What is Effort Estimation: A Guide for Project Managers
Time is Money: Accurate time and effort estimations give you a clearer view of the resources and costs needed, so you can make sure your project stays on budget.
Scope it Right, Success in Sight: Understanding project scope prevents unexpected surprises from derailing the project and helps you manage resources efficiently for timely delivery.
Software in the Mix: Software tools can help you create more accurate estimates and then track them against your actuals throughout the project, as well as adjust when the need arises.
With accurate estimations of how much time and effort your project will require, you’ll have a better idea of the resources and costs that you’ll need to deliver your project on time, on budget, and within scope.
In this article, I’ll discuss effort estimation, why it’s important, and common techniques for improving project planning, optimizing resources, and increasing your team’s delivery.
What is Effort Estimation?
Effort estimation is a structured process for determining how much effort (in hours or relative to other tasks) is required by your team to complete your project, achieve the project's goals, and finish all deliverables on time and within budget.
It helps you and your teams allocate and manage resources efficiently and make sure the right amount of manpower and expertise is allocated where needed at the right time. You’ll be able to
create more precise financial forecasts, prevent cost overruns, and facilitate better decision-making throughout the project life cycle.
Effort Estimation vs. Time Estimation
Effort estimation refers to the work your team needs to complete a task, measured in person-hours or person-days. It focuses on the labor or effort required to execute a project in terms of their skills and expertise. Think of it as a qualitative measure.
Time estimation, on the other hand, predicts how long it will take them to complete each task, including the effort and factors like productivity, resource availability, and external dependencies. This would be more quantitative.
Why is Effort Estimation Important?
Effort estimation is an important resource management technique because it directly impacts your project's overall success in the following ways.
- It helps you allocate your resources efficiently. It makes sure each project phase has the right people and expertise assigned based on individual strengths and weaknesses.
- It contributes to better budgeting. You can create more precise financial forecasts by understanding the effort required for each task.
- It aids in setting realistic timelines and milestones. When your teams clearly understand the effort involved, they can create achievable schedules and reflect the actual workload.
The impact of effort estimation on budgeting is significant. For instance, if you estimate that your project will require 200 hours of effort, and the average hourly rate for team members is $50, the project budget can be set at $10,000 for labor alone.
This financial clarity is essential for your external stakeholders, who need to understand the costs involved before they can sign off on the project, and for your team, so you can make sure you remain within budget throughout the project.
Common Techniques for Effort Estimation
When you’re planning and managing tasks, you might use a combination of these effort estimation techniques.
Expert Judgment
Expert judgment is a qualitative estimation technique that involves gathering feedback from individuals with experience and knowledge relevant to your project.
With their expertise, you can improve your estimation process and make more informed decisions, and capture nuanced information that may not be evident from historical data or quantitative methods.
For instance, you might get input from engineers, architects, and construction foremen on the expected effort for the various phases of a construction project. By combining their opinions, you can develop a more realistic estimate that accounts for the complexities and challenges of the construction process.
Analogous Estimation
Analogous estimation involves using the duration or costs from previous, similar projects to estimate effort. This is particularly useful when you don’t have detailed information about the new project, but you have a wealth of historical data to draw from.
Comparing the current project with past experiences can help you make a more informed estimate, and it speeds up the project planning and estimation process by giving you a starting point.
For example, suppose you’re tasked with launching a marketing campaign for a new product. You recall that a similar campaign for a previous product took approximately 200 hours to plan and execute. You can use this as your starting point, and then refine it to account for any relevant project details (e.g. this new product is targeted at a different audience).
Parametric Estimation
Parametric estimation is a quantitative technique that uses statistical relationships between historical data and other variables to estimate project effort.
You analyze past projects and their associated metrics, and then calculate an estimate for the new project based on the variables of your choosing. This technique works best where similar tasks have been performed repeatedly, and it allows you to derive estimates based on empirical evidence rather than guesswork.
For example, let’s say you work for a web development company that has completed multiple projects.
If it takes 50 hours, on average, to develop a single web page, and you’re tasked with creating a new website with ten pages, you can use this historical data to estimate the total effort as 500 hours (and factor in other variables, like which developers you’ll use, as needed).
Three-Point Estimation
The three-point estimation technique involves considering three different scenarios for each task: the best-case scenario, the worst-case scenario, and the most likely scenario.
You then take the average of these three data points, which results in an estimate that accounts for uncertainty and variability in project execution (and you’re better prepared to adjust to the worst-case and best-case scenario).
