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Project estimation: methods and best practices

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Accurate project estimates are the cornerstone of effective project management. They set realistic expectations, guide resource planning, and ultimately influence project success. 

Project estimates forecast the effort, duration, and cost required to complete a project, ensuring every team member knows what they’re responsible for and why. Accurate estimates also ensure smooth project planning, scheduling, and budgeting.

This article explores project estimation techniques for traditional and Agile methodologies and best practices for ensuring effective project estimation. From breaking down tasks to accounting for uncertainties, this guide offers the tools to make informed estimates and achieve predictable project outcomes.

What is project estimation?

Project estimation forecasts the resources, time, and costs required to complete a project. It involves analyzing available information, such as project scope, historical data, and industry benchmarks, alongside educated assumptions about potential risks and challenges. 

This process aims to create a realistic picture of the project's overall effort and expenditure. Effective project estimation methods allow project managers to set achievable deadlines, allocate resources, and inform decision-making throughout the project life cycle.

Why is it important to estimate a project?

Project estimation is a crucial foundation for successful project execution. Accurate estimates empower project managers to make informed resource allocation decisions. By understanding the anticipated workload, you can assign the right people to the right tasks at the right time, preventing the overallocation or underutilization of resources.

Realistic project estimates translate to workable schedules. Knowing the time necessary for each project phase helps managers establish achievable deadlines and milestones. This transparency fosters trust with stakeholders and mitigates the risk of missed deadlines or schedule overruns. 

Project estimation plays a crucial role in managing stakeholder expectations. By communicating realistic timelines and resource requirements upfront, stakeholders can make informed decisions to avoid potential disappointment or frustration with project progress.

Methods of project estimation

Project estimation methods are essential for accurately forecasting the time, costs, and resources needed for successful project completion. There are various project estimation methods, which we’ll discuss below.

Expert judgment

Expert judgment leverages the knowledge and experience of specialists in a specific field. Experts can be internal team members with deep domain knowledge or external consultants with proven expertise. Through consultations, interviews, or surveys, their insights help estimate project parameters such as duration, costs, and resource requirements. This approach allows teams to identify potential risks and challenges that might not be readily apparent from a purely data-driven approach.

Three-point estimation

Three-point estimating acknowledges the inherent uncertainty in project planning. It considers three possible scenarios for each task: optimistic (best-case), pessimistic (worst-case), and the most likely durations. By using a weighted average that incorporates these three estimates, this method provides a more comprehensive picture of potential project timelines. The most likely scenario is assigned the most weight. 

Optimistic and pessimistic estimates account for possible risks and ideal outcomes, helping project managers create more realistic timeframes that consider potential variations in task execution.

Analogous estimation

Analogous estimation leverages historical data from projects with similar tasks and deliverables to estimate the effort required for a new project. Analyzing past project data, such as time spent or resources allocated, lets project managers establish a baseline estimate for the new project. 

This approach can benefit projects with limited historical data or entirely new endeavors. Acknowledge and account for differences between the analogous and the current projects to ensure a reasonably accurate estimate.

Parametric estimation

Parametric estimation uses statistical relationships between historical data and project variables to forecast project effort. This method relies on established formulas or algorithms considering historical data points, such as project size (e.g., square footage for construction) or feature count (for software development). 

Parametric estimation can create estimates for parameters such as time, cost, and resources. This data-driven approach benefits projects with well-defined parameters and readily available information.

Bottom-up estimation

Bottom-up estimation breaks down the project into its smallest, most manageable components, known as work packages. Individually estimate each work package for its time, resource needs, and cost. Once you have estimates for all work packages, aggregate them to arrive at a total project estimate. 

This method offers high granularity and works well for projects with well-defined scopes and tasks. However, it can be time-consuming for complex projects and requires a clear understanding of the project breakdown structure.

Top-down estimation

Top-down estimation offers a quick and efficient way to generate a high-level project estimate. This method leverages existing knowledge, industry benchmarks, or expert opinions to establish a project timeframe and budget. It considers factors such as project size, historical data, or even analogous projects from different industries. 

