Six strategies for estimating resources like a pro

Resource estimation is one of the most important things you can do as a project manager. And the best PMs know how to estimate their resources to a T. 

Managing resources well means having everything you need to complete the work on time and without going over budget. A sign of an inexperienced project manager is someone who struggles with estimating and, as a result, may underestimate or overestimate the amount of work required. This leads to one of two things: delays or cost overruns. Or even worse: both.

On the other hand, a more experienced project manager will get it right and do so every time. How? By developing techniques for accurately estimating the resources required for a project. Let’s take a closer look at what those are.

What is a resource?

First, let’s cover a few fundamentals of resource management, like the definition of a resource: a resource is anything that helps you or your team complete the project – including people, material goods, equipment, and technology. You must know what resources you need for the project to determine how long it will take and how much it should cost.

Types of resources

There are many resources to consider, but they usually fall into two categories.

Labor

This is about estimating the number and type of people you will need for a project. You might need employees with particular skills or contractors with specific expertise. 

There are two primary sources of labor:

• Direct: This is the main labor force required to complete a project. So your main team, plus the freelancers and contractors you need for the job. 
• Indirect: This includes support staff, such as administrative and managerial personnel.

Equipment

Your equipment can range from computers, printers, and photocopiers to construction machinery and vehicles. 

Here are some typical areas you’ll need to consider:

• Materials: Materials can include anything from paper and envelopes to steel for construction work or chemicals for manufacturing processes.
• Technology: Technology includes software, hardware, and IT services needed to complete the job.
• Overhead: This includes costs associated with running a business, such as utilities and rent.

What is resource estimation?

Resource estimation is the process of estimating the amount of resources necessary for a project. 

Resource estimation also involves understanding what potential risks may occur, so you can take preventative steps to limit problems. 

To estimate resources accurately, you need to have good project planning skills. You have to understand all the steps involved in completing a project, the time you’ll need for each one, and the resources required given the time and budget you have (also known as the triple constraint). 

When it comes to finding out what resources you need, it helps to ask the following questions:

• What tasks are involved in this project?
• Do I have the necessary tools to complete the job successfully?
• Are there any external resources you need to source, such as additional personnel or materials?
• How much of each resource do I need, and when are they needed?
• What skills should I look for?
• How can I access the resources required?
• Do I know where I can secure backup resources?

What happens if you don’t estimate your resources properly?

If you underestimate the resources required for a project, there’s a good chance the project will run late or go over budget. On the other hand, if you overestimate the resources needed, you may end up with an inflated budget and wasted resources. 

Problems associated with under-allocation: 

• Delays: When there aren’t enough personnel to complete the work on time, deadlines have to get pushed.
• Staff health suffers: Workers experiencing more stress than usual can quickly suffer from burnout which often leads to more sick days.
• Over budget: By the time you notice you need more support, you’ll likely have to call on more costly contractors to supplement the work.
• Negative company culture: A positive work culture can’t spring from a chaotic workplace with chronically overworked staff.
• Downtime: Waiting for new deliveries when you didn’t order enough materials in the first place can create costly downtime.
• Customer dissatisfaction: Customer experience suffers when they aren’t delivered the product they were promised on time.
• Lower product quality: Deadline pressure often leads to shortcuts, which requires some level of sacrifice in product quality. 

Problems associated with over-allocation

• Inflated project costs: You get what you pay for, and in this case, you paid for way too much, and you have the receipts to prove it.
• Unmotivated staff: Underutilized staff risk becoming unmotivated and bored due to lack of work. That loss of engagement can also lead to higher turnover over time.
• Extra storage costs: When your project resources involve physical things that need a place to be, you also have the cost of storing them when they go unused.
• Increased overhead: A higher volume of staff means more overhead.
• Wasted stock: In some cases, the extra stock/materials you’re housing may spoil or become outdated and unusable.

Estimating resources: 7 steps for success 

1. Identify project scope

Your project scope refers to both your understanding of how big the project is and a document that officially sets this out and is signed by all relevant parties. You’ll need to outline all activities and tasks, goals, objectives, and deliverables to work this out.

2. Create the WBS

The Work Breakdown Structure (WBS) is an essential document when it comes to resource estimation. To create a WBS, you break down complex tasks into smaller, manageable ones to get a clearer picture of the project on a task-by-task basis, which helps you see who and what you’ll need and by when. You’ll already have some of this information mapped out thanks to the previous step — the WBS just makes it official. Once you have this document signed off by the relevant parties, share it somewhere everyone can access.

