When starting a new project, whether in construction, IT, or product development, one of the first steps is estimating its scope, cost, and timeline. Concept estimating plays a crucial role in this early stage of project planning, offering project teams and stakeholders a rough idea of what to expect, even when the full scope and details of the project are not yet fully defined. Although not intended to provide precise figures, concept estimating serves as a starting point for decision-making, risk identification, and resource planning. In this guest post, we’ll explore what concept estimating is, why it’s important, and how it can set the stage for a successful project.

What is Concept Estimating?

Concept estimating, often referred to as rough order of magnitude (ROM) estimating, is the process of providing an initial, high-level cost and time estimate for a project in its earliest stages. At this point, detailed information about the project is typically scarce, and the scope may still be in flux. Concept estimating uses available data, historical comparisons, or expert opinions to provide a broad estimate of project requirements, including budget, timeline, and resources. It is typically used during the feasibility phase of a project, when there is enough understanding to make an informed guess about what might be involved, but not enough to provide accurate figures.The key characteristic of a concept estimate is its imprecision. These early estimates are often expressed as a range (e.g., the project could cost between $100,000 and $150,000), reflecting the high degree of uncertainty at this stage.

Why is Concept Estimating Important?

1. Informs Early Decision Making
   One of the primary purposes of concept estimating is to help stakeholders decide whether to proceed with a project or not. At the conceptual phase, stakeholders—ranging from project managers to executives—need to know if the project is feasible within the available budget and timeline. While the estimate won’t be exact, it gives decision-makers a ballpark figure to understand if they have the resources to move forward or if adjustments are needed before proceeding.

2. Helps Set Realistic Expectations
   Concept estimates set realistic expectations by providing stakeholders with a rough idea of what to expect in terms of costs and timelines. By acknowledging the uncertainty and presenting estimates in terms of a range, concept estimating ensures that all involved parties understand that these figures are subject to change as the project progresses and more details become available.

3. Identifies Potential Risks Early
   Another benefit of concept estimating is its ability to highlight potential risks early on. For example, if a rough cost estimate reveals that the project could potentially exceed the available budget, this early warning allows the project team to reassess the scope or find ways to reduce costs before the project is further developed. Early identification of risks allows teams to manage uncertainty more effectively, whether through contingency planning or adjusting the project scope to minimize risks.

4. Establishes a Foundation for Detailed Planning
   Concept estimating is an essential first step toward more accurate, detailed project planning. Once the project begins to take shape and more data becomes available, these initial estimates can be refined and updated. The concept estimate provides the foundation for future, more precise estimates that will guide the project through its later stages.

How is Concept Estimating Done?

While concept estimating involves some degree of guesswork, several methods can be used to generate these early estimates:

1. Analogous Estimating
   This approach involves comparing the new project to similar projects completed in the past. By using historical data and lessons learned from similar projects, an estimate is generated. This method is simple and fast, but its accuracy depends heavily on how similar the past projects are to the current one.

2. Parametric Estimating
   In parametric estimating, mathematical models are used to calculate estimates based on known parameters. For example, in construction, you might estimate costs based on the cost per square foot of a building. While this method provides a more precise estimate than analogous estimating, it still relies on assumptions that can lead to inaccuracies.

3. Expert Judgment
   When data is limited, expert judgment is often used to generate rough estimates. Experienced professionals provide their input based on their knowledge and experience with similar projects. This method can be particularly useful for projects that are highly specialized or where limited historical data exists.

4. Delphi Method
   The Delphi method involves gathering estimates from a panel of experts. The estimates are collected anonymously, and the group comes to a consensus over several rounds. This approach helps reduce individual biases and ensures that a range of perspectives is considered.

Best Practices for Concept Estimating

To make concept estimating more effective, follow these best practices:

1. Provide a Range, Not a Single Figure
   Since concept estimates are inherently imprecise, presenting them as a range (e.g., $50,000 to $70,000) helps manage expectations and reflects the uncertainty in the early stages of the project.

2. Document Assumptions
   Document the assumptions made during the estimation process. For example, if the estimate assumes certain conditions (such as current market prices or resource availability), it’s important to clearly outline these so that stakeholders understand the context of the estimate.

3. Update Estimates Regularly
   As the project progresses and more detailed information becomes available, update the concept estimates. Regularly revisiting the estimates ensures that they remain relevant and aligned with the project’s evolving scope.

4. Use Multiple Estimating Techniques
   Where possible, use a combination of estimating methods (analogous, parametric, expert judgment) to cross-check the results and reduce the potential for error. Triangulating estimates from different methods can provide a more balanced view of potential project costs and timelines.

Concept estimating is an essential tool in the early stages of project management, offering a rough but necessary framework for understanding a project’s potential costs, timeline, and resources. While these estimates are not precise, they provide invaluable insight that helps guide decision-making, manage risks, and lay the foundation for more detailed planning. By using a combination of estimating techniques, documenting assumptions, and regularly updating estimates, project teams can ensure they’re on the right track as they move from concept to execution.