Project estimation techniques

The techniques for estimating a project in project management can be different.

Unfortunately, project managers do not always use them.

In some cases, project managers choose to do a planning without having supporting data.

Of course, even the best project estimation techniques are not perfect, but at least allow to show the client, the project sponsor or the boss how to get to estimate the duration and costs.

In this article we will see different options for estimating a project:

• Analogous estimation;
• Parametric estimation;
• Order of magnitude estimation;
• Bottom-up estimation;
• 3-point estimation.

Each technique requires specific data and specific mathematical and statistical procedures.

Once defined, it is possible to decide which one to use, keeping in mind that different estimation techniques can be used for different sections of the project.

Project estimation techniques: analogous estimation

This type of estimation uses certain parameters referred to past projects and considered similar to a new project that must start.

To apply this technique correctly, not only similar past experiences are required, but also the ability to understand the factors of similarity and diversity between experiences.

For this reason the skills of the project manager who analyzes the degree of analogy are essential for a good estimate.

A company, if well-organized, should always keep projects data so that they can be used in case of similar future projects.

In fact, in the case of a new project similar to a previous one, even a less prepared and experienced project manager can inquire, study and have the opportunity to plan a new project with a minimum of base history and without groping.

If all the project managers perform the management of the project work, its planning and its documenting in a professional way, it would be possible to create a database useful for a subsequent estimate by analogy.

Project estimation techniques: parametric estimation

The parametric estimation is based on the identification of variables that can provide an estimate on the variables of interest of a given project.

Usually, we talk about parameters referring to costs, time and quantity of resources needed.

Even here, it is required the existence of similar past projects that can be studied in order to understand the causal links between input and output parameters.

Perhaps it is better to make a concrete example.

In a construction activity, the hardness of the rock is a variable from which it is possible to know the speed of execution of the work and which tools suit best.

Project estimation techniques: order of magnitude estimation

The most difficult estimate that is required to the project manager is certainly at the beginning of the project, during the conception phase.

The president and the board of directors want to know how much this new project will cost and how long it will take.

However, the project manager may not have enough information about the project when these questions are first asked.

Usually, however, if the project manager makes an approximate assumption about costs and duration at this initial time, his superiors and stakeholders will consider it as an official response.

This is why a shrewd project manager should use the order of magnitude estimation.

For example, here is what a project management should say: “I believe, that 90% of the project can be completed within a period ranging from 50 to 95 days and I am also 90% sure that the project will cost between € 75,000 and € 100,000. ”

The directors do not like this type of estimation because they normally want defined numbers: cost and duration.

They do not want to hear probabilities or intervals.

However, at this stage, the project manager knows very little about what the project will imply, so given a specific response would literally be “suicide”.

The best thing a project manager can do is to explain that the level of certainty will improve as project planning progresses.

With this explanation is likely that the superiors and the stakeholders will be more condescending.

Project estimation techniques: bottom-up estimation

Bottom-up estimation is performed when the planning process has already produced a structure of the various activities and a project team is appointed.

Specifically, in this estimation technique the more detailed elements are taken into consideration and then aggregated in order to provide an overall estimate.

There is a relationship between the detail level of the breakdown and the accuracy of the estimate.

A level of breakdown that is too general and insufficient does not make it possible to fully understand the work that has to be done.

On the contrary, an excessively detailed breakdown will lead to the loss of the overall vision and the probable underestimation of the work of the entire project.

It is a good idea to involve and use the experience of team members in creating estimates.

Beware, however, that in some cases, employees tend to “enlarge” their estimates in order to “protect themselves” from any delays in the project or in the case of an unforeseen event that causes an exceeding of the budget.

Project estimation techniques: 3-point estimation

The concept of 3-point estimation is very simple.

Regarding times or costs, three possible values are assigned, ie the most optimistic case, with the lowest value, the most pessimistic case, with the highest value, and the most probable one.

A continuous probability distribution is then constructed on these three values.

This is an estimation technique developed by NASA especially for its space programs.

In situations like those that NASA was facing, for example the landing on the Moon, the other methods of estimation were not suitable because there were no data from previous similar projects.

This technique is in fact a good choice when a project manager is in charge of managing unique projects that do not have a defined history.

In such circumstances, the project manager asks the team members for more estimates for each activity.

This allows to consider potential positive events that could simplify and accelerate the work, as well as evaluate project risks and any increase in costs and delays in delivery.

The 3-point estimation also provides statistical data to the project manager regarding the probability of duration and different costs.

Concluding this overview, we can assert that, in general, there is no right or wrong method.

The estimation of a project is an art!

A mixture of knowledge of the project, of the industry, including a historical review, a customer survey and a large part of instinct.

In Twproject it is possible, for example, to manage future projects using skills as resources; create projects by assigning skills instead of resources.

This is very useful during the project planning phase.

Furthermore it is possible to:

• manage actual open projects with real people;
• model future projects with skill assignments.

Having both possibilities in the same system makes it possible to share, for example, the creation of the project tree and its maintenance between the planning project manager and the production project manager.

A single space to monitor ongoing activities and plan future ones, directly estimating their impact on projects.

An advantage not to be underestimated.

And what estimation method do you prefer?

What are the strengths and weaknesses you’ve noticed?