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Project Estimation Techniques: A PM’s Handbook

Illustration of a man lying down reading a book titled

I’ve done this a million times–let’s skip estimating just this once.”

Famous last words.

You rush through the beginning estimates only to miss deadlines, blow budgets, and draw raised eyebrows from clients. 

But nailing your project estimates will help you save countless projects from failure, and it’s a non-negotiable if you want to keep your projects profitable.

In this guide we’ll cover:

  • What are project estimation techniques?
  • Types of estimations in project management
  • Project estimation techniques

Let’s go!

What are project estimation techniques?

Project estimation techniques are methods to create estimates for your project for elements such as time, cost, risk, resources, and scope.

They give you a solid idea of what you’re working with, how long it will take, who needs to be involved, and what it will cost.

When your client or another project stakeholder asks you to estimate an aspect of the project, these techniques are what you need to give them the number they’re looking for.

Types of project management estimations

Project estimation techniques can be applied to nearly every aspect of your project.

Here’s a quick summary of the ones you’re likely to use:

TypeDescription
Cost estimationsCalculating the the total cost of the project to set the budget you need to complete it
Time estimationsMapping out how long it takes to complete tasks and achieve milestones and creating a realistic deadline
Scope estimationsDetermining the amount of work and number of deliverables needed to bring the project from start to finish 
Resource estimationsWorking out the people, software, tools, and other investments needed to get the job done
Risk estimationsMaking space for what could go wrong

Now let’s dive a little deeper…

Cost estimations

Approximating the cost of a project is one of the first (and most important) steps in project estimation. Cost is one of the three most significant constraints in project management, linked closely to time and scope.

Further reading: The Triple Constraints of Project Management and Why They Matter

Only 43% of companies mostly or always accomplish projects within budget, and 27% of all projects go over budget.

That’s due to many things–one of them being the inaccurate project cost estimations.

Little consideration for details like both direct and indirect costs can really cost you.

Source

Accurate cost estimation techniques are the difference between the Sydney Opera House costing $7 million and $102 million 🤯.

Source

Time estimations

The second of the big three estimations. Time will dictate deadlines, set client and team expectations, and impact the project’s overall profitability.

Clients and staff alike will adore a consistent ability to hit those deadlines.

Getting the necessary details to make accurate time estimations can be tedious.

But this is made easy by looking at the Toggl Tracks’ Reports dashboard.

The summary report will allow you to filter your project time entries by

  • Team member
  • Client
  • Project
  • Tasks
  • Billable hours

Perfect for getting an overview of how much time was spent on past projects and their individual tasks.

Toggl Track summary report

Learning how to estimate time for a project is an excellent skill and will be the ace up your sleeve for every one of your future projects.

Maybe if they had a time-tracking tool when building the Sydney Opera House, it wouldn’t have gone 10 years past the deadline 🤡.

Scope estimations

Scope is the last of the big three estimations. Scope estimations help you predict all the work necessary to get the job done 

Good scope estimation will help you write your statement of work. It also prevents scope creep – which 49% of projects suffer from.

By detailing the goals and objectives for each project, you can accurately assign tasks and resources, which will directly affect your time and project budget.

Scope is a project constraint that can quickly spiderweb out and affect everything around it.

Some people think of these first three points (cost, time, scope) as the “project management triangle”, because if one side changes, the others have to, as well.

The triangle on the left is a perfectly balanced project.

The one on the right?

Its scope is stretched much bigger than cost and time – sound familiar?

Taking the time to estimate these three big constraints will ensure your triangle stays nice and even.

Further reading: Your Guide to Defining Clear Project Objectives for Your Team

Resource estimations

Team members, tools, and software carry your project to completion. It only makes sense to make sure you have the amount you need.

And yet only 26% of organizations say they always estimate their resources.

Source

Your team is likely juggling multiple tasks and projects at a time–especially if they’re freelance contractors. So accurately estimating resources ensures their availability and time are respected.

Resource estimation is the difference between team members so burnt out that they’re asleep at their desks and team members that have nothing to do.

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Resource estimation, timeline planning, and allocation are all a part of project resource management.

Check out our blog ‘Project Resource Management: A Simple Guide For New Managers’ if you want to get a better understanding of how to manage your project resources.

Risk estimations

“Nothing will go wrong.”

…is what we all wish we could say. But it’s a smart idea to plan ahead.

Risks are simply problems that might not happen, but could.

Construction project taking place outside in November? Assume that there could be snow.

Software development in the cloud? Assume that there could be a server crash.

After identifying possible risks, go a step further into determining probability and project impact.

Factor in risks from the planning stage–don’t wait for them to show their ugly face when the client mentions them first. Or worse, when they suddenly strike.

Further reading: How to Do Project Risk Management: A Manager’s Survival Guide

Project estimation techniques

There are a wealth of proven project estimation techniques, but here are the ones we think will be most useful to you:

TechniqueDescription
Three-point estimatingCombines the best-case scenario, the worst-case scenario, and the most likely scenario to get a realistic estimation
Top-down estimatingLooks at the overall scope and timeframe to create a high level estimate
Bottom-up estimatingBreaks down the project into smaller tasks to create a more accurate estimate
Expert judgment estimatingCreates estimates based on your own knowledge, a member of your team or an outside consultant or subject matter expert.

Three-point estimating

Three-point estimating combines the best-case, worst-case, and most likely outcome scenarios to create an accurate, flexible estimate.

There are two main ways to calculate it: 

  • Triangular distribution
  • Beta distribution

The first treats every scenario equally likely, and the second puts more weight on the most likely scenario.

