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PMO: Top down vs bottom up project planning

This week, I encountered an age old debate: which is better, planning from the top down or the bottom up? It happened to emerge during a discussion about resource planning, but it also applies to cost and budget estimates.

In the finance realm, we are quite use to a top-down model. At the corporate level, an overall budget is set based on expected revenues and the desired profit margin. This is then argued over by the executive team as budget numbers are set for individual organizations. Each VP then takes their allotments back to their directors with specific allocations for each, who then come up with a budget for their specific department.

So, what happens when we apply this thinking to projects?

Using the above model, a cross-functional steering committee would be given a total allocation of both spend and resource effort to cover all projects for the year. They would then set targets for various project investment categories. Perhaps they want to allocate 33% for strategic projects, 33% for tactical, and 33% for maintenance (KLO) projects. They then look at the project requests in the queue and choose based on these allocations.

To complete the top-down picture, these requests have been through a scoring exercise that uses big buckets for benefits and costs (eg: <$50K, 51-100K, 101K – 250K, etc). For more on scoring, see the blog post Too many project requests? Scorecard them!

Of course, there is a counter to top-down, which is bottom-up planning. In this method, each project is analyzed and planned down to the task (WBS) level. Effort is estimated for each task and materials costs are developed for each item to be purchased. The results are then rolled up to the project level, revealing the “true” effort and cost required for each project. These fully vetted requests are brought to the steering committee for approval, and the total of all approved requests gives us the size of the portfolio.

Hmm – both seem to have some merits and some problems.

Bottom-up, or detailed planning, provided a more thourough, and theoretically more accurate, estimate. However, the amount of analysis required can overwhelm the business analysts and project managers. Further, it is common practice to add some buffer to each task in a plan. This can lead to quite a bloated overall estimate.

Top-down, or high-level, planning is much more efficient. It also provides the constraints and big-picture view required to ensure the final list of projects is aligned with company objectives and fits its spending targets.

So, which to use? Truth is, in finance, we use both and then reconcile then meet in the middle. In PMOs, I advocate the same idea. I like high-level planning during the intake of projects so excessive time isn’t wasted on analysis and to ensure the portfolio is within overall targets. But once the initial selections are made, detail planning is crucial. And comparing he detailed plan to the high-level plan can lead to much better overall estimates.

As an example, I had a PM present a detailed plan that was 40% over the initial estimate. Now, the initial estimate was based on actual time and expense records from several similar projects. So, I was able to direct the PM to rethink they’re detailed plan to eliminate unnessecary buffer.

On the other hand, I’ve also seen detailed plans that revealed flaws in our high-level thinking, causing a re-calibration of the high-level estimates.

How do you perform planning in your project driven organization? This is one subject area open to lots of great ideas – and we’d love to hear yours!

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