For example, let’s say your team is asked to develop a new feature for an existing software application. You estimated the effort required to be 10 hours under optimal conditions, 20 hours in the most likely scenario, and 35 hours in a worst-case scenario. You calculate the average as 18.33 hours.
Top-Down Estimation
Top-down estimation involves dividing up your allocated budget (whether internal or from the customer) amongst the work that needs to be completed. From there, you can determine whether the budget is sufficient (and ask for more if needed).
For example, let’s say you’re working on a software development project where your company is launching a new mobile application. You’re given six months and $90,000 in budget.
When you start divvying up the budget, you realize it’s only enough to cover about three-quarters of the planned scope. From there, you can go back to your stakeholders and ask for more budget (or adjust the timeline, scope, resources to make it work).
Bottom-Up Estimation
Bottom-up estimation involves splitting the project into smaller tasks or components and estimating the effort required for each task individually, and then adding those smaller estimates up to create a total estimate. This method allows you to create detailed and granular estimates, which can lead to more accurate overall project estimates.
For example, for a website development project, you might break down the project into design, development, testing, and deployment tasks. Each of your team members can then provide estimates for their assigned work based on their expertise and understanding of the workload.
You’d then combine their estimates to create a comprehensive estimate for the whole project. This also encourages team members to take ownership of their work as they’re accountable for their estimates.
Challenges With Effort Estimation
Effort estimation is fraught with various challenges, including these.
Inherent uncertainty
Often, stakeholders may not fully articulate their needs, which can lead to misunderstandings about the project. This can have a cascading effect—if initial estimates are based on incomplete information, you’ll run into misallocated resources and project delays further along in your project.
Establish clear and comprehensive project requirements upfront. Requirements workshops or user story mapping can help make sure stakeholders are aligned and reduce the risk of scope creep and the challenges that come along with it.
Varied team performance and productivity
Each of your team member's skills, experience, and work habits can significantly influence how long a task takes to complete. External factors such as team dynamics and morale can also be a factor.
To address variations in team productivity and performance, analyze historical data from past projects to create a baseline for future estimates. By examining how long similar tasks took, you can better gauge expected performance levels and create more realistic effort estimates.
Work complexity
Projects vary in complexity—they might involve new technologies, unfamiliar processes, or technical knowledge that throws more uncertainty into the project. If your initial estimates don’t account for this type of complexity, you’ll run into significant delays discrepancies as the project progresses.
Break down larger tasks into smaller, more manageable components—this will help mitigate the impact of complexity and help you get a better understanding of the project. You’ll also be able to set better estimates and track progress more accurately.
Iterative methodologies like agile are more flexible as well, and can allow for fluctuations and adjustments as more information becomes available throughout the project life cycle.
Best Practices for Effort Estimation
To overcome challenges and effectively estimate effort, follow these best practices for resource management.
Implement A Centralized Repository
Create a centralized repository for each project you undertake where you store information on the project scope, team composition, time taken for each phase, and lessons learned. You can then use this information when you’re estimating future projects.
You should also train and encourage your teams to consistently document their work (via time tracking software) to improve the reliability of future estimation efforts.
Assess The Team’s Skills
Each project might involve different team members with varying skills, experience, and motivation levels.
When a new team is assigned to your project, the estimation process can become particularly challenging as prior performance metrics may not directly apply. This can result in underestimating effort, particularly if your new team lacks the experience of previous ones.
Conduct thorough assessments of the team's capabilities before they start work on the project. Evaluate individual skill sets, previous performance, and familiarity with your processes and technology stack. Talk with the higher-ups about cross-training team members so they can share knowledge and help each other adapt to challenges.
Adopt an Iterative Approach to Estimation
Projects often evolve due to shifting client requirements, emerging technologies, and unforeseen issues that surface during execution. This unpredictability can make it incredibly difficult to provide accurate estimates at the outset.
Adopt an iterative, agile approach to estimation. Break your projects into smaller, manageable increments, reassess your estimates at the end of each iteration, and adjust them based on newly acquired knowledge and changing requirements. This can also help you mitigate risks and improve overall project outcomes.
Tools for Effort Estimation
Resource management tools are the best way to navigate the complexities of effort estimation. They include features that help you improve your resourcing processes, the accuracy of estimates, and collaboration among team members.
Look for these key features in resource management software:
- Time tracking
- Resource allocation
- Historical data analysis
- Benchmarking capabilities
- Collaboration features
- Centralized communication
- Project management tools and other system integrations
- Visualization tools
Here’s our list of the best software tools on the market:
What’s Next?
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