Guesstimate’s Reliability: Estimation

Do you wish you had a magic crystal ball that could tell you the exact time and money required for your project? Estimation is the answer! Estimation techniques that can help you make more accurate and reliable predictions but they still involve some guesswork and uncertainty.

Sounds pretty cool, right? Buckle up and get ready for a fun and informative ride through the world of Estimation!

Hello, fellow Busienss Analysts! let’s dig into another wonderful techniques in business analysis: Estimation.

Estimation is the art and science of predicting and quantifying various aspects of a project or a business initiative, such as cost, effort, time, resources, benefits, and risks. Estimation techniques can also help stakeholders make informed strategic decisions, allocate resources wisely, and manage uncertainties.

Estimation is not a one-time activity; it is an ongoing process that requires constant monitoring and adjustment. As a business analyst, it is important to update the estimates as new information becomes available, as assumptions change, or as the scope or requirements evolve.

But how do we actually do estimation?

Types of Estimation

There are many estimation techniques that business analysts can use, depending on the nature and scope of the project or initiative being analyzed. Some of the most popular ones are:

1. Top-Down Estimation

This technique involves analyzing the solution from a high-level perspective and then breaking it down into lower-level components and summing up their estimates.

For example, Estimating the cost of developing a new software product can be start by estimating the total cost of the product based on its features and functionality, and then break it down into modules, sub-modules, tasks, etc. and add up their costs.

This technique is useful when there is a clear vision of the solution and its requirements, but not much detail on how to implement it. It is also good for estimating large-scale or complex projects that involve multiple stakeholders or teams.

The benefits of top-down estimation are that it is fast, simple, and easy to communicate. The weaknesses are that it can be inaccurate, unrealistic, or biased, as it relies on assumptions and generalizations.

2. Bottom-Up Estimation

This technique involves analyzing the solution from a low-level perspective and building up the estimates by adding up the individual costs or efforts of each component.

For example, Estimating the effort required to complete a project can be done by starting estimating the effort of each task or activity involved in the project, and then add them up across all phases or stages.

This technique is useful when there is a lot of detail on how to implement the solution and its requirements, but not much clarity on the overall scope or vision. It is also good for estimating small-scale or simple projects that involve few stakeholders or teams.

The benefits of bottom-up estimation are that it is accurate, realistic, and detailed. The weaknesses are that it can be time-consuming, complex, and difficult to communicate.

3. Parametric Estimation

In this technique, we use a calibrated parametric model of the element being estimated. We identify previous projects or solutions to analyze their costs or efforts. This provides us with an estimate of what our current solution or project might cost or take.

It is vital that we use our own historical records to calibrate any parametric model, because they reflect our abilities and processes.

This technique is useful when we have similar or comparable projects or solutions to base our estimates on. However, this technique may also be inaccurate or misleading if we do not account for differences or changes between projects or solutions.

4. Rough Order of Magnitude/Expert Opinion/Ballpark Estimate

This technique involves asking experts or experienced people to provide their estimates based on their knowledge and judgment.

For example, to estimate the feasibility of a new business idea, ask experts in the field or market to give their opinions on its potential success or failure.

It is also good for estimating projects or solutions that are novel or innovative or involve high uncertainty or risk. However, this technique may also be unreliable or biased if we do not have enough experience or if we do not validate our estimates with data or facts.

5. Rolling Wave Estimate

In this technique, we use an iterative approach to estimate our solution or project. We start with a high-level estimate based on available information and then refine it as more information becomes available or as conditions change.

We may also use different techniques for different levels or phases of the project.

This technique is useful when we have a dynamic or uncertain environment, or when we need to adapt to changes or feedback. However, this technique may also be inconsistent or confusing if we do not communicate or document our estimates clearly or if we do not update them regularly.

6. Delphi Technique

In this technique, we use a consensus-based estimate that involves multiple experts or stakeholders. We ask them to provide their estimates anonymously and independently, and then we aggregate their responses and provide feedback. We repeat this process until we reach a consensus or a stable estimate.

This technique is useful when we have a complex or controversial problem, or when we need to reduce bias or conflict. However, this technique may also be time-consuming or difficult if we do not have enough experts or stakeholders, or if we do not facilitate the process effectively.

7. PERT/Scenario Analysis Technique

In this technique, we use optimistic, pessimistic, and most likely scenarios to estimate our solution or project. We assign probabilities to each scenario and calculate the expected value of the estimate. We may also use a formula such as PERT (Program Evaluation and Review Technique) to weigh the scenarios and calculate the estimate.

This technique is useful when we have a high degree of uncertainty or variability, or when we need to account for risks or opportunities. However, this technique may also be subjective or speculative if we do not have enough data or evidence to support our scenarios.

As we can see, there are many estimation techniques that can help us as business analysts. But there is no one-size-fits-all solution. We need to choose the most appropriate technique for our situation and purpose. We also need to be aware of the limitations and assumptions of each technique and validate our estimates with data and facts.

How to choose the most appropriate Estimation Technique?

There are different estimation techniques that can be used for specific situations. But it is very important that we have a shared understanding of the elements that are to be estimated with our stakeholders. This shared understanding can be achieved with the help of some decomposition tools, such as a work breakdown structure (WBS), which can help us break down a complex problem into simpler pieces.

When creating and communicating an estimate, we also need to clearly state the constraints and assumptions that affect our estimates. For example, we may assume that certain resources or technologies will be available, or that certain risks or changes will not occur. These assumptions need to be validated and updated throughout the project life cycle.

