Top-down estimating definition
/What is Top-Down Estimating?
Top-down estimating occurs when company management imposes a cost and/or duration on a project, usually without a detailed cost analysis. The estimating process is derived from the opinions of a group of experienced managers, possibly supplemented by outside experts. Or, estimates may be copied forward from the actual information from similar projects that the company has completed in the past, adjusting for any unique aspects of the project under consideration. Despite its inaccuracy, top-down estimating is frequently used, typically at the beginning of a project when the details are still being examined. Over time, more detailed bottom-up estimates then replace the original top-down estimate.
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Disadvantages of Top-Down Estimating
There are some disadvantages associated with top-down estimating, which are as follows:
Lack of detail. Top-down estimating provides an overall cost or time estimate based on high-level information, often overlooking the specifics of individual tasks. This lack of detail can lead to inaccurate estimates, causing budget overruns or schedule delays during project execution.
Limited accuracy. Since top-down estimating relies on historical data or expert judgment without analyzing the project’s components, the estimates tend to be less precise. Inaccurate estimates can result in insufficient resource allocation, affecting the quality and outcome of the project.
Overlooks complexity. Top-down estimating can underestimate the impact of complex or unfamiliar tasks by averaging costs or time across similar past projects. As a result, it may fail to identify areas that require additional focus or resources.
Reduces team involvement. Top-down estimating is typically performed by senior management without consulting the project team, which can demotivate team members and reduce their commitment. The lack of input from those directly involved in the work can lead to unrealistic assumptions and estimates.
Risk of bias. The senior managers or experts providing top-down estimates may introduce bias based on their experiences or expectations. Such bias can distort estimates, making them either overly optimistic or overly conservative.
Ineffective for unique projects. Top-down estimating works best for projects similar to previous ones but is unreliable for unique or innovative projects. New projects often involve unknown risks and tasks that cannot be accurately estimated without a detailed analysis.
These drawbacks highlight why many organizations combine top-down estimating with bottom-up techniques to enhance accuracy and reliability.
Bottom-Up Estimating
A better approach is a bottom-up estimate that employs a careful analysis of a project at the work package level, made by those people with the most experience in relation to the project. These estimates tend to be more accurate than estimates derived from the top-down process.