What is analogous estimating? (With examples, pros and cons)
By Indeed Editorial Team
Published 14 September 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Analogous estimating, also known as top-down estimating, is a valuable tool for estimating the cost and timeframe of a project. Estimating these types of project-related metrics may be difficult, making it essential that project managers use all the tools available to them. As a project manager, you can use these tools to steer projects more effectively and avoid surprises while keeping clients informed. In this article, we define analogous estimating and outline where it might benefit project managers, with pros and cons and specific examples.
What is analogous estimating?
Analogous estimating allows project managers to estimate the scope of a project by looking at other prior projects that are similar in nature. Project managers examine all the information and variables available before making an educated estimation that helps them proceed. As with all data-based estimates, the more data a manager has, the more accurate their estimation might be. As a result, analogous estimation works better in certain kinds of projects than others. Other estimation tools may be more appropriate for niche projects with little precedent.
Project managers commonly use analogous estimation as a top-down method. This means that they first estimate the total cost of the project and then break that figure down into its constituent parts. This method also helps project managers gain a better understanding of the project itself, as costing out certain elements from past projects may raise potential issues and avoid unforeseen complications.
Sub-types of top-down estimating
Top-down estimation may be further categorised into four different parts:
Ratio estimates take historical data from similar projects and create an estimate based on a ratio of that data. Numerous factors may result in possible changes. For example, if recent inflation has been significant or if the materials required for a project have increased in price, you might estimate the cost of the new project at 130% of previous projects.
While analogous estimates may be somewhat inaccurate, project managers might use an estimate range to give clients a wider range of values. Giving a single figure for an estimate may create unrealistic expectations, which in turn may lead to disappointment on behalf of the client. Providing an estimated range prevents this kind of miscommunication.
An effective way of presenting analogous estimates to clients is through three-point estimates. This involves taking the lower, middle and upper values in the estimated range and presenting them as an optimistic estimate. This estimate may be realistic, the most likely estimate or a pessimistic estimate.
Single point or absolute value estimates
Single point estimates take the data relevant to prior projects as exact values that project managers then make estimates upon. For example, if a previous project cost X amount, the estimate for the cost of the next project would also be X amount. This is a simple estimating method that provides very rough values, making it unsuitable for many scenarios.
When is it appropriate to use analogous estimating techniques?
A top-down estimation is a valuable tool in many scenarios, including:
Early in the project planning process
Before a project begins, it's difficult to estimate costs and scope as there's very little information available. Analogous estimation helps you determine whether the project is viable before you commit any resources to it. This also makes it easier to bid on a project with a general idea of costs to give to prospective clients. As a project develops, project managers build on these initial estimates as they gain access to more data.
When only a general estimate is necessary
Sometimes, you only need a very rough estimate of how much a project is likely to cost. For bidding purposes, a detailed cost breakdown is usually unnecessary. In these cases, top-down estimating efficiently generates a general idea of scope and costs.
When a project manager has extensive experience
Top-down estimating is especially useful in cases where the project manager already has extensive relevant experience. This potentially allows them to use data from across organisations and different regions. Here, they use their prior experience to supplement analogous data and make an informed estimate.
When limited data is available
In some cases, there might not be a lot of data available related to a specific project. In these situations, project managers may find data on similar projects and use these to make a rough estimate. This particularly applies to niche and innovating sectors.
Pros of top-down estimating
There are several benefits to top-down estimating, including:
Time efficiency: Sometimes, speed is more important than accuracy. During the early stages of the project, when senior management needs to make quick decisions about whether or not to pursue a project, top-down estimating allows them to make rough estimates quickly.
Cost-effectiveness: Top-down estimating helps project managers make informed decisions on projects without needing to dedicate a lot of resources and funds.
Ease of updating: Top-down estimating is as accurate as the data it uses. While this might mean that analogous updates are initially vague, project managers may update the estimate as increasing amounts of data become available.
Cons of top-down estimating
Top-down estimating isn't a perfect method of evaluating project-related costs, and there are several cons:
Inaccuracy: While top-down estimating may be roughly accurate, it's often used in scenarios where there isn't sufficient data to make a more accurate estimate. Other techniques might provide less approximate estimates, so keep this in mind if a high level of accuracy is necessary.
Unsuitable for all stages in a project: As a top-down methodology, analogous estimation is inappropriate for the later stages of project management. It provides excellent early-stage estimates, but other estimation techniques are more appropriate when a project is fully underway.
Assumption basis: While it can sometimes be appropriate, it's important to note that project managers base their analogous estimation on a number of assumptions. Some of these may turn out to be false, resulting in highly inaccurate estimates.
Top-down estimating vs. parametric estimating
When considering top-down estimating as an option, it's important that project managers are also aware of other estimating methodologies. Parametric estimating is an alternative option that may provide more accurate estimates of project costs and timelines. Parametric estimating uses an algorithm to make these estimations, taking the relationship between project variables and then finding the cost of each variable per unit. The data used for the formula may come from past projects, both within and outside the organisation and from industry publications.
When choosing between analogous and parametric estimating, remember that parametric estimating involves detailed analysis that's often more expensive than top-down estimating. As an estimating technique, it's also generally more accurate and requires a lot more data to ensure the proper functioning of the formula. Parametric estimating requires less experience than top-down estimating on behalf of the project manager, as the algorithmic process requires less experiential insight. Neither estimation technique is necessarily better or worse than the other, but each is more or less suited to specific situations.
Examples of analogous estimating
Below are some examples of top-down estimating, providing a closer idea of how it might work in practice for project management:
Example 1: social media campaign
John, a project manager at a marketing agency, needs to provide an estimate for a social media campaign so that a client can decide whether or not they want to go forward. The campaign is relatively straightforward, and John has access to a lot of data based on similar campaigns, both from within the organisation and from other competing agencies. He takes the data, using information such as the number of posts required, the overall duration of similar campaigns and the total cost they amounted to, and makes an estimate that he then presents to the client.
Example 2: construction project
Jane is a project manager at a large construction organisation. A longstanding client shows interest in going forward with a project and requires an initial estimate to see if Jane's organisation can complete the project within budget. Jane's organisation has completed a large number of similar projects, so she takes the data from all of these projects and estimates how much the new project is likely to cost. She provides that rough estimate to her client, who then uses the estimate to see if the project is likely to be achievable within their budget.
Disclaimer: The model shown is for illustration purposes only, and may require additional formatting to meet accepted standards.
Explore more articles
- 10 different management courses in the UK to consider
- 5 dimensions of quality service and ways to measure them
- A complete guide to outliers statistics: issues and examples
- Your guide to postgrad degrees (with career options)
- What is the process of due diligence and how is it used?
- What is customer perception? (Plus how to manage it)
- How to write an employee evaluation (with definition)
- What is firmographic data? (With importance and examples)
- 10 leadership courses in the UK (with fees and features)
- The primary types of workers (and common roles for each)
- What is business management? (With benefits and FAQs)
- Analytics in supply chains: definition, types and features