For any project manager, obtaining accurate estimates is a luxury, especially in a competitive market where fluctuations in material or labor costs can affect the project's actual costs.
Therefore estimation plays a critical role in project management and could potentially determine the success or failure of any project. In cases where a project manager is unable to obtain accurate estimates during the project planning phase, a rough order of magnitude estimate would suffice.
Key Takeaways
- 01ROM stands for Rough Order of Magnitude
- 02This estimation method is used to get a ballpark estimate for a construction project
- 03ROM estimates have a variance of -25% to +75% from actual costs
- 04Used during the approval or selection stage of projects
- 05Best suited for early project stages when detailed information is unavailable
In this blog, we will discuss everything you should know about a ROM (Rough Order of Magnitude) estimate. That includes the difference between ROM estimates and definitive estimates, steps for ROM estimating, and who can use them.
First, let's start with the definition of ROM. What is a rough order of magnitude estimate?
Table of Contents
What are ROM Estimates?
A rough order of magnitude estimate gives an approximation of the cost of providing a stated service. Rough order of magnitude estimates helps guide project managers in estimating a ballpark figure for a project's total cost. They are usually conducted during the approval or selection stage of the project, and the difference between estimated and the actual costs may have a variance of -25% to +75%.
Several contract companies choose ROM estimates because they can be useful in determining the budget of any project and deciding whether they are viable or not. ROM estimates also help project managers evaluate the project budget and work within the financial constraints given by their executives and stakeholders.
Important Note
Most organizations use ROM simply for informational purposes, and project managers using ROM should indicate that the accuracy of cost estimates would most likely vary greatly from the actual cost.
Using a definitive estimate is another way to estimate the cost of a project. The ROM and definitive methodology estimate costs in distinct ways and project managers must learn how both of these calculations work before applying them. We'll dig into definitive estimation later on this blog; first, let us understand how to use a ROM estimate.
Why ROM Estimates Are Important
Here are some of the essentials for calculating a rough order magnitude estimate:
1. Understanding the project size
It is crucial for project managers and stakeholders to establish the size and duration of any project before going through with it. Their findings would help them figure out if they have the required resources and can help in providing helpful information to the contractors.
2. Providing the client with information
A project manager may use ROM to provide important information to the client that would help decide on the project's scope and goals. These estimates can then be adjusted to align with their budget and expectations, which helps to keep the entire project management team on the same page.
3. Substantiating Initial Research
In project management, rough order of magnitude estimates can be used as a base price when researching and contacting vendors, suppliers and contractors. A project manager can then pour through the quotes and determine the prices more reasonable for their project.
4. Required changes
The ROM estimate's variance is higher because of its approx calculation and uncertainty in feasibility. Thus, the last step indicates that there can be changes often during the initial stage of the project.
After knowing how to use it, let's discuss who uses rough order magnitude and its examples.
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Start Your FREE TrialWhen Is ROM Estimate Used?
ROM estimating is useful for multiple reasons, and in this section, we will discuss how it is used and share some practical applications.
Who Uses ROM Estimates?
- Larger Projects: ROM can be used by a project management committee to determine cost estimates and gain insight into a project's scope
- Innovative Projects: ROM can be used when the deliverables of a new project are unique and different from the previous projects
- International Projects: ROM is useful for international projects because it allows for price variations due to currency conversions
- Larger Budget Projects: Many use ROM as an initial estimate for larger projects when the entire scope cannot be fully understood at early stages
How to Prepare a ROM Estimate?
The most important factor to consider when using this method is to get the known factors right to stay within the limits of the accepted variation of rough order of magnitude estimates. Often, projects may span over a period of several years, and it is critical that project management professionals work with estimates that are as accurate as possible. And while it can be almost impossible to forecast the labor and materials cost over a number of years, managers can work with known inputs for a more accurate forecast.
Pro Tip
Work with known inputs and current market data to create the most accurate ROM estimate possible, even when dealing with long-term projects spanning several years.
Let's get more into detail by comparing ROM and a definitive estimate in the next section.
ROM Estimate vs. Definitive Estimate
For project management, both estimates (ROM and definitive estimation) are crucial at various timelines of a project. The major difference between ROM estimates and definitive estimates is that the latter is preferred when there are accurate estimates at the work package or activity level. According to the guide of the project management body of knowledge (PMBOK), the definitive estimate is the most accurate type of estimation.
ROM Estimate vs. Definitive Estimate Comparison
| Aspect | ROM Estimate | Definitive Estimate |
|---|---|---|
| Project Stage | Early stage/Initial planning | Later stage with detailed scope |
| Accuracy Level | Low (-25% to +75% variance) | High (±5-10% variance) |
| Time to Prepare | Quick and minimal effort | More time and detailed analysis |
| Data Required | Limited information needed | Comprehensive project details |
| Best Used For | Budget approval and feasibility | Actual project budgeting |
| Based On | Assumptions and high-level data | Detailed design plans and scenarios |
Moreover, the ROM estimate is basically a rough cost estimate and is ideal at the initial stage of the project, whereas the definitive estimate is best suited for later when the project progresses. A definitive estimate may be incorrect, but since it's based on a lot fewer assumptions, it offers a more accurate estimate. Preparing a definitive estimate takes more effort and time compared to a rough order of magnitude estimate as they usually require reviewing design plans and various scenarios that apply to the project.
Frequently Asked Questions
ROM estimates are calculated by classifying them into two boundaries: upper and lower. The method to calculate rough order of magnitude estimates is:
- Upper boundary = ROM estimate x (1+75%) = ROM Estimate x 1.75
- Lower boundary = ROM estimate x (1-25%) = ROM Estimate x 0.75
ROM estimate is developed in the early stage of the project and is less accurate. Whereas a definitive estimate is more accurate and is used when there is sufficient data on the project scope.
Use ROM estimates during the initial project approval or selection stage when detailed information is not available. Switch to definitive estimates once you have comprehensive project scope and detailed design plans.
ROM estimates typically have a variance of -25% to +75% from the actual project costs. This wide range accounts for the uncertainty and limited information available during early project stages.
Conclusion
ROM estimates and definitive estimates function quite differently in terms of project scope and detail. If you only need an initial estimate at the early stages in a project life cycle, a rough order of magnitude estimate is preferred. To create a definitive estimate, ensure you have understood the project's scope and itemized your costs.
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