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Estimation Technique Alternatives: How to Choose the Right One

By January 13, 2023No Comments

As you get closer to taking your exam for the PMP (Project Management Professional) certificate, you may want to add some extra time in your studies to ensure you understand the different Project Estimation Techniques. Activity duration is estimated based on these techniques and each one is utilized based on the project’s complexity.

Each of the techniques is optimized for various situations. Sample PMP exam questions and answers reference many of them and the key to answering those questions effectively during the exam is understanding the difference.  

The examples listed below should assist and will be a great addition to your study plan. Take the time to research them further in the PMBOK so that you can pass your exam with flying colors.

The Right Tool for the Job

Each project has six obligations:

  1. Scope; the amount of work required for the project as a whole
  2. Time; the amount of time required for each task as well as the project
  3. The cost for each task and the entire project
  4. Quality; the standards that are set for each task as well as the project
  5. Resources; amount and type of resources necessary
  6. and Risk; the areas that can impact the calculated budgets, schedule, quality, and/or end result/product.

The following techniques are used to assist the project manager in producing accurate estimates to create a sound project plan. There are several different techniques and no universal way to estimate.

In fact, within a project, several estimation techniques may be used, depending on the initial data available and  intended outcome for each individual task. Even changes that occur that affect the scope of the project may cause you to rethink the estimation and go with another technique.

Since Project Management covers so many fields and industries, it may be difficult to determine which knowledge areas and process groups apply to your particular field. However, project estimation is a necessity for time management in all areas of project management, Engineering, IT, Construction, Manufacturing, etc.

Estimation Standards

Estimates are a core element in planning. Estimates are based on information gathered from past projects, compiling accurate figures, identifiable risks, and defining the expectations of the project.

The ballpark estimate should be based on the following points:

  • The Work Breakdown Schedule (WBS) a definition of all resources necessary for the project.
  • Assigning estimating tasks to the individuals that are leading the teams responsible for that part of the project provides the project manager with the most accurate numbers.
  • Historical data should be compiled from past projects to avoid past mistakes.
  • Changes should be addressed through change orders to ensure that the overall scope isn’t affected negatively.
  • Continually evaluating the estimated time of completion (ETC) will make sure that the project is on track, even when schedules or budgets go astray.

By following these guidelines, the project manager can compile the best estimation for the project.

Effort, cost, and resource estimation during the planning stage are assumptions. As the project goes forward, more accurate data at the milestones within the schedule provide the project management team with a better view of the overall project.

Project Estimation Techniques

Analogous Estimating

Analogous Estimating, uses historical data that focuses on past projects that are similar. It is used for projects that are new, territories that haven’t been previously explored. This is a top down estimation technique.

It is generally used when there is limited data, requires only a rough estimate, or when the project is in the initial stages.

It saves time, money, and requires fewer resources to perform, but because it relies mainly on the data from past projects and input from expert opinion it is less reliable.

Parametric Estimating

Parametric Estimating also uses historical data along with market information and experience to estimate the elements within the project, such as the ETC, cost, and resources necessary for completion.

It is often used with other estimation techniques and can be used for the entire project or just one segment.

It is highly accurate, useful, and efficient.

Top-Down Estimating

Top-Down estimating evaluates the project as a whole and then breaks it down into smaller parts. It is generally used at the idea stage of a project, by managers, board members, and clients, while leaving the more accurate estimations to the project management team. The end goals in Top-Down estimating may be loftier than those from other techniques. It can be more efficient than Bottom-Up estimations but relies less on collaboration within the team.

Bottom-Up Estimating

Bottom-Up estimating looks at the details of the project first and then works its way back to the end product.  Bottoms-up estimating is a collaborative effort and can run throughout the entire scope of work. In general it is more effective when challenges occur and is better for adapting to risks.

Three-point Estimating

Based on averages, this approach, also known as the PERT or Program Evaluation and Review Technique, it works with an:

  • Optimistic Estimate: an estimate based on everything goes perfectly
  • Pessimistic Estimate: an estimate based on everything that can go wrong will go wrong, and a
  • Realistic Estimate: the middle ground between the two.

