“Bottom-up” or “Top-down” – Why not both?

When it comes to large engineering and construction projects, most estimators will categorize their approach in one of two ways:

1. Bottom Up Estimating (also called “Detail” or “Resource-driven”). With this approach, the estimator breaks the project into distinct line items, and then breaks those line items into smaller, distinct line items, and so on, until he or she arrives at the component (or resource) level – the level of detail at which the price of the components is relatively consistent across projects. For example, the cost of two recent bridges is going to vary wildly based on numerous project-specific factors, but the cost of an hour of a carpenter will be fairly consistent across those projects. Further, the man-hours expended by that carpenter to form a single square yard of a bridge deck will also be fairly consistent across projects. So, once you’ve modeled the hourly cost of the carpenter and the production rate for forming a deck, estimating the cost of a distinct line item called “Form bridge deck” is only a matter of identifying the size of the deck. Add that to other line items such as “Pour deck” and “Strip deck”, and you’ve got yourself a bottom up estimate.
2. Top Down Estimating (also called “Parametric Estimating”). This approach typically relies on cost histories from past projects, and knowledge of the specific parameters of those projects. Using the previous example, you could look at your previous bridge projects and determine that there are correlations between the cost of the bridge and key factors such as the size and the primary material used. In other words, all things being equal, if the new bridge is 10% larger than the last, its top down cost estimate might be 10% higher. While this approach can be fast, it is less likely to uncover potential cost-eating dangers such as challenging site conditions or fluctuations in raw material costs.

The practical reality is that most companies – and most projects – have a place for both approaches. If you’re doing a conceptual estimate for an early-stage project, top-down may be the only approach possible. And even later-stage estimates might involve a mix of items, some estimated top-down and others bottom up. Of course, more and more project owners are asking for the back-up – the detail behind the numbers. So if you’re not already using a bottom up approach, it’s time to start thinking about it.

Fortunately, Hard Dollar estimating software fully embraces both methods.