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Budgetary Estimate vs Phased Estimate
Depending on the organizational structure in which you’re managing projects and the type of project you are working on, you may use different approaches to estimating. Two common estimating types are budgetary estimates and phased estimates.
Budgetary estimates are used when funds are being allocated on some type of a periodic basis. The range of variance on a budgetary estimate can be from -10% to +25%.
Phased estimates are frequently used when the project is large or lengthy or is developing something new or untried for the organization.
In phased estimates, the near-term work is estimated with a high level of accuracy ±5 - 15% whereas future work is estimated at a high level with ±35% accuracy.
Phased estimates are considered “rolling wave” or “moving window” estimates and reflect the fact that “we don’t know what we don’t know”.
I have a small client that uses budgetary estimates for some of their projects. If the project is estimated to cost $100,000 and take four months, they will estimate $25,000 per month. Depending on the work actually completed during that month, the actual cost may be slightly higher or lower.
I have a larger client that is conducting a large, multi-year, infrastructure project. The analysis work has been estimated at $500,000, but the future work has a place holder estimate of $3M.
The organizational structure and type of project will dictate the approach to estimating. Budgetary estimates are used to allocate funds on a periodic basis whereas phased estimates are useful when the project is very large or the scope is not clearly defined.
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