This approach analyzes the task, prepares the data for each of the estimates above, and calculates a final estimate based on that data.

This technique is highly effective in improving task schedules and minimizing risks and expenses.

What-If Analysis Estimating

Scope, time, costs, resources, can all be components of estimating with What-If analysis estimating. In order to evaluate the possible results, an impact analysis is completed. Brainstorming sessions involving all of the stakeholders and project management team members are used to gather data for this technique. Each task is broken down to key components and activities and estimated based on what resources, costs, and time that each part is required to complete the work. In order to do this:

  • A work breakdown schedule (WBS) is created breaking down the scope into the minimum elements.
  • The activities are laid out in the order they need to be performed.
  • The effort and resources required for each activity are identified.
  • Dependencies between activities are determined so that risks and assumptions can be detected.
  • This permits the team to complete a thorough estimate for each activity, component, and work package.
  • Define the resource and cost estimate to the completion of each activity, component and work package

This technique is probably the most widely used. By evaluating every scenario the project manager and project management team can better predict what effect, either good or bad, that a particular task, or activity may have on the overall project.         

What-if analysis helps a project manager:

1. Evaluate All Possible Outcomes

2. Make Better Informed Decisions

3. Assess and Determine What Actions Must be Taken

4. Improve Project Predictability and

5. Analyze Simple and Complex Factors That Can Affect the Project.

Effort Estimating

Software developers often use effort estimating. This technique is used to evaluate how much time and money is required for a project using the Agile methodology.

Using large projects, managed by several teams within the project whole, the technique breaks these down into several smaller tasks. The features are the specific details required to complete the work. Sprints are used to complete the smaller tasks and releases are arranged to issue the features through different stages.

In particular, software projects benefit from effort information because it allows project managers to fully understand the project, improve collaboration between teams and team members, allows for the creation of an accurate budget and schedule, helps to reduce risk and manage resources.

How to Choose?

Each technique can be used in any project and several may be employed depending on the field, manufacturing, construction, healthcare, etc.,  how many parts of the project there are, and what information is available.

Specific fields, such as software engineering, have techniques that can be employed that are specialized for those types of projects.

But no matter what technique is used, or for what part of the project is currently being worked on, observe the following:

  1. As stated above, make sure the estimates are true and accurate.
    “If only” isn’t one of the techniques. Take the time to avoid guessing whenever possible and always consider the margin of error.
  2. There is a saying about assuming. Be specific. Make sure all parties involved know the expectations in the beginning in order to alleviate the guesswork as much as possible.
  3. The budget is what the budget is. In order to avoid gold plating, or scope creep, adopt risk and mitigation plans and set aside resources and finances to deal with any risks ahead of time.
  4. Check and re-check. Meetings throughout the project help the project manager team make sure that the estimates are on track with the reality of the project. Costs may change, so, taking an agile approach may be the best way to work through the changes.
  5. Breaking down the project into smaller steps and placing milestones will assist the team by allowing constant monitoring and controlling.
  6. The work breakdown structure isn’t the only table to count on. Take time to breakdown the tasks as much as possible to provide the estimation with the most accurate information.
  7. Learn from past mistakes and challenges, whether on projects that the team and project manager have worked on, or projects within the corporation.
  8. Understand the reasons behind the project. Knowing where the project originated from and what the intentions are, may assist in producing a better scope of work and WBS.
  9. Finally, ask the right questions:
    • What is the project goal?
    • What are the project expectations?
    • Who are the stakeholders and would be team members?
    • Where are the stakeholders and team members?
    • How and have they collaborated before?
    • How did those collaborations work?
    • Who is the client contact?
    • What are the client’s expectations?
    • What are the technologies involved?
    • What are the resources that are necessary?
    • Can the resources come from within the company?
    • Are there external resources needed?
    • What is the budget?
    • What is the expected time-line?
    • What are the restrictions, constraints, or obstacles involved?

Answering the questions above will provide the project with a more positive beginning and a better outcome.

Quality and best practices are key to estimating any project, no matter the industry, or the size.

Understanding the information in this article is an essential part of project management and a vital part of the PMP exam. Improve your project management skills or prepare for the PMP Certification exam by taking a quality online PMP exam prep course.

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