Bottom Up Estimating – Reasons To Adopt BottomUp Estimating Technique

Projects can be overwhelming, especially if they are long and complex. Say you have taken up a vast construction contract that involves plumbing, tiling, civil work, as well as laying the bricks (basically an end-to-end project). There are plenty of phases involved in this project.

This can lead to a massive project failure if you don’t estimate the time involved or the project basics correctly. It is possible you go overboard with your budget and hit significant overheads for your business. The reasons are plenty-

• You miscalculated the resources involved in the project
• You didn’t consider the total labor, phases, or time that this project will take
• You didn’t divide the whole project properly

A project manager is responsible for managing the project documentation, handling the costs, and defining the estimates. Bottom-up Estimating plays a pivotal role in operating expenses, whether you are running a small project (changing the tap at a residence) or a complete construction project.

The Bottom-up Estimating: An Overview

Among the different techniques, the bottom-up estimation technique is quite popular. It helps break down your project into smaller but significant portions, which eventually ensures proper budgeting. Using this technique lets you know how to delegate the work, determine the timelines, and detail out timelines with greater accuracy.

The estimate of the whole project is the sum of the granular estimates. This means the approximation you did concerning cost and time will be considered when delivering the total guesstimate for the project.

Why Use Bottom-up Estimating Technique?

When several estimation techniques are available, why should you go with bottom-up? Here, we will discuss the several benefits associated with this methodology.

1. Improves Estimation Accuracy

   When you are segmenting the project, there are several aspects that you need to consider. Breaking down the project into various phases and parts will also help you define the scope. However, it is challenging to identify the exact budget, resources, and timeline for any project.

   With this methodology, you will determine the exact phases and elements involved in completing the project. You will know what things you need to consider to complete the project successfully.

   For example, you are considering a full-contracting construction project. In that case, you need to include the brickwork, the interior lining, the plumbing, and the painting. Each component is a separate phase and needs to be done differently. Moreover, you will need specialists for each phase.

   With this estimating method, you will predict the roadblocks better and create an all-inclusive work package. You will take note of key elements that will help you define the work scope and enable you to empower your resources.

2. Reduces Errors

   When estimating a project, chances are you miscalculating the scope or the cost of a particular phase. If you were estimating using other methods, you have limited flexibility to address these mistakes or remove them.

   However, with the bottom-up method, you check what you can do with an error, conduct a cost-benefit analysis post the error has been made, and identify ways to nullify it.

   The best part is you can do it over the entire project’s lifecycle. You can keep making the necessary adjustments to the cost and delivery timelines, thus ensuring your project cost or timelines are not affected. In this way, you never go over budget and can manage your scope within the timeline defined.

3. Doesn’t Work in Silo

   The best part about this technique is that you can use it with several other methods. For instance, if you feel that the timelines are best identified using the parametric approach, you can use that first and combine it with bottom-up results. This way, both the cost and timelines are defined for the project in the most seamless manner.

   The flexibility you get with this project estimation technique is higher than others. When you integrate it with different techniques, you empower your team members more and improve the overall effectiveness of the results. It also helps determine a more efficient strategy for project management.

4. Helps Manage Risks Better

   You are much better when you have determined the budgets and the overall scope. You have also identified the risks involved and know how best to tackle them.

   You know what to expect when the project goes on the floor. It also helps connect with the right teams or people. It also helps ensure that the whole task moves along the team. You don’t have to depend on a single person or their ability to manage the entire project. Eventually, you are better positioned to manage the risks and handle the different situations.

Better Understanding of bottom-up Estimating With an Example

The example stated will clarify the understanding of what Bottom-up estimating is.

As you know bottom-up estimating method is about breaking down the project into smaller elements. With an example, you will get a better understanding of the estimating method.

The work required five contractors for 10 days. The manpower demands 15 USD per day. Apart from this, there is an additional manpower requirement that includes 3 engineers that cost 10 USD per day for 3 days.

The calculation consists of:
(5*10*15) + (3*10*3) = 840

The manpower, time, and cost allocation are completed. But there is some problem with the technology and utilization.

Since there is a risk involved, let’s add 10 USD to the project as a contingency reserve to overcome the problem if piles up. This reserve is considered to be a rescue when any identified risk pops up.

On top of it, add 10% of the project cost as a management reserve. You can use the reserve when some unidentified risk comes up for which you are unprepared.

