How to Create a Range Estimate for Your Projects
Did you know that you use ranged estimates all the time? It could be calculating how long it will take to make dinner, how much it will cost to order takeout, or how long it will take to drive to a friend’s house. In each of these examples, you’re considering all the variables and making an educated guess based on your experience and understanding of the scenario.
As a project manager, creating a range estimate for your projects is probably one of the first things you do during any project management effort. It’s an essential process for determining the total budget for a project, which, in turn, can decide whether or completing it is realistic.
On this page:
- What is a Range Estimate?
- Benefits of Range Estimation in Project Management
- Pitfalls of Range Estimation in Project Management
- Formula for Range Estimate
- How to Use a Range Estimate
- Example of a Range Estimate
What is a Range Estimate?
Range estimating is a technique that allows you to account for the uncertainty and variability inherent in project work. With range estimation, you can generate a risk-adjusted project estimate. Simply stated, a range estimate is a quantification of the expected variation in an estimate.
Range estimates are important because the required accuracy of any cost forecast varies at different points in the project lifecycle. As more accurate estimates need more detailed analysis, early estimates that are used for project initiation are less detailed and assumed to have greater variability. Later calculations used for monitoring and controlling project execution are a more detailed analysis conducted after detailed planning and have a far lower expected variability.
- Project Estimating Approach
- Estimating Information
- Enterprise Environmental Factors
- Organizational Process Assets
- Use of Analogous Techniques
- Parametric Techniques
- Bottom up Techniques
- Completed Estimates
- Basis of Estimates
The Three Range Estimates of Project Management include:
Rough order of Magnitude: (Accuracy range from -25% to + 75%)
Rough Order of Magnitude (ROM) is a technique used in project management to estimate the cost, effort, and duration of a project, task, or activity. It is typically used in the early stages of a project when there is limited information available and a need to quickly estimate the feasibility and potential costs of the project.
Budget Estimate: (Accuracy range from -10% to +25)
The budget estimate, or cost estimation, is the forecasted financial resources required to complete a project within a defined scope.
Definitive/Control Estimate (Accuracy range from-5% to + 10%)
While ROM estimate is used at an early stage of the project when there is a lack of solid information regarding cost, the definitive estimate is used after the project has been planned in detail and there is enough information available to create a reliable estimation of the work.
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Benefits of Range Estimation in Project Management
The benefit of using a range estimate is to balance the need for accuracy against the effort required to achieve an appropriate estimate for a specific stage in the project lifecycle. Range estimation makes it possible to identify possible outcomes, including best-case, most likely, and worst-case scenarios. Recognizing the potential risks and uncertainties involved in the project allows you to plan and prepare contingencies accordingly.
By giving project managers an idea of the project’s potential outcomes and risks, range estimation also helps project managers communicate better with project stakeholders. Being able to set realistic expectations regarding project outcomes is huge for developing trust and improving collaboration between both parties.
Pitfalls of Range Estimation in Project Management
The pitfall in using a range estimate lies in the fact that some stakeholders fail to grasp the inherent uncertainty of an initial cost estimate. Much like creating a project schedule, the project cost is often initially estimated without a detailed breakdown of the work involved. Still, some stakeholders expect those initial estimates to come to fruition which is a highly uncertain assumption that many decision-makers sometimes make.
Another risk to using range estimation is that the personal judgment of a project manager can interfere. If an estimate is influenced by individual biases or assumptions, they can cause unrealistic expectations or unforeseen delays, missed deadlines, cost overruns, and, subsequently, dissatisfied stakeholders.
Formula for Range Estimate
There are no formulas for Range Estimate; rather, there are PMI Rules of Thumb (Heuristics) as to the expected accuracy and/or variation in an estimate. For those planning to take the PMP exam, there will potentially be questions about range estimates, but simply knowing the three range estimates mentioned earlier will enable you to answer those questions successfully. There are no formulas, so no calculations. Some PMP exam questions are simple memorization, as is the case with the topic of range estimation.
How to Use a Range Estimate
Project managers often use a three-point estimating technique that requires calculating three different durations for the task or project. These include the best-case scenario, the worst-case scenario, and the most likely estimate. The latter is what the project manager considers the most likely to occur based on their professional experience, expert judgment, and other available data.
Once the three estimates have been determined, project managers can use statistical methods such as the PERT (Program Evaluation and Review Technique) formula to calculate the expected duration and the range of possible durations for the task or project.
Example of a Range Estimate
Real-world examples are a great way to grasp project management concepts, especially if you’ve never used them before. We’ve provided an example of using a range estimate below:
A project manager has been asked by their sponsor to participate in the creation of a summary business case about a proposed project. The project manager takes a high-level look at the project requirements, perhaps looks at a similar project in the past, and provides a Rough Order of Magnitude estimate as to project costs.
Later in that same project, the sponsor desires a more detailed estimate of the costs of the project to determine whether to proceed. The project manager speaks with subject matter experts to create a detailed list of requirements and the scope of work that represents. The project manager then works with the resources who will conduct those activities to determine resource requirements, quality requirements, resource allocations, etc. to create a detailed cost estimate that the project will try to adhere to.
Range estimation is a crucial technique for accurately estimating the time and resources required for a project or task. By estimating a range of possible outcomes, project managers can better plan and allocate resources, manage stakeholder expectations, and reduce the risks associated with inaccurate or overly optimistic estimates.
When project managers rely on a single, fixed estimate, they risk underestimating the time and resources required for a task, leading to missed deadlines, budget overruns, and project failure.
Overall, range estimation is a valuable technique for project managers to master. It allows them to plan better and execute projects, manage risks and uncertainties, and communicate more effectively with stakeholders.
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