Top-down Estimating: Everything That You Should Know

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Imagine the chaos you will create when you don’t estimate the project cost or the timeline. Even the smallest projects can go out of hand if you don’t estimate them correctly.

For example, you are a painter, and someone approaches you with a project to paint their entire house.

The first step would be to study the project details and define the scope. Once you know the total square feet you need to paint, it becomes easier to calculate the timeline, resources, and cost.

Let’s look at what happens when you don’t calculate the costs. It can put you in a tough spot when you try to get paid at the end of the project, or you are never on the same page as the customer.

Among the several estimating formats, top-down estimating has been used by several contractors and business owners. This estimating type seems to offer efficiency and is up-to-speed concerning estimating costs and timelines.

As part of this guide, we will see how you can use the top-down estimating approach and what makes it different from the bottom-up estimation type.

What is the Top-down Estimating Approach?

It is a top-down estimating approach when you move from top to bottom in defining the project scope, the time required, and the total money it will cost you. Then, you estimate the overall cost before you go further and break it down into individual estimates.

You tend to use this method when you want to quote a ballpark amount or timeline. This approach is also a great way to estimate early-stage projects.

However, it may not be the most efficient method if you want an actual or fully-defined estimate. But, most owners and contractors prefer using this estimate because of its speed and how it helps define the quote.

Top-down Approach Advantages

Why should you use a top-down estimating approach for estimating your cost and timeline? If this question is on your mind, here are a few advantages that we have identified with this approach.

  • One of the most significant advantages of using the top-down estimation technique is that you can cost-efficiently quote for early-stage projects. While, in most cases, you will have data backing your claim, this approach can also work when there is limited to no data available.

    Say you have a project that someone is working on for the first-ever time. approaching the estimation is easier with top-down.

  • When you estimate using the top down estimating approach, you are concerned with the high-level aspects.

    For example, you would only calculate the total area to be painted in a painting project in the top down estimates approach. On the other hand, in a construction project, if you consider significant headings like plumbing, cementing, etc., you will not drill deeper into these aspects.

    As a result, it becomes easier for the manager to draw the estimates and provide their quotes faster.

  • Top down estimate technique requires fewer resources and time than other estimating methods. You don’t spend much time when you approach cost estimating with this technique. it is efficient and productive.

  • You can use holistic data from the previous projects to estimate your current project. Eventually, despite giving a broader outlook, you can manage to look into the risks and mitigate the challenges. When you are preparing the cost or worksheet, this data will help you ensure you don’t overlook significant aspects.
  • You know all the major headings and know-how to segregate the work with the top-down estimating approach. It becomes easier when you move toward the bottom of the estimation.

Bottom-up Versus Top-down: How Different are They?

They both are poles apart from each other when preparing the estimation for project planning. You will notice that bottom-up is the exact opposite of top-down estimating in every way.

In the bottom-up approach, you hit the bottom to start your estimation. Then, the total estimate is the sum of all the costs you are likely to incur.

  1. An Example of Bottom-up Estimation

    When you are a PM for the software solution, you are asked to estimate the timeline and total cost for the project.

    You know you have to plan, strategize, prototype, design, develop, deploy and maintain the project.

    To build the estimation, you will segment the planning section into sub-sections and define the cost estimate for each aspect. Then, you will take a similar approach for all the other sections. Once you have the cost and timelines, using a Gantt chart or other project management methods, you will provide the total time and money that will go into the project budget and task.

    With the bottom up estimate approach, you will consider every labor, contingency, and work schedule. It is like diving into project management and leaving nothing to chance.

    It takes a while before you have the estimation in hand, but it takes care of everything you need accurately and reliably.

    When we talk about top-down estimating, it is the exact opposite. In this case, you will allocate the entire project cost timeline. To build this, you would use past issues and data to help you consider a valid number.

  2. An Example of Top-down Estimation

    Let’s consider the same software solution project. Instead of diving deeper into the sub-sections as a project manager, you will get your analysts to work. You will ask them to provide you with the numbers for the past projects with a similar brief.

    Once you have the numbers, you will work around the projects’ requirements (past and current). Finally, you will compare and estimate your current project’s timeline.

    So, using this data, you will give a ballpark estimate for the cost. For example, if the previous cost the entire company $44k, you will see how different this one is and estimate it around the same price.

    This is a data-backed estimate. However, the actual amount can be exact or somewhere near this amount. You will begin calculating the exact amount only after submitting the ballpark quote to the client.

top down estimation

Use Cases for Top-down Estimating Approach

Here is how you can use the top-down estimating approach to estimate your next project.

  1. A New Construction Project

    As a builder approaching a new construction project, you want to estimate the timelines and costs. It will help you raise funds and ensure you are prepared for the project. It will also help in evaluating the cost price for individual units.

    A top-down estimating approach can help you identify past projects with similar plans and areas. Then, you can estimate the resources involved, timelines, and construction costs.

    This will help you draw a tentative plan for the new project. Eventually, it will also give you a roadmap for the actual estimates, quotes, and bids from your top down estimate outcome.

  2. Renovation Projects

    If a contractor approaches you for plumbing or renovation projects, they first need an estimate. Therefore, you should provide them with the approximate amount it would cost them to go through this process.

    renovation projects estimate

    You can check with other contractors, pull data from past projects similar to the new one, and assess them to estimate your current project timeline and cost.

    The top-down estimating approach gives the homeowners a rough amount of time and helps them make decisions. It also saves you a lot of time, as you don’t need to pull the entire estimate before bagging the project.

    If the homeowner is satisfied, you can draw the actual estimate and provide it to them.

  3. Software Development Projects

    Imagine a company needs to improve its networking capabilities. They want to hire your expertise for the purpose. First, however, they need an estimate to plan the budget for the same.

    If you use any other approach, you may waste time. You might even lose the project eventually. However, with top-down estimating, you can offer a ballpark quote as soon as possible and tell the other side how long and at what cost they can reimagine their networking capabilities.

    You can use the past data from similar projects to define the estimated cost and offer a tentative plan. It will help you bag the project and speed up the estimation.

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While top down estimation is very good for up-to-speed estimates and quick iteration of ballpark quotes, you will still face some challenges.

  • You cannot be creative with your project estimates. You will be using the past data to create your new estimate.
  • It impacts your leadership, as you will be using a rough quote. It is probable that the time is taken or the cost of the project may exceed the estimated value.

You should be very clear about when and how to use the top down estimation technique. It is equally important to note that this estimation may not be accurate for all use cases. When it comes to creating estimates to send to your customers, all you have to do is adopt InvoiceOwl.

This estimating and invoicing software will make it easy for you to create estimates in just a few clicks. Not only this, but this software offers many other features and functionalities. You can get and start getting benefits.

Author Bio
Jeel Patel
Jeel Patel

Jeel Patel is the Founder of InvoiceOwl and is the main curator & writer of the content found on this site. With ideals of quality, commitment, and perseverance, he believes in creating lasting business relationships with the clients.

United States