Estimating Techniques: Topics to Learn for the Project Management Professional (PMP) Exam
As a project manager, you are most likely responsible for estimating the duration of the project activities and the costs for the project. As part of the PMP exam, you will be tested on the various estimating techniques. This requires that you have a strong understanding of the differences between the techniques and even possibly calculating some estimates based on the data provided.
There are four techniques used for both cost and duration estimating: analogous, parametric, three-point, and bottom-up.
- Analogous Estimating
Analogous estimating is used when there is very little detailed information about the current project, so we leverage a similar, past project as the basis for the estimate. Think of analogous as an analogy: we are comparing two similar items. Because it considers an overall project or segment of the project for the estimate, it is considered top-down. On the exam, they may use either term to describe this technique. The past project must be as similar as possible to the current project. Analogous estimating is a combination of historical information and expert judgment, is quick and easy to do, but will not be as accurate as other estimating techniques.
The website project last year took three months and cost $6,000. To launch a similar website this year, the project manager estimates that it will take three months and also cost $6,000.
- Parametric Estimating
Parametric estimating uses a statistical relationship between variables to calculate the cost or duration. The statistical relationship could be a unit cost or productivity rate. As with analogous estimating, parametric estimating also relies on historical data and expert judgment. The underlying data must be stable and scalable.
Based on previous projects, the editor can complete 20 pages per hour at a rate of $25 per hour. For a 100-page user guide, the project manager estimates that it will take five hours at a cost of $125.
- Three-Point Estimating
Also known as a PERT (program evaluation and review technique), a three-point estimate factors uncertainty into the estimate by considering the average of the optimistic, most likely, and pessimistic estimates. There are two PERT estimates: triangular and beta. For a triangular estimate, the calculation is (optimistic + most likely + pessimistic) / 3. For a beta estimate, the most likely duration or cost is weighted by a product of four; therefore, it is divided by six instead of three: (optimistic + 4(most likely) + pessimistic) / 6.
The activity has an optimistic duration of 6 days, a most likely duration of 10 days, and a pessimistic duration of 15 days.
The triangular estimate would be: 10.3 days
The beta estimate would be: 10.2 days
The activity has an optimistic cost of $700, a most likely cost of $1,000, and a pessimistic cost of $1,600.
The triangular estimate would be: $1,100
The beta estimate would be: $1,050
- Bottom-Up Estimate
The opposite of an analogous estimate is a bottom-up estimate. The most time consuming, but also the most accurate, a bottom-up estimate involves determining the cost and/or duration estimate for each activity and then rolling that up into an overall estimate. For costs, the sum of all of the estimates would provide the overall estimate. For the duration, however, the project manager needs to consider which activities are happening concurrently to come up with the most accurate overall project duration.
The employee orientation project will involve the following costs:
Lunches $50, handbooks $30, badges $20, laptops $900 = $1,000 estimate
Based on the duration of each activity, and the dependencies and sequencing of the activities, the duration estimate for the project is six weeks.
Understanding these estimating techniques, how they differ and compare to each other, and also knowing how to calculate the estimates will be vital in passing the PMP exam.
Project Management Professional (PMP) and "PMP" are registered marks of the Project Management Institute, Inc.