Estimating Project Costs and Durations: Methods, Tools, and Best Practices

Why You Need to Estimate Project Task Durations and Costs

One of the main challenges in project management is to accurately estimate time and costs. Yet, this step is crucial because it allows you to:

• Define the project’s budget and schedule

• Plan the tasks to be carried out

• Evaluate the project’s profitability (ROI)

• Anticipate cash flow needs

• Track and measure project progress

Factors Influencing Estimation Accuracy

Ideally, according to project management best practices, the probability of meeting time and cost estimates should reach 95%. However, this percentage is influenced by the project’s unique nature, as well as human and external factors.

Time Horizon

The accuracy of an estimate depends on the planning time horizon. The shorter the horizon, the closer the accuracy tends to 100%. However, it decreases as we look further into the future. Therefore, short-term projects are easier to estimate than long-term ones, where uncertainty is higher.

Project Complexity

Projects are becoming increasingly complex — whether due to their size, number of stakeholders, or technical and technological requirements. As a result, more effort is needed to estimate tasks accurately on complex and uncertain projects.

People’s Competence

Although estimation can be assisted by artificial intelligence, it primarily relies on the competence of the people involved. The more skilled and familiar a person is with the task being estimated, the more accurate the estimate will be.

Risk Appetite

Depending on the company culture and individual personality, task duration and cost estimates may vary. Some risk-averse individuals tend to add safety margins to ensure they stay within limits and reduce the likelihood of overruns.

Bottom-Up vs Top-Down Estimation

There are two main estimation approaches in project management:

• Top-down estimation: usually done by senior management, this approach relies on analogy with similar projects and provides an overall estimate of total time and costs. Although common, it is rarely accurate since it’s performed by people who may not fully understand the project’s operational details.

• Bottom-up estimation: carried out by the people directly involved in the work, it is generally more reliable. This detailed approach not only improves estimate accuracy but also serves as a baseline for comparing actual progress to initial forecasts. To apply it effectively, use the WBS (Work Breakdown Structure) method, which involves breaking down the project into elementary tasks and estimating the cost and duration of each.

To avoid conflicts between the client and the project team, we recommend the following process:

1. Perform a preliminary top-down estimation.

2. Develop the project’s WBS.

3. Conduct a detailed bottom-up estimation.

4. Establish the project schedule.

5. Reconcile both estimation approaches.

This process may involve negotiations between the project manager and the client. However, these exchanges are beneficial as they help minimize unrealistic client expectations while reducing pressure on the project team.

Performing a Top-Down Estimation

Consensus Method

This method involves gathering all project stakeholders in a meeting where each participant shares and defends their project estimate based on intuition. The goal is to reach a consensus and agree on an overall project duration.

While useful during the project’s initiation, this approach remains uncertain since no participant yet has all the detailed information needed for an accurate estimate. A major risk also lies in social pressure — project executors may feel compelled to accept unrealistic estimates to avoid contradicting leadership or to meet expectations.

Ratio Method

This top-down method relies on the managers’ experience and past project data. It consists of using ratios or proxies to estimate costs and durations.

Commonly used in the construction industry, this approach often relies on indicators like surface area in square meters. For example, if experience shows that building a 100 m² house costs and takes a certain amount, the ratio method simply doubles those figures to estimate a 200 m² house.

Performing a Bottom-Up Estimation

Six Key Principles for Estimating Elementary Tasks

Regardless of the project, any project manager seeking accurate estimation can rely on the following six principles:

• Responsibility — Estimation of elementary tasks should be entrusted to those who know them best, typically the people executing them. This not only leverages their expertise but also increases engagement. Being responsible for the estimate makes them more likely to meet their commitments.

• Multiplicity — Since each person has individual biases, it’s recommended, when possible, to consult multiple experts or knowledgeable individuals. Group discussions help eliminate biases and yield more realistic estimates.

• Framework — An estimate must always be made within a defined normal conditions framework. These conditions, which vary by organization, should be specified beforehand to justify delays or adjust estimates if conditions change. They may include factors such as working hours, resource availability, and team capacity.

• Time Unit — All project tasks should use a consistent time unit aligned with organizational practices. Should you use calendar days, workdays, hours, weeks, or person-days? The most common unit is the workday, but it depends on the organization and project.

• Task Independence — Each elementary task should be estimated independently, not grouped artificially. A common mistake is to group multiple tasks, estimate them globally, and then split the total arbitrarily. This often results in optimistic and unrealistic estimates, as specific task constraints are ignored.

• Contingencies — An estimate should not include a buffer for unexpected events. It should reflect normal conditions only. It’s up to the project manager to add a contingency margin later after assessing identified risks.

Three-Point Estimation

The three-point estimation, also known as triple estimation, is particularly useful for tasks with high uncertainty in time or cost. The method asks a group of people to provide three distinct estimates:

• Pessimistic estimate (Ep): the maximum estimated duration, beyond which the task is unlikely to take longer.

• Optimistic estimate (Eo): the minimum estimated duration, below which the task is unlikely to finish sooner.

• Most likely estimate (Epr): the most realistic duration, representing what is reasonably expected.

Estimating this way allows you not only to define estimation ranges and mitigate uncertainties but also to determine the most realistic estimate possible.

The average estimate (Em) is calculated using the following formula:

where:

• Er: realistic estimate

• Ep: pessimistic estimate

• Epr: most likely estimate

• Eo: optimistic estimate

Estimate Task Durations and Costs with Orchesia

In the Orchesia software, each elementary task you create can be found in the main “mind map” tab. Open any task and fill in:

• The person responsible

• The costs

• The task duration

Collaborate in real time: exchange directly in each task’s comment space with those responsible for execution. Use their expertise to refine estimates.

Save your estimates: they serve as benchmarks for tracking progress and refining estimates for similar tasks in future projects.

If a task seems too complex to estimate due to lack of expertise, you can ask our AI assistant to help you decompose or estimate the task.

Once all tasks are estimated, define their dependencies via the dedicated tab. Orchesia automatically calculates:

• The project’s total estimate and deliverables

• The critical path

• Activity float and margins

With this approach, you optimize your project management and gain precision in your estimates.

Try our project management software Orchesia free for two weeks, no commitment!