#PM Time Management—Review of Estimating Techniques


1. Introduction

In this series of posts, I am going into detailed issues regarding the time management area for project managers.  In particular, I am focusing on the following process, 6.4 Estimate Activity Durations, which I have highlighted in the chart below summarizing the processes as given in the PMBOK Guide.

Process Group Process Number Process  Name Process Description
Planning 6.1 Define Activities Identifying actions to be performed to produce product deliverables.

 

6.2 Sequence Activities Identifying and documenting relationships among the project activities.

 

6.3 Estimate Activity Resources Estimating type and quantities of resources (human and material) required to perform each activity.

 

6.4 Estimate Activity Durations Approximating the number of work periods needed to complete individual activities with estimated resources.

 

6.5 Develop Schedule Analyzing activity sequences, durations, resources requirements, and schedule constraints to create product schedule.

 

Monitoring & Controlling 6.6 Control Schedule Monitoring the status of the project to update project progress and manage changes to schedule baseline.

Here are the tools and techniques associated with this process.

6.4 Estimate Activity Durations Approximating the number of work periods needed to complete individual activities with estimated resources. 1. Expert judgment

2. Analogous estimating

3. Parametric estimating

4. Three-point estimates

5. Reserve analysis

1, 2, and 3 are top-down techniques

4 and 5 are bottom-up techniques

The purpose of this post is to briefly explain the general difference between these techniques.

2. Top-down and botton-up techniqes.

First of all, the five techniques can be divided into two broad categories, top-down and bottom-up techniques; the first three in the chart above are top-down techniques and the last two are bottom-up techniques. How are they different? Think of a WBS: the lowest level is represented by the work packages, which are connected upwards in the WBS to control accounts, and you keep going on up to the top of the WBS where you get the top box representing the entire project. A top-down estimate starts from the top of the WBS, i.e., an estimate for the entire project based on a previous project that is similar. So are top-down estimates impossible for a project which is totally new to a company? Not necessarily; they may new to the company, but they may be common in the industry, in which case you could use a top-down estimate for a project which another company has done.

Let’s go through these top-down techniques. Let’s use an example: you are bidding on a building a house for an existing subdivision. What is your estimate for building the house?

a. Expert judgment

Has someone in the company built a house in the subdivision before? Or is there somebody in the construction industry who has built a house in this subdivision before? For the purposes of this task, that person is an expert.

b. Analogous estimating

The purpose of asking an expert in technique a) is obtain an estimate for a similar project, which is called an analogous estimate. Assuming the size of the house you are bidding on is the same or similar to a house, you may be able to use this estimate for your own building project.

c. Parametric estimating

Let’s say that the new house is a different size than the others twice in the subdivision. One way to get the estimate would be to take a single variable related to the house, such as the number of square feet, and calculate the building cost of the other houses in the subdivision. Then you have an average cost per square foot, from which you can take the proposed building with its estimate of square feet and use that to calculate the building cost of the new house.

Top-down estimates are useful for rough estimates, but to get more accurate estimates, you need to go to bottom-up techniques. These are estimates based on the bottom of the WBS, i.e., work packages, especially those that have been further broken down in process 6.1 Define Activities and 6.2 Sequence Activities

d. Three-point estimates

The three points of the three-point estimate are the middle point or the most likely estimate (M), the pessimistic estimate (P), and the optimistic estimate (O). The alternative to the three-point estimate would be just to give the most likely estimate, but that does not supply the additional information about the accuracy of the estimate that is given by the three-point estimate.

A variation on the three-point estimate is the PERT analysis (PERT stands for “Program Evaluation and Review Technique”). This gives more confidence or weight to the most likely estimate in formulas that deal with the expected activity duration, activity standard deviation, and activity variance. The analysis part of PERT comes in taking the expected activity duration for each activity on the critical path and combining them to get the total expected duration of the project.

e. Reserve analysis

The three-point estimate is an excellent tool for doing reserve analysis for this reason. When asking people for their pessimistic and optimistic estimates for each activity, ask them for their assumptions on WHY they are making those estimates. For example: if programming a certain module will take a programmer 25 hours to do as the most likely estimate, the pessimistic estimate of 40 hours may be based on the assumption that a newbie is assigned to the task, whereas the optimistic estimate of 20 hours may be if they can get the veteran programmer Jones, who is rumored to dream in code.

These assumptions may uncover the risks or events which can positively or negatively affect the project. The reserve analysis is an output of the risk management knowledge area and takes the cost of implementing a risk response and adds it to the project estimate in the form of what is called a contingency reserve to get the cost baseline. In this example, one way to cut 5 hours out of the project activity duration would be to hire Jones, which would cost more since he (or she) is paid more per hour. That money used to take advantage of this opportunity (assuming Jones is available) would come out of the contingency reserve that was established as part of the reserve analysis, which in turn was done using the three-point estimate process as a starting point.

Out of the five techniques, the one that in my experience seems to be asked about the most in connection with formulas is the three-point estimate or PERT technique. This technique and the typical exam question covering it will be covered in the next post.

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