Creating an accurate project estimate is an uphill challenge for most agency owners. Ideally, you want to make sure that your initial project estimate is as close to the actual amount as possible.
To introduce more accuracy in project quotes, many companies now use bottom-up estimating. It’s an incredibly effective technique that helps agencies create accurate project estimates.
In this article, we are going to discuss what the bottom-up project estimation method is, how it differs from the top-down estimation approach, and why it’s so popular.
What is Bottom-up Estimating?
Bottom-up estimating is a standard management technique that’s used to determine the total costs of a project, as well as the total duration of the project. Bottom-up estimating takes into account minute details of the project, examining it at a very granular level.
By examining each task and deliverable from the “bottom-up”, project managers are able to develop a more accurate estimate of both the time required and the total budget for the project.
Bottom-up Estimating vs. Top-Down Approach
The top-down approach, which is quite popular among larger organizations, generally doesn’t go into as much detail as the bottom-up approach. In a top-down approach, companies generally estimate the cost of a project based on a similar project they’ve done before.
Obviously, no two projects are the same, which means that these estimates are often inaccurate.
On the other hand, when you go with bottom-up estimating, every element associated with the project is scrutinized in great detail, which leads to a more accurate and better understanding of how much the project is going to cost, and how much time and resources it’s going to take.
The top-down approach is good as long as you’re working on a duplicate project, but since those are generally not as common, the bottom-up estimating technique should be preferred.
How to Create Effective Bottom-Up Project Estimates
Here’s a full guide to creating effective bottom-up project estimates.
1. Start by Listing All the Tasks Related to the Project
Your first step should be to create a list of all the tasks that are related to the project. It’s important that you put everything on the list, including those menial, run-of-the-mill tasks that you might otherwise leave out due to their apparent insignificance.
Once you have listed everything, start by assigning these tasks to team members. Make sure you know who will take responsibility for different tasks, so you can better understand just how much it’s going to cost you.
2. Allocate Resources and Create a Timeline
The next step is to determine just how much in the way of resources the project will require. This means the number of hours your team will have to work, the software, hardware or services you will need for the project, and the time it’s going to take.
You can assign a dollar value for each hour worked, and then determine which members of the team will work on the project. If any specific equipment might be needed, make sure to account for that too.
3. Prepare the Estimate
By now, you should have a comprehensive understanding of the tasks associated with the project, the team members involved, and the time each task is going to take. If you want, you can bring on a project manager to look over the team and delegate responsibility to them.
You can then just use this information to create an estimate, and share it with the client. This way, you’ll have accounted for everything on the list, and you won’t have to worry about the final cost deviating too much from your original estimate.
Bottom-Up Project Estimate — An Example
Let’s assume that there’s a web design agency with 12 employees. The agency is in the process of signing a new client, but they need to give them an estimate for creating an eCommerce store.
Creating the store, the layout, and importing the database is going to require the efforts of four of your employees. Now, you can start by creating a list of all the tasks involved in creating the online store, including the design, the back-end, and the. optimization.
You can then assign each of these to different employees, and depending on the hourly amount you pay each employee, and the number of hours you believe the whole project is going to take, you can create a more accurate estimate.
Once you know the costs, you can then add on your profit margins before sending the proposal to the client.
Now, if you used the top-down approach, your approach would be quite different. Instead of listing down all the tasks and assigning them to individual team members, you’d simply look at the estimate you gave to another client for an eCommerce store, and use that.
The Benefits of Using Bottom-Up Estimating
Even though bottom-up estimating takes longer, it offers more benefits than the standard top-down approach. Here are just some of the many advantages that it offers:
1. More Accurate Estimates
This one’s fairly obvious: since you’re accounting for everything and going into granular detail, your estimates are going to be much closer to the actual costs incurred for the project.
2. Assume Less Risk
When preparing a bottom-up estimate, most project managers often plan for contingencies that might arise as well. This helps reduce risk and mitigate the chance of any significant deviations or errors that may derail the project.
3. Improved Productivity
Another major reason why bottom-up estimating is so beneficial is because everyone knows exactly what they have to do at the start of the project. You don’t have to worry about figuring things out as you go along, which improves efficiency and productivity among team members.
4. Save Time
Since you’ll account for everything well in advance, it’ll become much easier for the project managers to make better decisions. For instance, if they are faced with a choice, the managers will already know which the cheapest option is, and can plan for it accordingly.
By evaluating the pros and cons of each decision beforehand, companies can save a great deal of time that would otherwise be spent on performing incremental analyses for different decisions.
5. Improved Client Relationships
It always leaves a bad taste in a client’s mouth when the final costs are significantly higher than the original estimate. They may choose not to work with you in the future. However, if your estimates are accurate, with very little deviation, it’ll help foster trust with clients.
As a result, you might be able to build longer, more positive relationships with those clients.
Use Atarim to Create Effective Bottom-up Project Estimates
Atarim makes it easy for web designers and developers to carefully assess just how much work each client will require. You can create tasks in Atarim, and then assign them to different team members – each of whom will be automatically notified.
Atarim also lets you track time for each member, so you’ll know exactly how much time has been spent on each task. Atarim makes it easy for project managers to analyze the total amount of work that each project will require, as well as calculating exactly how much time in total has already been spent on a specific project.
You can use all of this information to create more effective bottom-up project estimates for your clients, and usually significantly more quickly too.
Project Management Isn’t an Exact Science
Here’s the thing: every project has minor differences and nuances that may require you to amend your workflow. With bottom-up estimating, you make sure that you get paid for all the work you put into a project.
You may want to read Delivering Accurate Cost Estimates Through Risk Informed Decision-Making, a fantastic journal article by Shay Kelly and Brent McElrath, which goes into deeper detail about how to account for risks in a project. Using this information, you’ll find yourself in a much better place to prepare accurate cost estimates for clients, and improve team efficiency as a whole too! Check out Atarim’s project management features and find out why leading web agencies are boosting their reputation and safeguarding their profit margins by gaining tighter control over every stage of their clients’ projects.
