What is a ROM? ROM Price and Cost Estimate
3 min read
ROM stands for Rough Order of Magnitude. It is a project management guideline to determine the estimated range of costs for a project.
This article will explain:
Who should use a ROM
When to use a ROM
How to calculate a ROM
Simple example of a ROM
Who Should Use a ROM
Project Managers use rough orders of magnitude to determine initial cost ranges for upcoming projects. Many organizations and most software organizations use project managers to lead projects.
Their role involves leading their project team, defining the goals of the project, reporting on the progress to the company stakeholders, and seeing the project through to completion.
Who else can use a ROM? You! 👊 As you'll see, the concept of a ROM is very simple to grasp and can be useful in myriad circumstances.
When to Use a ROM
ROMs are extremely important for project managers in the early stages of a project's planning. They're used to decide whether or not a project is going to be feasible or not.
Rough Orders of Magnitude can be used to prepare a project business case (an analysis of the potential benefits of the project) before a project is committed to.
How to Calculate a ROM
Calculating a ROM is pretty straightforward. It is meant to provide a range of the possible cost of a project and you can find it using the following formulas:
Lower Bound = ROM Estimate x 0.75
Upper Bound = ROM Estimate x 1.75
During the planning phases of a project, the project manager can come up with an estimate of the costs involved. From here, using the above formulas, they can then calculate a lower boundary in case the project ends up being less expensive and an upper boundary in case it goes over budget.
Since it is helpful to have more room on the upper boundary to avoid running out of funding if it does go over budget, the rough order of magnitude's upper boundary is considerably higher.
You've probably calculated a ROM without knowing it. 💡
Say you're going to the movies with a friend. You figure there will be ticket costs plus refreshment costs. Maybe $20 a ticket since you're going to the latest Nolan IMAX film and then another $30 a person since popcorn is more expensive than steaks at the movies.
This puts you at $100 total for both of you.
The Lower Bound in a ROM calculation would be
$100 x 0.75 = $75.
The Upper Bound would be
$100 x 1.75 = $175.
You probably don't do this exact math in your head, but you likely have figured there could be extra expenses. You go into the date thinking you could spend as much as $150, for instance.
Rough Orders of Magnitude are extremely important in organizational projects. It is vital to decide at the onset whether or not the project is feasible. And the principals behind ROMs are both common sense and easy to calculate.
I hope this has been helpful to you!
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