to estimate mega project (i.e., costs and benefits (i.e. airports, stadiums, etc.) costs and benefits? First, the time horizon of 2-5 years to complete large, complex projects makes it difficult to accurately forecast costs and user needs. Second, the sheer complexity of these kinds of projects make it difficult to accurately estimate all of the costs. Third, the severity of the risks involved are significant. When things go wrong, they go wrong is a big way. While such conditions would suggest a very conservative estimate, the opposite occurs. Either blind enthusiasm or calculated deception is used to promote an exaggerated case for the project. Define what a "white elephant" is in project management? Provide a real life example. 1. A white elephant is a burdensome possession that the owner cannot easily dispose of and whose cost (particularly upkeep) is out of
proportion with its usefulness. What is bottomThe bottom-up approach to project management means that you begin with brainstorming possible solutions to meet that final deliverable. In other words, you know what the project goal is, but are not sure (yet) how to get there.
What is a bottomBottom-up estimating in project management is a method of estimating project duration or cost by aggregating the estimates of the lower-level components of the Work Breakdown Structure (WBS).
What is the bottomThe top-down approach to management is when company-wide decisions are made solely by leadership at the top, while the bottom-up approach gives all teams a voice in these types of decisions.
What are the advantages of bottomThe bottom-up approach is on the other hand a very time-consuming and costly method, but it gives a more accurate estimate of the project time and cost. By using the bottom-up approach, the cost and time frame is being calculated for every activity related to the project.
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