ROM Estimate: Everything You Should Know About Rough Order of Magnitude Estimates

For any project manager, obtaining accurate estimates is a luxury, especially in a competitive market where fluctuations in material or labor costs can affect the project’s actual costs.

herefore estimation plays a critical role in project management and could potentially determine the success or failure of any project. In cases where a project manager is unable to obtain accurate estimates during the project planning phase, a rough order of magnitude estimate would suffice.

In this blog, we will discuss everything you should know about a ROM (Rough Order of Magnitude) estimate. That includes the difference between ROM estimates and definitive estimates, steps for ROM estimating, and who can use them.

First, let’s start with the definition of ROM. What is a rough order of magnitude estimate?

What are ROM Estimates?

A rough order of magnitude estimate gives an approximation of the cost of providing a stated service. Rough order of magnitude estimates helps guide project managers in estimating a ballpark figure for a project’s total cost. They are usually conducted during the approval or selection stage of the project, and the difference between estimated and the actual costs may have a variance of -25% to +75%.

Several contract companies choose ROM estimates because they can be useful in determining the budget of any project and deciding whether they are viable or not. ROM estimates also help project managers evaluate the project budget and work within the financial constraints given by their executives and stakeholders.

Most organizations use ROM simply for informational purposes, and project managers using ROM should indicate that the accuracy of cost estimates would most likely vary greatly from the actual cost.

Using a definitive estimate is another way to estimate the cost of a project. The ROM and definitive methodology estimate costs in distinct ways and project managers must learn how both of these calculations work before applying them. We’ll dig into definitive estimation later on this blog; first, let us understand how to use a ROM estimate.

Why ROM Estimates Are Important

Here are some of the essentials for calculating a rough order magnitude estimate:

1. Understanding the project size

It is crucial for project managers and stakeholders to establish the size and duration of any project before going through with it. Their findings would help them figure out if they have the required resources and can help in providing helpful information to the contractors.

2. Providing the client with information

A project manager may use ROM to provide important information to the client that would help decide on the project’s scope and goals. These estimates can then be adjusted to align with their budget and expectations, which helps to keep the entire project management team on the same page.

3. Substantiating Initial Research

In project management, rough order of magnitude estimates can be used as a base price when researching and contacting vendors, suppliers and contractors. A project manager can then pour through the quotes and determine the prices more reasonable for their project.

4. Required changes

The ROM estimate’s variance is higher because of its approx calculation and uncertainty in feasibility. Thus, the last step indicates that there can be changes often during the initial stage of the project.

After knowing how to use it, let’s discuss who uses rough order magnitude and its examples.

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When Is ROM Estimate Used?

ROM estimating is useful for multiple reasons, and in this section, we will discuss how it is used and share some practical applications.

Who Uses ROM Estimates?

• Larger Projects: ROM can be used by a project management committee to determine cost estimates and gain insight into a project’s scope.
• Innovative Projects: ROM can be used when the deliverables of a new project are unique and different from the previous projects and when it is difficult to define an estimated cost.
• International Projects: ROM is useful for international projects because it allows for price variations due to currency conversions.
• Larger Budget Projects: Many use ROM as an initial estimate for larger projects as, in most cases, the entire scope of the project cannot be fully understood at the early stages.

How to Prepare a ROM Estimate?

The most important factor to consider when using this method is to get the known factors right to stay within the limits of the accepted variation of rough order of magnitude estimates. Often, projects may span over a period of several years, and it is critical that project management professionals work with estimates that are as accurate as possible. And while it can be almost impossible to forecast the labor and materials cost over a number of years, managers can work with known inputs for a more accurate forecast.

Let’s get more into detail by comparing ROM and a definitive estimate in the next section.

ROM Estimate vs. Definitive Estimate

For project management, both estimates (ROM and definitive estimation) are crucial at various timelines of a project. The major difference between ROM estimates and definitive estimates is that the latter is preferred when there are accurate estimates at the work package or activity level. According to the guide of the project management body of knowledge (PMBOK), the definitive estimate is the most accurate type of estimation.

Moreover, the ROM estimate is basically a rough cost estimate and is ideal at the initial stage of the project, whereas the definitive estimate is best suited for later when the project progresses. A definitive estimate may be incorrect, but since it’s based on a lot fewer assumptions, it offers a more accurate estimate. Preparing a definitive estimate takes more effort and time compared to a rough order of magnitude estimate as they usually require reviewing design plans and various scenarios that apply to the project.

Conclusion

ROM estimates and definitive estimates function quite differently in terms of project scope and detail. If you only need an initial estimate at the early stages in a project life cycle, a rough order of magnitude estimate is preferred. To create a definitive estimate, ensure you have understood the project’s scope and itemized your costs.

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