Top-down (macro) estimating technique
Top-down estimating techniques compare macro measures and help to shift investments in industries, regions, and countries. They have the idea of making money through shifting assets instead of selecting and evaluating companies individually. For example, money that takes a top-down approach has a global allocation of funds and can hedge income funds. The industry of managing assets can not be dominated by investment strategies of top-down technique because the efficiency of information in financial markets globally is large scale and it does not take long before investors are able to figure them out or exploit them.
When investment professionals talk about top-down estimation techniques, they refer to the use of overall market factors or macroeconomic factors as metrics for driving the construction of a portfolio. Top-down techniques begin with views of managers on rates of growth in various geographical regions. Managers select particular sectors where there are attractive valuations. Top-down exploit movements that are expected in interest and exchange rates between more than two currencies. Top-down sneak in portfolios together with stock picks, they hold cash, change portfolio to grow, and have stock that favors large-cap. (Luiz, 1990 pp24-29).
Development projects for software are estimated by the use of weighted micro variables known as function points such as a number of inquires, inputs, outputs, interfaces, and data files. The weighted variables are adjusted to complex factors and the number of adjusted counts form the basis for estimating effort put in labor and cost of a project. The latter has adequate historical data for a software project. Some projects need group tasks and repetition of products. Managers should know the time used to perform tasks improve when there is repetition. This is true to labor-intensive tasks where there is the use of improved phenomenon in predicting how time for performing tasks can be improved.
Bottom-up (micro) project estimating technique
When the current project is similar to past projects, the cost of past projects provides a starting point for the new project. There can be noted the difference in new projects and costs and time in the past are adjusted to be able to reflect the differences. The project principle measures are the costs that are incurred from the beginning of the projects up to the end, time used for the project to be completed, and performance of the project to know whether it is doing well and the returns it generates. The initial cost estimates and schedule help to know whether the plan is realistic and whether it is advisable to continue with it. Trade-offs need to be planned and implemented depending on the priorities that are set. The schedule should be monitored during the life cycle of the project.
In bottom-up estimating techniques, the completeness of the project will tell whether all the tasks have been utilized. A team of the project is dedicated and focuses on completing the project effectively. People take into account unknown risks and how they can be taken care of before they occur to avoid unnecessary trade-offs. The estimates are affected by what is taken to be behavior accepted by the organization. The bottom-up approach has an accurate estimate which is time-consuming. It takes account of the design of the project and requires a large number of personnel to be completed. If it is done well, it can give yield accurate cost (Karl, 2002 pp17-20).
Demonstrating how top-down technique is used in an organization
The organization uses it in scaling when it uses the cost of a previous project to estimate the cost of a new project from the cost that is already known. It estimates the total cost of the project from its commencement to completion. This helps the organization to plan the amount of money required before the project is started so that it does not have a financial deficit in the middle of the project due to underestimation of the total cost the project will require until it is completed. (Copers, 1997 pp30-35).
The organization uses it in apportionment were using a similar project, major subunits costs of new projects is proportional to subunits of previous similar projects. The organization uses specific parameters in some projects such as the number of units, detector channels, and historical costs where parameters are weighted by the required number of new projects. A learning curve is used and the task which is repeated many times will save cost and time in relation to the time taken when the task was done for the first time.
Demonstrating how bottom-up (micro) estimating technique is used in an organization
The organization uses historical data in establishing schedules and costs of subunits in a project. A combination of subunits is used in new projects in order to make estimation very quickly. The historical data is readily available to the organization and can be used to know the cost of completing the entire project without having a financial deficit before the project is over. The organization uses the macro ratio method to do specific tasks in subunits of the project. For example, it takes one day in building and testing a sensor unit and the use of instruments with many sensors requires few people to complete it. The organization estimates the cost and time of work packages of the lowest level which are added to costs to get units of the highest level. Estimates which are most accurate at time expense are devoted to developing the estimate. (Karl, 2002 pp21-24).
The managers keep a minimum level of details according to the suggestions given on the nature of the project. Rule of thumb is used where the duration of tasks should not exceed workdays that are set because they are the time units of the project. The rule leads to a detailed network but any additional details pay off to control the schedule and cost of the progress of the project. If the smaller tasks are left behind due to poor estimates of time, corrective action is possible to be taken quickly and avoid delaying the project’s successful tasks.
Organization avails reliable estimates to customers and minimizes false expectations and negotiations of stakeholders. Customers are given opportunities to have a comparison of the low-cost opportunities and the method that is efficient with the restrictions imposed. There is the assumption that, as we move away from low costs, there is an increase in costs if efficient methods are used. Organization managers use the bottom-up technique when focusing on the security selection of individuals. It begins with knowledge of companies which is detailed and in the global sector. They organize research analysis in particular sectors and analysts are assigned to various sectors.
Organizations increase customer satisfaction by delivering the project at the right time at the costs that were estimated. This project is of high quality and customers are happy about it. Profitability is controlled and increased if there is precise forecasting and an increase in the duration of projects. If the level of profit is decided and controlled by managers, competitiveness will be increased and it will be possible to manage large complex projects. (Copers, 1997 pp36-39).
References
Copers J. (1997): estimating project costs: Mc Graw-Hill, pp30-39.
Karl W. (2002): project estimating techniques: Addison Wisley, pp24-29.
Luiz L. (1990): estimation of object oriented systems: software engineering, pp 17-24.