BottomUp or Factor Technique

In most projects where design, rather than construction, is the key element, bottom-up estimating turns out to be the most effective.

Bottom-up estimating requires that you sum the direct and indirect costs associated with the production of your deliverables. In a business where you would be designing something that you' re going to manufacture for sale, you would factor in an additional percentage that acts as a profit margin. Some basic costs include such things as the cost of labor (including contract labor) and materials you ' l l utilize (in the case of IT you might include things such as servers, infrastructure, routers, software etc.) in the development of your project. In some cases, corporate directives for a PMO might require that you factor in the overhead associated with maintaining the building and workstations, providing electricity, and the other things needed to develop your software or put together your IT project. In such cases, the overhead will be stipulated as some percentage of your labor costs. Generally you' l l also want to factor in a quality control (QC) percentage of some kind. If the corporate directives don 't state a percentage, use the one suggested below.

Here are some typical figures used in bottom-up estimating:

■ Eirect labor costs (average, software developer) = $40 per hour per senior developer

■ Contract labor costs (average, database consultant) = $225 per hour per IT contractor

■ Supervisory labor costs (average) = 25% of combined labor (direct and contract)

o $8,000 per file and print server-class server o $16,000 per database-class server o $32,000 per cluster-class server (always a minimum of two required because you' re setting up a cluster array) o $64,000 per enterprise-class server o $3,500 per team member per project, maintenance of software development environment (SEE), including development software

■ Quality control (QC) average = 65% of direct labor

■ Administrative expense = 50% of total labor (direct and contract) Dor a project that requires two senior employees for 40 hours each, one database consultant contractor for 15 hours, and a database-class server, you ' d run the following calculation. Let' s assume that direct + contract = labor. Then, estimated costs are labor + (labor x admin) + (labor x superv) + server + SEE+ (direct x QC)

labor = (2 x 40 x 40) + (1 x 15 x 225) = 6,575; we can substitute figures then as follows:

6,575 + (6,575 x 0.50) + (6,575 x 0.25) + 16,000 + 10,500 + (3,200 x 0.65)

So total estimated costs come to $40,086.25. This can be expanded in tabular form, as seen here:




Direct labor (employee developers)

2 x 40 x 40


Contract labor (database consultant)

1 x15x225


Supervisory labor

(3,200 + 3,375) x 0.25


Administrative labor

(3,200 + 3,375) x 0.5


Quality control

3,200 x 0.65


Software development environment

3 x 3,500



1 x 16,000




Obviously, this is a simple example. It's important to note here that you'll include labor costs that vary depending on the skill level associated with a labor component that your require in the project. For example, a senior developer will cost more than a junior developer. If you have a project that utilizes a junior and a senior, you'll need to include both hourly costs in your estimates. A skilled Java consultant might cost more than a consultant who's skilled in Visual Basic. Differentiating between the skill levels is important in your cost estimating efforts.

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