So, the calculation of management reserves goes like this:

MR = 10% of (840 + 10 Contingency Reserve)
= 10% of 850
= 85

The total project cost sums up to around 840+10+85 = 935.

Applying Bottom-Up Technique to a Project

It is now crucial to understand how to implement this project management technique in real-world calculations. There are several steps involved, and we will discuss these in detail.

1. Define the Tasks

   The first step in this technique involves listing all the different project elements that you need to tackle. For instance, if a project consists of goods or getting the bill of material, you should define that task.

   You need to create a work breakdown structure to divide your entire project into efficient and straightforward tasks.

   This will help you look at the project from a granular level and determine the most important aspects and people.

2. Timelines and Resource Definitions

   In the previous step, we mentioned that if you need to prepare a bill of materials, you should mention that in the scope. At this point, you will need to say the person in charge of creating the BoM and the total time it will take to complete this.

   Similarly, you will need to mention the same for all the tasks involved in a project. It will help you identify how many resources you will need through the project and timelines to consider. It will help you define the overall project length and the total labor.

3. Determine the Allocations

   Once you are done estimating the time and scope, it is now time to delegate the tasks and empower your employees. Now is the time when people are involved in creating the project estimation. You will need to get people to talk about the infrastructure cost, the overheads involved, and the technology defined for each project task or phase.

   This will improve the granularity of the project definition and help the project managers get a more in-depth insight into the estimate.

   It will also ensure that nothing circles back to the project manager; everyone determines the overall cost and resources for their particular area of expertise.

Top-Down vs. Bottom-Up Techniques

You are now more than aware of how bottom-up works. Let’s take a look at how it differs from top-down.

1. The first crucial difference is how the project is broken down into phases. In the bottom-up technique, the estimate is a sum of more minor phases. You solve smaller problems throughout the project and then sum them up to create the entire solution. on the other hand, you break each issue into smaller portions top-down and then try to solve them individually.
2. There isn’t inter-module communication for top-down while it is mandatory for bottom-up.
3. You can use bottom-up with other techniques; however, this may not be the case for top-down.
4. The top-down approach is the best fit for an overview of estimates; however, if you want to get a more detailed insight, you might go for a bottom-up approach.

Real-world Application of Bottom-Up Estimating

Let’s say you are working on a fencing project, which involves setting up the land for fencing, buying the fencing material, and the actual labor.

You will need to calculate the actual cost of buying fence posts and setting them up. If you set up 20 posts to cover the entire place, you will need to multiply the per post cost by the total posts.

You checked with a person who recently completed this project and the local store that sells the requisite hardware. One said the total cost comes to around $50 per post, which means you will need to invest $1000 for the entire project.

When you connected with the person who got it done recently, they told you the project cost them around $3000. They just told you the total cost of labor and other aspects.

You got a parametric and analogous estimate on hand. When you granularize the two, you get a bottom-up estimate. You use the total cost of the materials and add it to the total cost of labor and service to get your bottom-up estimate.

You don’t look at one aspect alone. There are several applications across industries for bottom-up. You can either sit to work through bottom-up from scratch or depend on other estimate approaches to conclude.

Why you should use InvoiceOwl for bottom-up projects

InvoiceOwl is a featured-pack software with a primary focus on helping its users create agile and accurate estimates/invoices. You can integrate your project, add clients, and line items to get yourself ready for preparing any estimates or invoices that come up.

Besides, filing a tax, managing different accounts, and preparing reports automatically is what InvoiceOwl is famous for.

The software comes up with different pricing plans that you may choose from as per your requirements. Get the best software for yourself to start creating and sending estimates/invoices.

Conclusion

If you are looking for a more conclusive and highly able estimating approach, you should consider bottom up. It helps identify the different tasks to be done establishing the work before helping with the cost estimates.

You would have a defined workflow and know the teams you need to onboard. You can even seek help from the different people involved in the project to improve your estimate’s effectiveness.

The collaborative approach taken by the bottom-up is one of the many reasons it is efficient, reduces risks, and improves the cost estimating outcome.

If you want to ditch the old way of estimating and quoting jobs, then InvoiceOwl is the best estimating and invoicing software, allowing you to create estimates and invoices in one click. Get access to FREE Trial and explore different features and functionalities of the software.