There are many methods, and we need to choose the most appropriate method for the specific situation and context. Some of the factors that may influence the choice of estimation method include:

• The level of detail and accuracy required.
• The availability and reliability of data and information.
• The complexity and uncertainty of the solution or project.
• The cost, time, and resources available for estimation.
• The preferences and expectations of the stakeholders.
• The potential risk impact of the implemented solution

Benefits of Estimation Technique

Some of the benefits of estimation are:

• It provides a basis for planning, budgeting, and scheduling the solution or the project.
• It helps compare different alternatives and select the best option.
• It helps identify potential issues and risks and mitigate them accordingly.
• It helps monitor and control the progress and performance of the solution or the project.
• It helps evaluate the success and value of the solution or the project.

Weaknesses of Estimation Technique

Some of the weaknesses of estimation are:

• It is based on assumptions and uncertainties that may change over time.
• It may be influenced by biases, errors, or inaccuracies in the data or information used.
• It may be affected by external factors such as market conditions, customer preferences, or competitor actions.
• It may not account for all the possible scenarios or outcomes that may occur.
• It may not reflect the actual complexity or difficulty of the solution or the project.

Real-Time Examples

Let’s see how we can use the different type of estimation technique in real-time scenarios.

Scenario 1: As a business analyst for an e-commerce company that wants to launch a new online platform for selling books, we need to estimate the cost of developing this platform.

Top-Down Estimation: We can start by estimating the total cost of developing the platform based on its features and functionality such as user interface design user authentication product catalog shopping cart payment gateway order management etc. We can then break down these features into modules sub-modules tasks etc. and add up their costs.

For example, we can estimate that the user interface design will cost $10,000, the user authentication will cost $5,000, the product catalog will cost $15,000, and so on. We can then sum up these costs to get the total cost of developing the platform.

Bottom-Up Estimation: We can start by estimating the cost of each task or activity involved in developing the platform such as requirement analysis design coding testing deployment etc. and then add up these costs across all phases or stages of the project.

For example, we can estimate that the requirement analysis will take 40 hours and cost $4,000, the design will take 80 hours and cost $8,000, the coding will take 160 hours and cost $16,000, and so on and then sum up these costs to get the total cost of developing the platform.

Parametric Estimation: We can use a statistical model or formula to estimate the cost of developing the platform based on its parameters or variables such as size complexity quality etc. We can use historical data or industry benchmarks to calibrate the model or formula.

For example, use a model that calculates the cost of developing a software product as a function of its size measured in lines of code (LOC) and its complexity measured in function points (FP). We can use data from previous projects or similar platforms to determine the average cost per LOC and per FP. We can then multiply these values by the estimated size and complexity of the platform to get the total cost of developing it.

Expert Opinion Estimation: We can ask experts or experienced people to provide their estimates based on their knowledge and judgment. We can ask developers designers testers managers etc. who have worked on similar platforms or projects to give their opinions on how much it would cost to develop the platform. We can also ask experts in the e-commerce industry or market to give their opinions on how much customers would be willing to pay for using the platform. We can then average these opinions to get a rough estimate of the cost of developing the platform.

Scenario 2: Working as a business analyst for a consulting firm that wants to bid for a project to conduct market research for a new product launch, we need to estimate the effort required to complete this project.

Top-Down Estimation: We can start by estimating the total effort required to complete the project based on its scope and deliverables such as research objectives research questions research methods data sources data analysis report presentation etc. and then break down these deliverables into phases stages tasks etc. and add up their efforts.

For example, estimate that defining the research objectives will take 10 hours, designing the research questions will take 20 hours, selecting the research methods will take 30 hours, and so on and then sum up these efforts to get the total effort required to complete the project.

Bottom-Up Estimation: We can start by estimating the effort of each task or activity involved in completing the project such as literature review survey design sampling data collection data cleaning data analysis report writing report presentation etc. and then add up these efforts across all phases or stages of the project.

For example, estimate that conducting a literature review will take 40 hours, designing a survey will take 60 hours, sampling will take 80 hours, and so on and then sum up these efforts to get the total effort required to complete the project.

Parametric Estimation: Use a statistical model or formula to estimate the effort required to complete the project based on its parameters or variables such as size complexity quality etc. Also, use historical data or industry benchmarks to calibrate the model or formula.

For example, use a model that calculates the effort required to conduct a market research as a function of its size measured in number of respondents (N) and its complexity measured in number of questions (Q). Also, use data from previous projects or similar researches to determine the average effort per respondent and per question and can then multiply these values by the estimated size and complexity of the project to get the total effort required to complete it.

Expert Opinion Estimation: Ask experts or experienced people to provide their estimates based on their knowledge and judgment. Ask researchers analysts consultants etc. who have worked on similar projects or researches to give their opinions on how much effort it would take to complete the project. Also, ask experts in the product domain or market to give their opinions on how much value they would get from using the research results and then average these opinions to get a rough estimate of the effort required to complete the project.

Estimation is a vital technique for business analysts that helps them predict and quantify various aspects of a solution or a project. Estimation has many benefits but also some weaknesses that need to be considered. Estimation is used in different domains and contexts with different methods and tools. Business analysts need to use reliable estimation techniques that provide accurate and realistic projections based on available data and information.

I hope you enjoyed this blog post and learned something new about estimation techniques for business analysts. If you have any questions or comments, please feel free to share them in comments.

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Until next time, keep watching this space for more Business Analysis Techniques and Happy Estimating!