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Micro And Macro Estimates Essay

496 words - 2 pages

What are the differences between micro and macro estimating approaches? Under what conditions would you prefer one over the other?

Macro estimates are typically top down, are usually used in the project conceptual phase, and depend on measures such as weight, square feet, ratios. Macro methods do not consider individual activity issues and problems. Macro estimates are good for rough estimates and can help select and prioritize projects. UNCERTAINTY

Micro time and cost estimates are usually tied directly to the WBS and a work package. These estimates are made by people familiar with the task, which helps to gain buy-in on the validity of the estimate. Use of several people should improve the accuracy of the estimate. Micro estimates should be preferred if time to estimate is ...view middle of the document...

This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry. (Find out more about microeconomics in Understanding Microeconomics.)

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate. (To keep reading on this subject, see Macroeconomic Analysis.)

While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public.

The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained.

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