Why is estimating time and cost important in projects?

Now you know where you can’t get away without project management time estimation. So let’s move to the actual benefits of it:

Making expenses more efficient

Time is money. The more effectively you spend your precious hours, the better and faster results you get. The better and faster results you get, the more profit you have in the bottom line. It is pretty straightforward and simple logic. To streamline your project, you have to set up a decent time frame for each stage. It will allow you to put every penny into work and waste none. 

Setting a steady work pace

If you’ve managed a project before, you should know that it is crucial to create a balanced work pace. Speaking of a balanced work pace, we mean equilibrium between speed and quality. On the one hand, following the urge to finish your project ASAP will negatively affect its quality. On the other hand, rattling on can harm your budget and team motivation level. So, first of all, time estimating allows you to set the golden deadlines to achieve a high standard and speed. 

Enhancing project credibility 

A project that has an in-depth roadmap with clear and coherent milestones inspires the confidence of customers and investors. The future buyers would rather make a preorder of a product when they know the exact time they get their purchase. Furthermore, the investors will be more willing to support the projects that can demonstrate results in a timely manner. Needless to say, broken deadlines will bring heavy damage to the reputation of your project and you as a manager. 

Role of Cost Estimation

Estimation plays a vital role in project cost management on multiple levels. The types of enterprise that benefit the most from it are pretty the same as in time estimation. Therefore, let’s cut to the enormous impact that cost estimation can have on your project:

Staying within budget

A precise cost estimate allows you to prevent budget overruns. To make it work, you’ll need to have a clear understanding of what you want to have as a result. Plus, consider the time frames because they influence labor prices big time. 

Better project management

Knowing your budget limits will help you to choose services, specialists, and equipment for your project. Furthermore, it will greatly define the time limits within which you should complete your project. Ultimately, you will attain more confidence in decision-making and have a clear view of your project’s resources.

Increasing your profit

This benefit resembles the previous one. If you have no additional outlays on the way to the project completion, you will have the anticipated profit. 

Improving reputation

Accurate predictions of the project’s costs enhance your relationships with sponsors and customers. Investors certainly wouldn’t be happy if you take them unaware of additional expenses or delays.

Thus, foresee all possible charges and make them known to sponsors in the cost estimate. As for customers, cost estimation helps you to determine a fair price on your future product or service beforehand. 

Time Estimation Tips & Techniques

As we’ve got to understand the huge impact estimation has on your project’s success, let's get down to the actual time estimation techniques and tips. 

Let’s start with some tips:

Be clear on what you need to do

Depending on your project, it may include thorough discussion with the stakeholders or just your own mind making. It would help if you based the latter not on your aspirations alone but on some actual data. Further, you’ll find more tips on how to support your time estimate with relevant facts. At this stage, you set up the milestones and break them into smaller tasks. There are tons of tools like Gantt charts or WBS (Work Breakdown Structure) that can help you out with it. 

Use Historical Data & Expert advice 

Many project managers fall into the so-called planning trap. It’s a psychological trap that is defined by people’s tendency to underestimate the time they need for various tasks. To avoid that, you should take into account the historical data and expert advice. 

Historical data includes financial reports, project documentation, and many more. In fact, you can get valuable information that will help you to estimate time from many sources. The most important things are the way it is connected to your particular goals and how you analyze them.  

Then, people who have had the experience in the projects like yours bring more life to that data. They can share plenty of precious information about what challenges you can face on your way and how to tackle them. So don’t hesitate to find such a counselor to assist you with your time estimation.

Techniques to make a precise time estimation:

Top-down

Applying that technique, you will define the small tasks that you need to do and then move on to their categories. Afterward, they will comprise the milestones on your timeline. 

Bottom-Up

This technique is the opposite of the previous one. Here you define the major steps first. Further, as you guessed, you break them down into minor tasks. 

Parametric 

Using these techniques, you can count the time you’ll need for similar tasks. It is about estimating the time for one task and then multiplying the total on the number of such tasks. For example, you need to build a wall of a thousand bricks. With parametric estimation, you will measure the time for one brick and then multiply it by 1000. 

Three-point 

Three-point estimation is more time-consuming than any other technique listed here. However, it brings the most accurate predictions. 

The technique consists of making time estimation on three scenarios: optimistic (O), pessimistic(P), and most likely(M). Then you need to make calculations by the following formula: E = (O+4M+P)/6. E in this formula will be the final time estimation for your project. 

Time Estimation Software Tools

The tech progress left its footprint in the sphere of time and project management too. Specialized software can significantly improve your time estimation. It collects statistics, historical data, and gives precise reports automatically. Apart from that, you’ll have all the information presented in an authentic and convenient interface. You can even claim the assistance of professional developers and get your own time estimation software template. In fact, custom software solutions tend to bring more quality into your estimation process. 

To make a perfect time estimate, it is better to combine all the techniques. 

Cost Estimation Tips & Techniques

Let’s start with an illustration. Those cool guys in the gif picture below give you an example of the wrong budget management. If you want to stay afloat, never try it on your project. Not a bill should fly out of your pocket for no particular reason.

In this case, you use techniques and tips that are mostly the same as for time estimation. You’ll need some historical data and an expert that will tell you where to direct your resources first. Apart from that, cost estimation will demand meticulous research and calculations. A key for developing a project cost estimates is to:

• Define the purpose and make up a plan of your estimate;
• Choose the approach for your estimate elements;
• Analyze the related data and find cost drivers;
• Estimate all the elements you added to your plan;
• Consider risk and make sensitivity analysis;
• Document your estimate and show it to your investors;
• Update your cost estimate, if needed.
  

As you learned the major steps in cost estimation, let’s go through the techniques:  

Analogous Estimation

If you have had projects similar to your current one, you can make great use of this method. The experience of the previous projects will help you to make your further estimations more precise. In case you had no such opportunity, you can find a similar experience of the other companies.

Bottom-up Estimation

If you need a more detailed estimation, opt for the bottom-up estimation technique. It presupposes calculation of cost for each task and then summing them up. This approach will be especially beneficial for projects and start-ups with tight budgets.

Parametric Estimation

The technique uses statistical and historical data to predict possible expenses. It helps you define the line items for your project and count their cost.

Three-point estimation

The technique is analogous to the one we mentioned in the time estimation part. It has the same scenarios and the same formula (E = (O+4M+P)/6). Just insert your cost estimation parameters and count. 

Cost Estimation Software 

To make your calculations more precise, you can employ project management estimating software. It's capable of tracking the expenses in real-time and demonstrating the stage you are in. Besides, it will check if you comply with the budget limits. In a word, the toolset of estimation software is only limited by the developers’ imagination. Thus, it even makes sense to create a custom estimation template just for your project’s needs. Fortunately, there are great cost estimation templates available for free.

Cost of quality

This technique comes into play when you want to do as much as you can to avoid failures. Also, you can include some money to cover possible failures that can appear after the project release. 

Again, the best results come with the complex approach where you employ as much cost estimation as possible.

Summary

That will be all. Now you know why it is important to use estimation in project management and how it helps you to achieve your goals. Being armed to the teeth with the proven estimation techniques and software tools, you will smash all the trouble out of your way to success.

Why is it important to estimate the cost?

What is the purpose of estimating time?

Why is estimating a project's costs important state your reasons?