HKSM

A basis of estimates explains how cost, duration, resource, or effort estimates were created, including methods, data sources, assumptions, constraints, ranges, and confidence. It improves transparency and allows stakeholders to review, validate, and reproduce the estimates.

Key Points

• Documents the how and why behind cost, schedule, resource, and effort estimates.
• Includes estimating methods, data sources, assumptions, constraints, and exclusions.
• Shows ranges and confidence levels, and explains contingency or reserve rationale.
• Links estimates to specific WBS elements or backlog items for traceability.
• Supports peer review, stakeholder confidence, and future benchmarking.
• Is a living document updated as scope and information evolve.

Purpose of Analysis

The basis of estimates provides the analytical evidence behind the numbers so stakeholders understand credibility and limitations. It enables informed decisions, facilitates risk-based reserves, and helps reconcile differences between top-down and bottom-up views.

Method Steps

• Identify scope elements (WBS/work items) to estimate.
• Select appropriate estimating techniques (e.g., analogous, parametric, bottom-up, three-point).
• Gather data (historical records, vendor quotes, rates, productivity metrics) and validate quality.
• Perform the estimates and quantify uncertainty using ranges or probability distributions.
• Record assumptions, constraints, exclusions, and dependencies that affect the estimate.
• Link risks to estimate uncertainty and justify contingency or management reserves.
• Document data sources, calculations, and references for traceability and replication.
• Review with subject matter experts and adjust; baseline and maintain as information changes.

Inputs Needed

• Scope definition and WBS or backlog items with acceptance criteria.
• Historical data, lessons learned, and organizational estimating guidelines.
• Resource calendars, skill profiles, rates, and availability.
• Risk register, assumptions log, and known constraints.
• Vendor quotes, market benchmarks, and productivity metrics.
• Preliminary schedule logic and cost account structures.

Outputs Produced

• Basis of estimates document with methods, data sources, assumptions, constraints, and exclusions.
• Estimate values with ranges and confidence levels for each scope element.
• Contingency rationale linked to identified risks and uncertainty.
• Traceability to WBS elements, calculation sheets, and decision log entries.
• Updates to the assumptions log and estimating data repository.

Interpretation Tips

• Check alignment to WBS items to ensure nothing is missed or double-counted.
• Review key assumptions for realism and test sensitivity to changes.
• Compare data sources and benchmarks for relevance and age.
• Ensure ranges match risk exposure; narrow ranges with weak data are a red flag.
• Verify contingency ties to specific risks, not arbitrary percentages.
• Look for review/sign-off evidence from SMEs and stakeholders.

Example

Work package: WP-2.3 Interface Design.

• Method: Three-point estimating with parametric adjustment based on screens count.
• Data sources: Past 5 similar projects; organizational productivity database.
• Assumptions: Two senior designers available 50% each; standard component library in place.
• Constraints: Tool license limits to 2 concurrent users; design review fixed on week 4.
• Estimate: Optimistic 120h, most likely 150h, pessimistic 190h; expected 153h; 70% confidence.
• Contingency: 10% (risk R-12: late stakeholder feedback); exclusions: user testing and accessibility audit.
• Traceability: WBS WP-2.3; calculations sheet CS-07; SME review on 2025-03-12.

Pitfalls

• Omitting assumptions and constraints, making estimates hard to defend.
• Using single-point numbers without ranges or confidence levels.
• Relying on outdated or non-comparable historical data.
• Copy-pasting prior estimates without validating context and scope differences.
• Failing to connect risks to contingency, leading to arbitrary buffers.
• Lack of WBS traceability, causing gaps or double-counting.
• Not updating the basis when scope or resources change.

PMP Example Question

During planning, a sponsor questions the credibility of a work package cost estimate. What should the project manager present to justify the estimate and its uncertainty?

1. An earned value report for the project.
2. The basis of estimates detailing methods, data sources, assumptions, ranges, and confidence.
3. The risk register entries related to the work package.
4. A change request to increase the budget.

Correct Answer: B — The basis of estimates detailing methods, data sources, assumptions, ranges, and confidence.

Explanation: The basis of estimates provides the rationale and evidence behind the numbers, enabling stakeholders to review credibility and understand uncertainty.