One of the most important aspects of project management is project estimating. Projects, by definition, have fixed budgets, and their owners want to know how much they will cost. As a result, project estimating begins prior to project inception, and estimates are typically updated at key project milestones.
A rough order of magnitude estimate, also known as a ROM estimate, is the first estimate in a project’s life cycle.
It is typically used for project screening, or deciding which of several projects to pursue. It is also frequently used to estimate projects before funding is approved.
What is a rough order of magnitude estimate used for?
A rough order of magnitude estimate is used to provide a high-level overview of potential project costs.
Ideally, you’d be able to provide a firm estimate based on extensive research on previous projects and their budgets, as well as input from subject matter experts.
However, we rarely have the time or luxury of being able to provide that level of estimate at the beginning of a project.
Often, execs simply want an idea of how much the work might cost. And we haven’t yet been given the green light to conduct a deep dive into requirements and scope, which would allow for more accurate budget forecasting results.
How do you represent a ROM estimate?
I always advise managers to present budgets as a range, because single-point estimates frequently trap you in a mindset where there is no room for change, for whatever reason.
ROM estimates are no different, except that the range is much wider. The budget figures are represented to the best of your ability at the time. As a result, they are distributed as a + / – % figure.
The range is a way of expressing the degree of certainty or accuracy in the number.
When do you use a ROM estimate?
When you don’t have a lot of clarity about the project budget, use the rough order of magnitude estimate as an estimation technique.
It’s used in the early stages of a project to magnitude estimate the cost based on the information available. It includes a lot of wiggle room, so if you can’t create an accurate estimate because you don’t have all of the details (which is… always before you’ve done the planning), the ROM figure will give you a ballpark estimate based on best guesses and with plenty of hedging built in.
What types of projects can use a ROM estimate?
A ROM estimate can be used for any type of project. They can be used for:
- Larger projects require you to provide management information before you have all of the details for a more precise magnitude estimate.
- International projects, where you may need to include costs from multiple countries and account for currency conversion.
- Innovative projects in which the deliverable or new product is unique and groundbreaking, and the exact project scope is gradually elaborated or managed using agile techniques.
- Projects with larger budgets, because small figures are generally easier to magnitude estimate than large amounts.
- Projects for which you have historical data; According to NASA’s cost estimating handbook version 4.0, analogy cost estimating is an application for a ROM estimate.
They’re less useful for projects where you’re doing the same thing over and over and have a pretty good idea of how much each part of the work costs.
For example, simple software implementations or client installations that require the same amount of effort and resources every time.
If you already have the historical data, you might as well jump right to a more detailed, more accurate project cost estimate (especially if you are presenting those numbers to a client).
What’s a typical Rough Order of Magnitude for project estimating?
Although the term “orders of magnitude” has a specific meaning in scientific notation and mathematics, it is commonly used in project management to refer to broad-brush categorization of sizes. A ROM is frequently regarded as the broadest and least accurate way of representing the budget.
There is no ideal ‘bucket’ for deciding what boundaries to impose on your ROM. A ROM estimate should be between -25 and +75%, according to the PMBOK® Guide.
However, in the real world, we don’t have to do exactly what the PMBOK® Guide says, though having those figures in the back of your mind for your PMI exam is helpful. Speak with your Finance department to see if there are any internal cost management and forecasting standards to follow, or simply get the range as accurate as possible based on your professional judgement.
Assume we’re in the Project Initiation phase. We don’t know what the total cost of the project will be – at least not an accurate cost. The business case has already been approved with a very high-level budget, and the executive sponsor is now asking for more information about what the work might realistically cost.
We take a quick look back at previous projects — lessons learned are a great place to start. We consult subject matter experts (who are hesitant to commit to a ‘real’ number because they haven’t seen the detailed requirements yet) and ask them how much their previous effort cost. We finally have an idea of how much this project will cost after much cajoling and negotiating.