In view of the WBS, costs can be estimated by either the top-down
or bottom-up approach. In the top-down approach, the project manager estimates the costs of tasks
at the higher levels of the WBS using
experience, statistics or models. In the two-level WBS below, hypothetical costs have been added using the top-down approach. The bottom line of the figure indicates that the total capital cost
for the example is $308,000.
A bottom-up approach requires a detailed WBS that
allows the estimation of the materials, labor and indirect costs
for the individual work packages. The figure below shows
estimates for the Process design task in the four-level
The total project cost is the sum of the costs
of the tasks. The summary below shows the project capital
costs and the major tasks at level 2.
The text points out the positive and negative aspects
of the two approaches. The top-down approach might be better
at the beginning of the project to provide rough estimates of
the capital costs; the bottom-up approach is more appropriate in the later stages of the project where bids or contracts require careful
This course uses the Estimate add-in for computing
a project described by a WBS. Click on the icon for instructions
for that add-in. Read particularly the index page
and the pages on capital budgeting and time dimension.
The computations section of this site tells how to download
and install add-ins.
The Excel file holding the examples on this
page is the "Demo Workbook" file for the add-in and can be downloaded
from the web site reached through the above link.