Triangular is best if you’re working with less data and want a quick calculation. 

Beta is the best overall and the most accurate, as long as you have enough data to ascertain the most likely outcome of your project.

When writing up the graphs, the triangular calculation is typically triangle shaped (who would’ve guessed?), and beta is more bell-shaped.

Source

The triangular calculation can be simply done by taking the optimistic, pessimistic, and most likely outcomes, combining them and dividing them by three. 

Let’s say you estimate a project to take:

  • 150 hours (optimistic)
  • 250 hours (pessimistic)
  • 165 hours (most likely)

Your triangular project estimate will be ​​188.33 hours.

Beta is more difficult, typically adding four times the weight to the more likely outcome versus the best and worst.

So using the data from the example above, you would end up with an estimate of 176.67 hours.

Check out this Three-Point Estimation Calculator if you want to play around with the numbers.

However, that calculator is useless if you don’t know what numbers to plug in. 

If you’re using Toggl Track, you can view past project data inside Toggl Track’s project dashboard to get a quick overview of how long similar projects have taken. 

  • Optimistic outcome – look at the length of time for projects that went exactly to plan
  • Pessimistic outcome – look at the length of time for projects that didn’t go to plan
  • Most likely outcome – look at the length of time for projects that went mostly to plan
Past project data within Toggl Track

Further reading: Analyze project performance with the Project Dashboard

Pros to the three-point technique include:

  • High accuracy
  • A hearty dose of realism

The main con to three-point estimating is the effort required to properly do it, as it’s a pretty labor-intensive process.

So when is it best to use it?

When you’ve completed one (or preferably more) projects using time tracking software. That way, you have a wealth of data to measure your new project against, so you’re not starting from scratch every time.

Top-down estimating looks at the project scope as a whole, avoiding digging into the nitty-gritty of the work, to create a ballpark estimate.

It’s typically used when the details of the project haven’t been ironed out or you want a quick estimate to present to a client or project stakeholders. 

It can be a little inaccurate as it tends to rely on the knowledge and experience of you or your team. So estimates can vary depending on how confident/experienced you and your team are.

But it’s a solid estimation technique if you have access to data from previous projects that are similar in nature. 

Again, you can do this by viewing Toggl Track’s project dashboard to get a quick overview of how long similar projects have taken.  

If you jump into the project dashboard and filter by ‘project’. You’ll be get an overview of:

  • Total clocked hours
  • Total billable hours
  • Billable amount
Overview of project data inside of Toggl Track

The more similar projects you have completed, the more data you will have access to, and the more accurate your estimates will be.

Top tip

100% accuracy is not worth the amount of time you’ll waste trying to “be accurate”. Getting a general number when it comes to your tasks and projects is key. 

The best practice is taking the average time of your last three simialr projects or tasks. The more you do this, the more “accurate” your estimates will become.

Completing a project for the first time? You will have to rely on your knowledge and experience of similar work. You can start to use historical averages once you’ve completed enough of a particular type of project.

The pros of the top-down method:

  • Fast and cheap
  • Requires little initial effort
  • Pretty accurate if historical data is available

Cons include low accuracy if no historic data is present, and it’s also pretty easy to miss key components and complexities with a top-down approach.

Bottom-up estimating

Bottom-up estimating considers the time, cost, and effort for each individual task within the project. It then adds it up to create an estimation for the entire project.

This means it can be a super accurate estimation technique if you have completed a thorough work breakdown structure for the project and have access to historical data.

You can filter by project and then view individual tasks for each project inside of Toggl Track’s project dashboard.

Project task data inside of Toggl Track

Top tip

Start tracking individual project tasks using Toggl Track. Doing so will give you access to the data you need to create a solid bottom-up estimate.

Adding a task inside of Toggl Track

Check out the following articles to learn more about how to do this inside of Toggl Track: Creating Projects and Creating Tasks.

Pros of bottom-up estimating:

  • Calculating from a micro-level boosts accuracy enormously
  • Reduces risk due to taking in the small details
  • Flexible for a variety of tasks (different tasks take different amounts of time and resources)

The cons to bottom-up estimating? Calculating can be time-consuming and slow-moving. It can take days or weeks to gather all the necessary data without the right tools.

Expert judgment estimating

This technique relies on creating an estimate based on the expertise and knowledge of people within or outside of your team. This could either be your own knowledge, a member of your team or an outside consultant or subject matter expert.

Note: this is more reliable than when your friend says “Trust me, I have a feeling it’s this way.” when driving to the Airbnb.

The idea is to speak to people to get a better understanding of how long they think a project or task will take to complete or cost.

The pros are that it is quick and easy, with a chance to be highly accurate depending on the expert and the situation.

The cons? Results vary depending on the level of experience the person you’re asking has.

For example, a junior member of your team is likely to either underestimate or overestimate the length of time and/or cost of completing a project/task compared to a senior member of staff.

It’s the least accurate estimation technique, relying more on “gut instinct” than real data. So I suggest you only use it when you don’t have access to historical project data.

Next steps

Accurate project estimation is the make or break of your entire project’s outcome.

Bottom-up, top-down, three-point, – there’s no right answer. There are different estimation methods for a reason, so consider what is the purpose of your estimation and pick the one that’s right for you.

Fine-tuning your project estimation techniques can help you avoid missed deadlines and scope creep while drinking up the pure, unfiltered success.

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Are you looking to continue improving your project estimation game? Read how to create an accurate time estimation and how to calculate project costs next.

July 29, 2022