Before committing time and money to a project, businesses would like to know whether it is worth pursuing. An estimate about the project’s costs gives the business an idea about its viability. There is more than one way of coming to such estimates, each with its advantages and disadvantages. A top-down estimate is one such technique. In this method, managers estimate costs from an overall project perspective, without going too much into details.
A top-down estimate is less accurate than other estimating techniques. One way of doing a top-down estimate is to break a project into a series of phases and only provide an estimate one phase at a time, going by the most current phase. If managers make a high-level estimate for an initial phase, while they gather business requirements, the estimate could change later after they get the requirements.
This approach provides less scope to get lower levels of input. Considering that the estimate is from the top down and provides a global view of the project, this method overlooks a lot of lower-level details. Another aspect of the omission is that businesses often may not use the input of lower-level managers.
One way of doing a top-down estimate is to use input from projects an organization carried out in the past. While this is a convenient way of making an estimate, it has the potential to mislead. If the project the business bases its estimation on is not similar to the one for which it makes the estimate, the business may decide to go ahead with a project it should have shelved. Alternately, the business may decide not to go ahead with a potentially profitable project.