Budget Estimating Techniques

Bottom-up estimating, including activity cost estimating. Bottom-up estimating is done at the lowest level of the WBS and costs are aggregated upwards.

Three Point Estimating - Instead of using one estimate for each activity, three estimates are provided. The concept of using three estimates is to allow for uncertainty and risk associated with the activities in a project.

• Most likely: this is the estimate that represents the most likely resources will be assigned that can complete the work in a realistic time frame.
• Optimistic: this is the estimate that represents the fastest that the activity can be completed assuming no unexpected interference, risk or uncertainty.
• Pessimistic: this is the estimate that represents the worst case scenario where risk and uncertainty create delays in activity completion.

Advantage 

-it encourages participative management and creates a more accurate estimate because of the detail level of the estimate. 

Disadvantage 

-it consumes a good amount of time and effort on the part of those contributing to the estimates.

Top-down estimating, including parametric, analogous, group decision making, and software estimating. Top-down estimating determines costs at the project level or deliverable level and allocates costs downward to the detailed activities. 

• Parametric estimating is "an estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters." Parametric estimating can be used when there is a known cost per unit based on historical data. 
• Analogous estimating is a "technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project." Analogous estimating is a technique that can be used by reviewing past similar projects. It can only be used if there is ample historical information available of the actual costs of similar projects. 
• Group decision making-  a panel of experts are used to create estimates via iterative facilitated consensus-building sessions. This process will produce a cost estimate for the project based on the consensus view of the expert opinions from those with knowledge and experience in similar type projects. 
• Software estimating is a technique that uses a software package or program that is driven by project historical information, statistical analysis and/or simulations. The software determines the estimate for a project based on set characteristics or criteria and estimates are analyzed by providing a probability of success for each estimate.

Advantage
-can be done fairly quickly with basic information about the project.
-can be done to provide guidance in the project selection process or in the development of the Project Charter to establish initial budgeting expectations and requirements for the project.

Disadvantage
- is that they tend to be less accurate than bottom-up techniques.