Estimation Methods
In the worlds of business and economics, estimation methods are subject to a great deal of debate. Researchers and managers are charged with difficult tasks, such as setting cost and time boundaries, or arriving at figures that others will use for major policy decisions. Therefore, it is critical that researchers and managers have a variety of estimation methods at their disposal to help them derive reliable estimates in different types of situations. Delphi and top-down estimation methods are frequently used for tasks such as cost estimation, new product development and economic research. Delphi estimation involves several stakeholders and works toward building consensus on a project estimate (Wiegers, 2000). In top-down estimation, a manager or researcher may start with an aggregate estimate and then work backwards to estimate values for the various components. Both Delphi and top-down estimation have their weaknesses and neither is a cure-all for every estimation scenario. However, the variety of scenarios managers and researchers face in the worlds of business and economics allows both Delphi and top-down estimation, when appropriately applied, to provide reliable and actionable estimates.
For example, Japanese researcher Takashi Kadokura used top-down estimation to provide detailed estimations of the various facets of Japan's black-market economy (Honjo, 2003). Of course, Delphi estimation has its disadvantages, too. In Delphi estimation, a facilitator brings together various stakeholders or experts on a project and has each of them put together an estimate of cost, time, etc. Naturally, we can assume that remaining $1,000 goes to the black market. First, this constant cycle of meeting and revision takes time, perhaps considerable time if individual members are obstinate about their personal estimates (University of West Florida, 1996). Naturally, estimating a black market economy in this manner has all the weaknesses that are inherent to top-down estimation. The role of the mediator is critical in preventing these possible difficulties. The software developers, likewise, may know little about what it takes to source and purchase the raw materials necessary for a full-scale launch, or how long an advance marketing campaign should run. It brings stakeholders into a room and, at its best, allows them to all have buy-in on the estimation process and to all have clarity on what needs to happen for that estimate to be met. It is not incredibly detailed and can overlook various components of the underground economy. There are instances where top-down estimation makes perfect sense, as the aggregate figure may be the easiest to estimate. Conclusion The worlds of business and economics provide a variety of challenges that can make estimation processes difficult. In short, there are a variety of estimation methods we can use, and none of them are perfect. The same, obviously, holds true in financial budgeting.
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