No one needs to tell you that projects cost money. But how much they’ll cost is an open question. The closer you can come to an accurate forecast of project costs, the more likely you’ll deliver a successful project. Rough order of magnitude (ROM) can help you better estimate project costs.
But what is ROM and how can you calculate ROM estimates? We’ll explain the process, define the term and detail the steps for making a rough order of magnitude estimate. It’s a great tool for determining the costs of your project because, though it’s not 100 percent accurate, it’s statistically on target and better than basing the budget on your gut.
What Is a Rough Order of Magnitude (ROM)?
As noted, the rough order of magnitude is a technique to estimate project costs. It’s common in many types of projects from strategy development to implementation projects. You’ll also find it being used in IT projects and construction projects.
Rough order of magnitude is applied during the preparation of a project, such as the initiation phase when creating the business case for the project. It’s key to determining what financial resources are needed and outlined in the project charter.
Understandably, stakeholders and decision-makers want a sharp picture of their investment before moving forward with a project. Rough order of magnitude gives them at least a rough estimate of how much the project will spend and how much it can potentially earn.
But how accurate is a ROM estimate? According to the Project Management Institute’s Project Management Book of Knowledge (PMBOK), ROM estimates are -25 percent to +75 percent accurate, though others say its range is +/-50 percent. You can use both ranges to find a more conservative cost forecast.
Whatever estimate you come up with after doing a rough order of magnitude, you’ll need to track those costs as they accrue to keep to your budget. ProjectManager is online project management software that helps you plan your budget, schedule resources and track them in real time. Schedule your costs on our interactive Gantt chart and then set a baseline to capture your planned budget to compare it to your actual budget. Get started with ProjectManager today for free.
What Is a ROM Estimate?
A rough order of magnitude estimate is a calculation that requires a formula. That formula is twofold to capture an upper boundary and lower boundary range. The formulas are below.
Upper Boundary = ROM Estimate x (1 + 75 percent) = ROM Estimate x 1.75
Lower Boundary = ROM Estimate x (1 – 25 percent) = ROM Estimate x 0.75
While the equations are fairly straightforward, figuring out the ROM estimate or the range can be difficult. You can do it with established estimation techniques, which we’ll discuss a bit further down the blog.
However, rough order of magnitude is usually done in the early phases of a project when a lot of the data you need for estimating techniques might not be available. Therefore, the ROM estimate is based on a high-level expert judgment and can also be done with three-point estimating (defined below).
How to Make a ROM Estimate
By this point, you’ll likely think that ROM estimating isn’t as accurate as you first thought. The truth is that the technique is less a mathematical certainty than a kind of art. The formula above is easy to follow, but it takes an artist’s touch to define its accuracy. This is especially true when determining the ROM estimate.
While there’s a way to make a ROM estimate, it requires some experience, knowledge and finesse to get the most out of the technique. In fact, there are different ways to do a ROM estimate depending on the project and the techniques you use, though analogous estimating tends to be preferred.
A good starting point is to incorporate a number of factors, even guessing. You can use your gut to figure out a range of resources needed in the project. Not that you’ll pull this number from thin air, but instead you’ll use the data you’ve established for the project to make a guesstimate based on that and your experience.
As you work on your ROM estimate, seek expert opinions. Look to those who manage similar projects or executives in the organization who might have a unique perspective on the costs. They can help you process the project data you have and add valuable insights.
The goal of a ROM is only a rough estimate, with a variance of about -25 percent to +75 percent, but is fairly accurate. Don’t cherrypick the estimate that best suits your project as it invalidates the work you’ve put into the ROM estimate. To avoid bias, lean on research and real data to guide you.
Remember, the ROM estimate is merely the starting point. It provides a base on which you can build an accurate cost forecast. A range is always a good window through which to look at the cost landscape for the project. You can only build your estimate from existing data, though there’s information that’ll be missing, it’s a start.
Techniques to Estimate ROM
We’ve given you general guidelines but left out specifics. When trying to figure out what the ROM estimate is you can apply several techniques. As mentioned, the analogous tends to be the most popular, though parametric and some others are also used.
You can use one or a combination of estimating techniques to help you establish the ROM estimate. The project manager is usually the one to make a ROM estimate, but they should seek guidance from experts and technical leads depending on the type of project.
