Order of Magnitude Estimate

The Art of the Rough Estimate: Understanding Order of Magnitude (O.M.) Estimates in Project Planning

In the world of project planning, every decision hinges on a solid understanding of costs. But sometimes, detailed data is scarce, and getting exact figures might be impractical or even impossible. This is where the Order of Magnitude (O.M.) Estimate comes in.

An O.M. Estimate is a quick and dirty approximation of project costs. It's not meant to be precise; instead, it provides a broad understanding of the potential financial scope. Think of it as a "ballpark figure" for your budget, offering a starting point for further, more detailed analysis.

Why use an O.M. Estimate?

Early Stage Decision Making: In the initial stages of project planning, you need a cost estimate to assess feasibility and guide preliminary decisions. O.M. Estimates provide that crucial information without needing extensive data collection.
Resource Allocation: With a rough estimate of project costs, you can better allocate resources and understand how the project fits into your overall budget.
Prioritization: O.M. Estimates allow you to compare different project options and prioritize based on their cost implications.

How are O.M. Estimates Created?

O.M. Estimates rely on various methods, including:

Cost Capacity Curves: Historical data on similar projects can be used to create curves that relate project size to cost.
Scale Up/Down Factors: If you have cost data for a smaller project, scaling it up or down based on size can provide a quick estimate.
Approximate Cost Capacity Ratios: Applying established ratios between cost elements (e.g., labor, materials) can help approximate total project costs.

Accuracy of O.M. Estimates:

O.M. Estimates are inherently approximate. They are expected to be accurate within a range of -25% to +75%. This means the actual project cost could be anywhere from 25% lower to 75% higher than the O.M. Estimate.

Common Terms for O.M. Estimates:

Preliminary Estimate: A first-pass assessment of costs.
Conceptual Estimate: A more detailed estimate than a preliminary one, but still based on limited data.
Factored Estimate: An estimate based on adjusting historical costs using factors like inflation or changes in project scope.
Quickie Estimate: A very rapid, rough estimate often used for initial feasibility assessments.
Feasibility Estimate: An estimate used to determine if a project is financially viable.
SWAG (Scientific Wild-Ass Guess): A lighthearted term used to acknowledge the rough nature of an O.M. Estimate.

Important Note: O.M. Estimates are stepping stones, not final answers. As project planning progresses, you'll gather more data and refine your estimates. O.M. Estimates are essential for early planning, but don't rely solely on them for critical decisions.

By understanding the strengths and limitations of O.M. Estimates, you can use them effectively to navigate the early stages of project planning and make informed decisions about project feasibility and resource allocation.

Test Your Knowledge

Quiz: The Art of the Rough Estimate

Instructions: Choose the best answer for each question.

1. What is the primary purpose of an Order of Magnitude (O.M.) Estimate?

a) To provide a precise and detailed cost breakdown. b) To obtain an accurate cost figure for project bidding. c) To offer a quick and rough approximation of project costs. d) To replace detailed cost analysis in all project phases.

Answer

c) To offer a quick and rough approximation of project costs.

2. Which of the following is NOT a typical benefit of using O.M. Estimates?

a) Early stage decision making. b) Resource allocation. c) Ensuring accurate cost predictions for final budgeting. d) Project prioritization.

Answer

c) Ensuring accurate cost predictions for final budgeting.

3. How accurate are O.M. Estimates typically expected to be?

a) Within +/- 5% b) Within +/- 10% c) Within +/- 25% to +75% d) Within +/- 100%

Answer

c) Within +/- 25% to +75%

4. Which of the following is NOT a common method for creating an O.M. Estimate?

a) Cost Capacity Curves b) Scale Up/Down Factors c) Detailed budget analysis with precise cost breakdowns d) Approximate Cost Capacity Ratios

Answer

c) Detailed budget analysis with precise cost breakdowns

5. What does the term "SWAG" refer to in the context of O.M. Estimates?

a) A scientifically validated and rigorous cost estimate. b) A sophisticated and highly accurate cost forecasting method. c) A lighthearted term acknowledging the rough nature of an O.M. Estimate. d) A specific type of O.M. Estimate used for large-scale projects.

Answer

c) A lighthearted term acknowledging the rough nature of an O.M. Estimate.

Exercise: The New Website Project

You're tasked with creating a rough estimate for the cost of developing a new website for your company. You have some historical data from a previous website project:

Previous Website Cost: $50,000
Previous Website Size: 10 pages

The new website will be much larger, with approximately 50 pages. Use the "Scale Up/Down Factors" method to create a quick O.M. Estimate for the new website project.

Exercice Correction

Here's how to apply the Scale Up/Down Factors method:

Calculate the cost per page for the previous website: $50,000 / 10 pages = $5,000 per page.
Determine the scaling factor: The new website is 5 times larger than the previous one (50 pages / 10 pages = 5).
Multiply the cost per page by the scaling factor: $5,000 per page * 5 = $25,000.

Therefore, a rough O.M. Estimate for the new website project would be around $25,000. This is a very preliminary estimate and should be refined as you gather more data and information.

Books

"Project Management Institute's A Guide to the Project Management Body of Knowledge (PMBOK® Guide)" (7th Edition): This comprehensive guide for project management includes sections on cost estimation, including O.M. Estimates, and their role in project planning.
"The Art of Estimation: A Guide for the Perplexed" by Robert L. Charette: Focuses on cost estimation techniques, covering O.M. Estimates and their application in various fields.
"Cost Engineering" by W. Kenley "Ken" Williams and Jeffrey D. Bauman: This text explores the fundamentals of cost engineering, including different cost estimation methods, with a focus on O.M. Estimates.

Articles

"Understanding and Using Order of Magnitude Estimates" by Project Management Institute (PMI): This article from the PMI offers a practical overview of O.M. Estimates, their benefits, and how to implement them in project planning.
"Order of Magnitude Estimating: A Practical Guide" by Engineering News-Record: A practical guide for engineers and project managers on conducting O.M. Estimates and using them for decision-making.
"A Guide to Order of Magnitude Estimating" by Construction Management Association of America (CMAA): This article provides a comprehensive overview of O.M. Estimates, emphasizing their importance in construction projects.

Online Resources

Project Management Institute (PMI): The PMI website offers various resources on project management, including articles, webinars, and certifications, with sections covering cost estimation and O.M. Estimates.
Construction Management Association of America (CMAA): The CMAA website provides resources specifically for construction professionals, including information on cost estimation and O.M. Estimates.
Cost Estimating and Analysis (CEA): CEA offers courses and resources related to cost estimation, including O.M. Estimates.
Engineering News-Record (ENR): ENR's website offers articles and resources related to engineering and construction, with sections on cost estimation.