While the initial estimates may have less detail than bottom-up approaches, they provide a valuable starting point for project planning. As the project progresses, refine top-down estimates through bottom-up estimation or expert judgment to better understand the project scope and resource requirements.

Factors influencing project estimation

Several key factors influence the accuracy of project estimates. A clearly defined project scope with well-understood deliverables forms the foundation for reliable estimates. Uncertainties around project requirements can lead to underestimations or scope creep. Resource availability also plays a critical role. Understanding the team's capacity and skill sets allows for realistic estimates of workload and task durations. 

Project complexity is another crucial factor. Highly intricate projects with numerous dependencies or novel technologies may require additional time for planning and execution, impacting initial estimates. External dependencies, such as reliance on third-party vendors or outside approvals, can introduce uncertainties and delays that you must factor into the estimation process. 

A comprehensive risk assessment is crucial. Identifying and evaluating potential risks allows for proactive mitigation strategies and adjustments to the initial estimates, increasing the likelihood of project success.

Best practices for effective project estimation

Refining project estimation skills hinges on implementing the following best practices: 

Clearly define the project scope. The project scope is the foundation for accurate estimates. Ambiguous requirements or last-minute changes can significantly impact the project timeline and resource allocation. 

Involve stakeholders. It’s vital to involve stakeholders throughout the estimation process. Their insights into project goals, user needs, and potential roadblocks can enrich the process. 

Use multiple techniques. Leveraging multiple techniques provides a more comprehensive view of potential project parameters. Combining bottom-up estimation for detailed tasks with expert judgment for unforeseen challenges allows project managers to create a more robust estimate. 

Document everything. Cataloging all assumptions made during the estimation process is crucial. These assumptions can serve as reference points as the project progresses, allowing for adjustments if necessary. 

Be flexible and check in frequently. Estimates are not set in stone. Update them regularly based on actual progress and emerging challenges. This ensures transparency and keeps project timelines and resource allocations on track.

Agile story points for project estimation

For Agile teams, Jira Story Points offers a flexible approach to project estimation. Unlike traditional time-based estimates, story points focus on the relative effort necessary to complete a user story. This method acknowledges the inherent uncertainty in Agile projects and prioritizes relative complexity over fixed durations.

Atlassian defines story points as a unit of measurement used to estimate the overall effort required to fully implement a product backlog item. Teams collaboratively assign story points to each user story during planning sessions, considering complexity, size, and risk.

Here's how Jira Story Points can enhance project estimation in your Agile workflow:

  • Focus on effort, not time. Decoupling estimates from time allows for more flexibility in accommodating changes and scope creep, which are common occurrences in Agile projects.
  • Use team-based estimation. Story point estimation sessions encourage collaboration and shared understanding among team members, fostering a sense of ownership and project buy-in.
  • Improve visibility. By tracking story points completed in each sprint, teams gain valuable insights into team velocity (the average amount of work completed per sprint). This data helps with future project planning and estimation.

Jira integrates seamlessly with story point estimation. Features such as planning boards visually represent user stories with their assigned story points. Jira burndown charts track progress throughout the sprint, allowing teams to monitor remaining work and identify potential roadblocks.

By embracing Jira Story Points, Agile teams can better understand the project scope and effort, leading to more predictable project outcomes.

Ensure accurate project estimation with Jira

Jira streamlines project estimation, increasing accuracy and improving the chances of project success. Here's how some of Jira's core functionalities can assist:

  • Granular task tracking: Break the project into manageable tasks, estimate each task's duration, and track real-time progress. This allows for more accurate project estimates.
  • Resource management: Visualize the team’s workload and skill sets. Understanding resource availability allows you to create estimates that consider the team’s capacity. It also helps avoid overallocation for more realistic project timelines.
  • Reporting functionalities: Leverage Jira's reporting tools to gain insights from historical data. Analyze past project durations, resource allocation, and cost information to inform future estimates, improving overall project estimation accuracy.
  • Real-time visibility: Track project progress and identify potential roadblocks early on. Jira's real-time dashboards keep teams informed and invite adjustments to the initial estimates as needed. This proactive approach ensures the project stays on track and avoids deviations from the estimated timeline.

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