Parametric estimating uses unit rates from previous projects that are similar to the one you’re initiating. This helps determine what the costs will be for a new project. This is an estimating technique most useful when you have a lot of data from old projects and the new project is very similar in scope. You can then use the same formula for the new project as the older ones.
Analogous estimating uses data from similar projects from the past but in a more general way. This technique is best when looking at duration and forecasting costs for a new project that’s similar to older ones. It’s also a technique that’s used when there is fewer data about the new project. Comparisons include scope, costs, duration and more, though mostly analogous estimating is used solely for duration and costs. However, projects change and often the past project isn’t as clear a forecast for the new one.
Three-point estimating has three ratings for estimating: optimistic, realistic and pessimistic. This three-pronged approach helps to accommodate for uncertainty in estimating projects. To calculate three-point estimating, first, define the terms: optimistic assumes no risk, pessimistic assumes the risk and most likely is a more realistic occurrence of the risk. Then you figure out the average: E = (O + M + P) /3. Another equation is used in PERT, which stands for program evaluation and review technique. It takes a weighted average of the three values: E = (O + 4M + P) /6. The only issue is your data must be accurate.
Another way to measure cost and duration in a project is bottom-up estimating, which aggregates the components of the lower level of your work breakdown structure (WBS). But using the most minute level of the project can provide a more accurate forecast by showing project managers the available elements of the project prior to starting the project. Because it’s looking at everything related to the project’s needs, it’s usually the most accurate measurement of the project’s costs.
ROM Estimate vs. Definitive Estimate
A ROM estimate isn’t the same as a definitive estimate, though both can be applied to the estimating process. A ROM estimate is done in the early phase of a project and has a variance of -25 percent to +75 percent. As its name says, it’s a rough estimate of the project’s costs.
A definitive estimate is more accurate as the title implies. Its variance of accuracy is -5 percent to -10 percent. Another difference is unlike the rough order of magnitude, the definitive estimate requires that you use a bottom-up estimation approach. This forecast is made during the planning phase of a project and because it’s so detailed is time-intensive.
Rough Order of Magnitude Example
We’ve talked a lot about ROM in the abstract but it can help to look at a practical example. Our rough order of magnitude example is building an app. First, you look into previous apps with similar functionality that you worked on to help you determine a timeframe.
Then look at your expenses, such as the teams you’ll have to employ to execute the design, engineering and marketing of the new app, any software they’ll need to do their jobs, etc. This will give you the ROM estimate.
Then you’ll plug in your data to get a range of the level of effort. This range will be from small, say 20 hours over two weeks at a cost of $1,000 to high, which could be around 200 hours over two months, costing $10,000.
Using a rough order of magnitude to calculate this range helps you better define the number of costs related to the project, how many people you might need and the duration. You can further narrow that window by seeking expert guidance, historical data and other estimation techniques.
ProjectManager Helps With ROM Estimates
Being able to accurately estimate is the first step. A rough order of magnitude estimate helps you plan better, but once that plan is executed you have to keep to your budget. ProjectManager is online project management software that helps you monitor costs in real time. Risk management features allow you to identify and track issues that can lead to overspending. Collaborative tools mean everyone is working off the most current data. But that’s only the start.
Track Costs With Real-Time Dashboards
Project managers need a high-level view of their project whenever they want it. Our real-time dashboard requires no setup, as in other lightweight competitors, and automatically captures and calculates six project metrics, including costs. These are displayed in easy-to-read graphs and charts. For more details, use our customized reporting tools, which can be easily shared with stakeholders to keep them updated.
It’s easy to go over your budget if you’re not managing your resources. Our resource management features help you see your team’s availability, including PTO and global holidays, which makes assignments easy. But if you over-task one team member, you’re not managing your resources properly. You risk burnout, which is costly. Our workload chart shows is color-coded so you can quickly see who has too many assignments and who has too few. Then balance their workload right from the chart and boost productivity and keep costs in line.
Being able to accurately estimate your costs with techniques such as ROM are essential tools to set up your project for success. ProjectManager is software that helps you deliver that project on time and within the costs you estimated. You can’t keep to your budget if you’re unable to see real-time data, which is why our tool is preferred by project management professionals worldwide.
ProjectManager is award-winning software that helps you plan, schedule and track project costs, duration and more. Our unlimited file storage allows you to also use our tool as a centralized hub for all your project documentation. Task management features keep you on track and timesheets help you track the time your team spends on tasks. Get started with ProjectManager today for free.