Using Top-Down Estimating

A top-down estimate allows a project manager to take a very similar project’s budget, work some financial math magic, and arrive at a reasonable budget for the current project. Top-down budgets are often used by organizations that complete IT projects for other companies. Consider IT integrators who install servers, network cable, and network equipment. They’ll have similar projects they can refer to when predicting the cost of current projects.

Within an organization, IT project managers also have projects that are similar to other projects they’ve completed in the past. Consider a project to roll out a new operating system using a disk-imaging server. If the project manager has rolled out other operating systems in the past using the disk-imaging server, he’ll have a pretty good idea of how the current project will go. This historical information on proven, completed applications allows the project manager to save the time of doing a bottom-up estimate; he can work from prior successful projects

The problem with top-down estimates in the IT world, however, is that most IT projects have never been done before. Specifically, because IT changes so quickly and each environment is generally customized, top-down estimates are not as reliable or useable as bottom-up estimates.

Using Analogous Estimating

If you find that you’re launching projects that are similar to past accomplishments, analogous estimating may be your best bet. Analogous estimating relies on historical information to predict the cost of the current project. It is a type of top-down estimating. The process of analogous estimating takes the actual cost of a historical project as a basis for the current project. The cost of the historical project is applied to the cost of the current project with respect to the scope of the current project, its size, and other known variables.

This estimating approach takes less time to complete than other estimating models do, but is also less accurate. This top-down approach is good for fast estimates to get a general idea of what the project may cost.

Here’s an example of analogous estimating: You completed the design and installation of an application for the sales department to track incoming phone calls from clients. Your IT help desk now wants you to create an application to track phone calls from internal users. The project deliverables are technically different, but both have fundamental characteristics that can guide you to create a reasonably reliable project cost estimate.

Using Parametric Modeling

Another approach to top-down estimating is Parametric Modeling. Parametric Modeling uses a mathematical model based on known parameters to predict the cost of a project. The parameters in the model can vary based on the type of work being completed. A parameter can be cost per cubic yard, cost per unit, and so on. A complex parameter can be cost per unit with adjustment factors based on the conditions of the project. Further, the adjustment factors may have additional factors depending on additional conditions.

For example, if you’re managing an application development project, you may create a cost estimate based on the number of years of experience the application developer has with a given software language. Bob may have eight years of experience while Sam only has two years of experience. Sam doesn’t cost as much as Bob because he’s considered less experienced than Bob. Sam can still get the work done; it just may take him slightly longer than if Bob did the work.

When you think of parametric modeling, a parameter is generally used: cost per unit installed, cost per machine delivered, and so on. This approach doesn’t always lend itself to IT projects because of the variables within the technology. Consider function point analysis—lines of code are not always reflective of the productivity, the number of servers, or even the number of programmers assigned to an activity.

Using Top-Down Estimating