3. Analyze your resources and create a resource plan

Once you’ve got your scope and WBS, it’s time to hone in on the finer details. Take a look at all your tasks and think about the resources you’ll need to complete each and how you’ll source them. 

Do you buy or lease? Will your project need external resources that may be difficult to obtain? Your resource plan should include all of this, plus cost estimates that include both fixed costs, such as salaries — and variable costs, such as materials. We’ll go into more detail about how to do this later. 

4. Plan for contingencies

Backup, Plan B, whatever you call it, preparing contingencies is a smart move. Unforeseen circumstances can (and almost certainly will) arise during a project. A contingency plan means having access to backup resources — such as personnel or materials — should any problems occur. As part of this stage, you’ll also want to create a risk register.

5. Review historical data

Looking at past projects can help inform future decisions — so don’t neglect this crucial step (which you can do here or earlier in the process). As well as helping you spot past failures and successes, reviewing projects of yore will help you understand the amount of time and personnel needed for certain tasks so that you can anticipate what you’ll need this time around.

6. Review your communication strategy

As the project manager, you must ensure everyone involved in the project has access to the information they need throughout its duration. A communication plan should set out who, when, and how people can get in touch — something that’s all the more important when you have remote workers on your team. 

7. Review your organizational policies

Finally, reviewing your organizational policies before beginning a project is important. This will help ensure that the estimated resources (and the project as a whole) align with the company’s budget and goals.

Estimation strategies to help you get it right every time 

Now that you know the steps you need to take, it’s time to develop strategies you can use during the estimation stage (that’s step 3 in the 7-step list above). There’s no right or wrong approach. And you may find you prefer to use different routes — or a combination of one or more — depending on the project. 

There are lots of different estimation strategies, but we’re going to look at 6:

• Top-down
• Bottom-up 
• Historical data analysis 
• Three-point estimating 
• Expert judgment 
• Alternative analysis 

Top-down

The top-down approach starts with the project’s overall goal and then works down to the individual tasks you need to complete to achieve that goal. 

This approach is often used for larger projects, as it allows you to get a broad overview of the entire project before drilling down into the details.

To use the top-down approach, you will need to do the following:

Step 1: Estimate the resources required for the overall project

This includes personnel with the necessary skills and experience, as well as materials you need. Be as accurate as possible — it’ll serve you well in step 3. 

Step 2: Break down the overall project into individual tasks

This will help you better understand what you need to do to achieve your goal. You must be realistic and keep things top-level: overly complicated task lists will only increase the complexity of the estimating process.

Step 3: Estimate the resources required for each task

Now you have a blow-by-blow task list, you need to go back to your overall resource list and start assigning resources. As with Step 1, it is important to be accurate to develop a precise estimate for the entire project.

Step 4: Summarize the results

It’s time for the final estimate. This includes adding up all of the personnel and material requirements and any other costs associated with completing the task. Remember that this is only an estimate and may change depending on the actual circumstances involved in completing the task.

Bottom-up

The bottom-up approach is essentially the top-down approach but on rewind. Or in other words, you start with your task list, then work up to the overall estimate. It’s best for smaller projects because it gets you to a place where you can focus on the big picture without getting overwhelmed by the details. 

Here’s how to use the bottom-up approach.

Step 1: Estimate the resources required for each task

Plot out what you’ll need for each task. This will involve doing your own research, looking at past projects, and chatting with others on your team about what they will need to complete the work. 

Step 2: Summarize the results

Once you’ve estimated the resources required for each task, it is time to combine them into a final estimate, which you can then use to guide spending and take to stakeholders.

Historical data analysis

Data is one of your company’s most valuable assets if you put it to work. And while you can’t see into the future, estimating resources using past data can help you map out a projection that comes close. It’s a good option for larger projects because it allows you to consider the variability of resources over time.

Here’s how to do it:

Step 1: Collect past data on the resources required for each task

Your company will have a wealth of data at your disposal, including archived project reports, charts, and graphs in your project management software, accounts, invoices, data in Google Analytics, timesheets, etc. Leave no stone unturned in your hunt for the best picture possible. 

Step 2: Analyze the data to identify patterns and trends

So what do you do with all these numbers once you’ve collated them? Turn it into diagrams, that’s what! (top tip: use a diagramming tool to do this.)

