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How Is Estimating Done?

The three methods used for estimating includes:

  • Analogous estimating

  • Parametric estimating 

  • Three-point estimating or reserve analysis

Estimation activity need to be completed by individuals who are doing the work. A project manager plays a key role during the process of estimation. Enough information is provided to the team to properly estimate each activity. Complete calibration should be made between project manager and estimators.

One-Point Estimating

Based on this technique, an estimate is made per activity. For example, the person doing the estimating says that the activity will take one month. The estimator may estimate this time basis expert judgment, historical information, or it could just be a guess. The technique is thus problematic. The negative effects of one-point estimating on the project are:

  • If an estimator estimates that it will take 15 days for an activity to be complete, and it takes only 10 days, it can make the person who provided the estimate look untruthful and untrustworthy

  • It can hide critical information about risks and uncertainties from the project manager

  • It can decrease the buy-in to the project management process as it results in a schedule that no one believes in

  • It forces people into padding their estimates

  • It often results in estimators working against the project managers to protect their interest

So, where could we use one-point estimates? For projects that do not require a detailed, highly reliable schedule, a one-point estimate can be used. A three-point estimate is preferable.

1. Analogous Estimating

The last few projects similar to this one took nine months, so this one should also. Similarly, last three times this activity was completed, each took fifteen days, since we have no other information to use, we will use fifteen days as the estimate for this activity and review the estimate when more details are available. Expert judgment and historical information is used to estimate using analogous estimating technique.

2. Parametric Estimating

Parametric estimating looks at the relationships between the Xs (variables) on the Ys (activity) to calculate estimates. The data primarily comes from historical records such as previous projects, industry requirements, standard metrics, other sources.

There are two ways the estimator might create parametric estimates:

  • Regression analysis (scatter diagram): A regression analysis identifies the impact of an X on a Y i.e. impact of a variable on an activity by creating a mathematical formula to use in future parametric estimating.

  • Learning curve: Example: The average handle time of an employee in a call center reduces as his tenure increases because of improved efficiency.

Heuristics

A heuristic means rule of thumb. An example of a heuristic is the 80/20 rule or the Pareto principle. This rule suggests that 80% of quality problems are caused by 20% of potential sources of problems. Results of parametric estimating can become heuristics.

3. Three-Point Estimating (PERT Analysis, Program Evaluation &  Review Technique)

Since there is a very low probability of meeting the project deadline on exactly one date, it is often best to state estimates in a range using three-point estimates. Analyzing what could go right and what could go wrong can help estimators determine an expected range of activity, and if they state this range using three time (or cost) estimates, the project manager can better understand the potential variation of the activity estimates and the overall project estimate. With the three-point estimate, the estimators give an Optimistic (O), Pessimistic (P), and most likely (M) estimate for each activity. This ultimately provides a risk-based expected duration estimate by taking either the average or weighted average (using PERT analysis) of the three estimates. These formulas can be used for both time and cost

Reserve Analysis

Identification of risks is done by Estimating. Elimination of risks is done by completing the risk management process. This makes the estimates more accurate and it also reduces the range of time and cost estimates. Time and money is saved by the risk management process. One of the critical responsibilities of a project manager is to establish a reserve to accommodate for the risks that remain in the project after the risk management planning process have been completed. An initial reserve is estimated in the risk management process. The Plan Risk Response process is executed to reduce the risk and a revised reserve is created. Project planning is thus an iterative process.

Contingency reserves and management reserves are two types of reserves for a project. Management reserves are additional funds kept as a contingency reserve to cover unforeseen risks. Contingency reserves are for the risks remaining after the Plan Risk Responses process.

Develop Schedule

After completing the network diagram and activity estimates, information is updated in a schedule. A schedule is calendar based.

To develop a finalized schedule, following steps need to be followed:

  • Keep a check on priorities of stakeholders

  • Create multiple ways of completing work

  • Identify risks and impact on other projects

  • Negotiate resource availability with managers

  • Leads and lags to be applied to the schedule

  • Crashing, fast tracking, and re-estimating to be used to compress schedule

  • Adjust components of a Project Management Plan

  • Use scheduling tool and perform calculations to determine optimum schedule

  • Use models such as Monte Carlo analysis to simulate project & identify project completion date

  • Level resources if necessary

  • Seek approval on the final schedule from the team who created it

  • Seek stakeholder buy-in & formal management approval

  • Many of the actions of Develop Project Management Plan process (in Integration

  • Management Chapter) are performed as a part of Develop Schedule process


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