Top-Down versus Bottom-Up COST ESTIMATION

In general, the application of the estimating techniques listed previously occur in two ways: top-down and bottom-up. Top-down refers to estimating the cost by looking at the project as a whole. A top-down estimate is typically based upon an expert opinion or analogy to other, similar projects. Bottom-up refers to estimating costs by breaking the project down into elements—individual project work packages and end-item components. Costs for each work package or end-item element are estimated separately and then aggregated to derive the total project cost. Example 6 is a bottom-up approach; Example 3 is a top-down approach. The two approaches can be used in combination: portions of a project that are well defined can be broken down into work packages and estimated bottom-up; other less-defined portions can be estimated top-down. In turn, the cost of each work package can be estimated by breaking the package into smaller elements and estimating the cost of each (bottom-up), or by making a gross estimate from analogy or expert opinion (top-down). The bottom-up method provides more accurate estimates than the top-down method but requires more data and concise definition of tasks.