Once you have collected the data, it is time to analyze it to identify patterns and trends. This includes looking at how the requirements have changed over time, as well as any other factors that may have an impact on the estimate. It is important to be honest in this step: ignoring pertinent information will only lead to inaccurate estimates.

Step 3: Use the data to develop a projection for the future

No need for crystal balls! Once you’ve analyzed the data, it is time to use it to develop a forecast for the future. This includes creating a model that predicts how the requirements will change, taking current factors into account  — but remember, this is only a projection and may not accurately reflect what happens in reality. Use it as a guide rather than a map set in stone (is anything ever set in stone when it comes to projects?) 

Three-point estimating

The three-point estimating approach is a method for estimating resources that uses optimistic, pessimistic, and realistic estimates to develop an overall plan. It’s good for larger projects, as it allows you to factor in uncertainty. It’s also combined with the top-down/bottom-up approaches since you’ll need to have your estimates worked out for each of the three points. 

Here’s what you do: 

Step 1: Identify an optimistic estimate

Picture a calm, open sea. This is your optimistic estimate: a smooth project sailing from start to finish. Estimate your resources using the top-down or bottom-up approach, and imagine there are no delays, supply issues, staff sickness, etc. (You never know; it could happen…)

Step 2: Identify a pessimistic estimate

Now it’s time for the wake-up call. Do as above, but imagine everything goes wrong, like tech breaks, staff leave, supplier price increases, global pandemics, etc.

Step 3: Identify a realistic estimate

This is where you become a realist. To plot the middle ground, use historical data analysis to determine what is likely to happen based on how things have gone before. You might also want to look into other companies’ data for insights and statistical averages. 

Step 4: Calculate the overall estimate

Once you have identified the optimistic, pessimistic, and realistic estimates, it is time to calculate the overall estimate. This includes adding the estimates and then averaging them to get an overall score. 

Expert judgment

This method for estimating resources relies on the judgment of experts. It’s best used for smaller projects — if you’re working on a larger one, it’s better to combine this with any of the above.

Here’s how it works:

Step 1: Gather a team of experts

Find people who have experience with similar tasks or projects. This might be a person/people from outside your organization, inside — or both. Ideally, both because the latter group will have an intimate knowledge of the business, whereas the former will bring in fresh ideas and shine a light on any blind spots. 

Step 2: Ask the experts to estimate the value of each variable

Ask the experts to estimate resources for you. To give them the best chance of success, provide them with historical data, plus access to experts/managers within your company who can help answer any questions they have. And there you have your estimate! 

Alternative analysis

Alternative analysis is about weighing several options for assigning resources. This includes varying the source, number, and type of resources you use based on the value they will provide. There’s more than one way to skin a cat, as the (pretty gruesome) saying goes — and the same is true of resource estimation. 

Let’s take a closer look at each of these steps: 

1. Make a resource list

Using your project scope, use one (or more) of the methods above to gather a list of resources you’ll potentially need, plus their alternatives.

2. Create an analytic framework

Next, you need to outline the context of the project and work out comparison criteria. For example, measuring resources according to cost, availability, skills, and so on. Set out your ground rules for comparison, including any assumptions.

3. Identify alternatives 

Now you have a full list of resources, various alternatives, and a framework for measurement. It’s time to identify various routes through your project, using your overarching project goal as your guide and within your project scope. 

4. Assess the alternatives

Evaluate your alternatives against your criteria (cost, availability, benefits, likelihood, etc.,) then run a sensitivity analysis, which involves taking a target variable and working out how each variable will impact it. 

5. Compare alternatives

Now, it’s time to weigh up the pros and cons of each variable using your prior analysis. 

When creating resource estimation strategies, remember that there is always a degree of uncertainty involved. As such, it’s important to include some buffer room in your estimates. And always remember that communication is key: make sure everyone involved understands the process and agrees on the strategies in play. 

Resource estimation: best practices

• Use project management software to help with estimating and organizing
• Make sure that all team members are aware of and understand the estimation process
• Be realistic in your estimates, accounting for unforeseen circumstances
• Include a buffer room in your estimates to allow for fluctuations
• Communicate with team members regularly to ensure everyone is on the same page
• Analyze data to make sure the estimates are accurate and up-to-date
• Use diagramming tools to turn your data into dazzling diagrams
• Monitor resource usage regularly to ensure your project is running efficiently

Final thoughts

Project management software makes it incredibly easy for the whole team to log in and check progress. When everyone’s working to a deadline, the more collaborative you can be, the better — no matter what life throws at you (and your project!)