Why estimate? Because we need to know an answer so we can decide what to do.
We are not looking to determine the answers to questions precisely. We just need to determine them well enough to decide on an action. This means answers fall into one of three "Goldilocks" categories:
1. Too big
2. Too small
3. Just right
If the answer is too big or too small, then the action is obvious.
How do we estimate?
There are three steps and one technique to make it easier. First, write down the answer (within a factor of 10). Second, if necessary, break the problem down into small pieces. Third, recombine the pieces. The final step is to compare our answer to the Goldilocks categories. The technique is to establish boundaries for the answer rather than to estimate it directly.
Dare to be imprecise!
None of the answers is precisely correct. Precise answers take a lot more time. However, most questions do not need precision.
For example, if you want to buy a car and can only afford to spend $5,000, then you cannot buy a new car. If you can afford to spend $100,000, then you can buy a new car. Only if you have an intermediate amount to spend, for example $15,000, do you need to know the cost of a new car more precisely.
Answers only mean something when compared to something else.
Therefore, we need to compare the answer to a reasonable (or unreasonable) standard. Only then can we determine which of the three Goldilocks categories the answer falls into.
Source: "guesstimation 2.0" by author Lawrence Weinstein