Activity Cost/Duration Estimation techniques
When it comes to activity cost and duration estimates , it is important to know what estimation techniques you have to use , and when to use each of those techniques , techniques such as analogues estimating , parametric estimating , three point estimating should be used , while using those techniques the project manager shall provide the estimators with enough information to properly estimate each activity , prevent padding ( adding Extra ) and complete sanity check of the estimates performed , Several estimating technique which can be used on projects might include the following :
- One Point Estimating : The estimator submits one estimate per activity , the time/cost estimate usually will be based on expert judgement or historical information of similar projects and activities , sometimes it might be a guess , this method usually have some negative effects such as including pads into the estimates and might result with a schedule or budget which nobody believes in , still , the one point estimating is not the best method to use , it provides an easier way to find the critical path and draw a simple network diagram of your project , using one point estimate allows for quick calculations on the exam !
- Analogous estimating ( Top Down ) , This method uses expert judgment and historical information to predict the future , usually it’s done on the project level , it’s best used while creating the project charter to create an overall project estimate which will be submitted to the senior management or project sponsor , in some cases it can be applied on the activity level if the activity has been done on previous similar projects , the level of accuracy of such estimates will depends on how closely the project or activity matches the past history .
- Parametric Estimating , it looks at the relationship between variables on an activity to calculate time and cost estimates , the data usually comes from historical records , industry requirements , standard metrics or any other possible resources , In the construction field the parametric estimating is a common practice , like having a time per installation or cost per meter square , there are two ways an estimator can create parametric estimates :
- Regression analysis ( Scatter diagram ) , where the diagram tracks two variables to see if they are related and creates mathematical formula to use in the future .
- Learning Curve, Like in an hotel project , the 80th room marble work will take less time than the first room because of improved efficiency .
- Three Point Estimating , With the three-point technique , estimators give an Optimistic (O) , Pessimistic (P) , and most likely (M) estimate for each activity , three point estimating allows more consideration of the uncertainty of estimating and the risks associated with the activities , It can be used to calculate a risk-based expected duration estimate by taking either a simple average or a weighted average of the three estimates .
- Triangular Distribution ( Simple Average ) , a simple average of a three point estimate can be done using the formula (P+M+O)/3 , the use of this fomula gives equal weight to each of three point estimates when calculating the expected activity duration or cost , applying this formula , the risks are considered equally along with the most likely estimate .
- Beta Distribution ( Weighted Average ) , the used of beta distribution gives stronger consideration to the most likely estimate , derived from the program evaluation and review technique ( PERT) , this technique uses a formula to create a weighted average for the work to be done , the formula for beta distribution is ( P + 4M + O ) / 6 , since the most likely estimated is multiplied by 4 , it weights the average toward the most likely estimate , this has the advantage of taking into consideration the benefits of risk management in reducing the uncertainty of estimates , when a good risk management process is followed , the most likely estimates are most likely to occur because risk response plans have been developed to deal with identified opportunities and threats that have been factored into the pessimistic and optimistic estimates .
For the PMP and PMI-RMP exams , It’s important to know the formula for both triangular and beta distribution and understand that if you are being asked to calculate the activity Cost/Duration , you will need to read the situation carefully to determine which formula to use , look for words like Simple/Straight/Triangular or Pert/Weighted/Beta that will help you choose the correct fomula .
Standard Deviation , It’s the possible range of the estimate , for example , an activity of estimate of 20 days that has a standard deviation of +/- 3 could end up taking between 17 and 23 days , the Beta standard deviation formula is (P-O/6) , for the PMP / PMI-RMP exam , you need to remember that the greater the range created by the standard deviation calculation , the greater is the risk .
The PMP exam may ask you to calculate a range for an individual activity estimate using weighted ( Beta ) averaging , you need to know the beta expected activity duration ( EAD ) and the beta activity standard deviation (SD) , you calculate the range using Beta EAD +/- SD , the start of the range is beta EAD –SD , and the end of the range is Beta EAD + SD .
Now for the exam , you should be able to do simple calculations using the formulas I mentioned above , understand the estimates of time/cost should be in range , and know the concept of three-point time/cost weighted estimates per activity as well as how to calculate simple and weighted average distributions . you may also see a beta or pert total project duration used in questions not requiring calculations and need to evaluate the situation to answer the questions correctly , always remember the greater the range for the project as a whole , the greater the risk .