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Selecting the Right Project Estimation Technique

Accurate project estimations are a crucial part of a project’s life cycle. In this article, we'll discuss various project estimation techniques, and help you understand when it's suitable to use one technique over another.

Project estimation is one of the hardest parts of a Project Manager’s job. Not only is it critical to the job, but the team's ability to do this well is often what separates successful projects from failures.

Project estimation is done by forecasting the amount of time and manpower, as well as financial resources, required to complete a project within a certain timeframe. Most of this estimation work happens at the early stages of a project, which means that in most cases, very little data is available to understand the project’s complexity and nuances. This means that there's often a higher chance of underestimating the amount of effort required to complete the project. In some cases, these estimates are calculated even before hiring the project team, in which case you won't even know about the strengths and weaknesses of the individuals involved.

Since project estimation is such a crucial and complex part of a project’s life cycle, there are multiple techniques available, some of which have been developed since the early 1900's. These techniques have been improved over time to fit in today’s complex requirements, especially for projects with research components or projects involved in building intellectual property.

In this article, we'll discuss various project estimation techniques, and help you understand when it's suitable to use one technique over another.

1. Expert judgement

This is the most commonly used estimation technique, which leans heavily on domain experts. The expert in this case will need the following three types of prerequisite qualifications:

  • Domain expertise, which includes knowledge about the field of the project, and experience in similar projects.
  • Expertise in estimations, which includes, knowledge of the project estimation work itself as well as relevant experience.
  • Management expertise, which includes, knowledge and experience of creating, managing and controlling project schedules and plans.

Expert judgment can also include group-decision making techniques, such as the Delphi Method, which involves taking the average estimate of a group of experts. The Delphi Method is grounded in the principle that the average estimate of a group of informed people often results in a very informed estimate. The modern gamified form of the Delphi Method is called Planning Poker, which is mostly used for software engineering projects. Planning Poker has gained popularity in the last decade and is now widely used in companies where Agile Methodologies are used for software development.

Another way to leverage expert judgment is through "bottom up estimation" techniques. In this technique, an expert will break down the project in small tasks, and will estimate the effort required to complete each task. Usually Gantt charts are used with this method to give visual representation to the project planning data.

Where it should be used

This technique should be used for projects where historical data is unavailable and at least some part of the project team is already onboard. It is time consuming but gives more accurate results than any other technique and should be used for projects with high complexity and risk.

Where it shouldn’t be used:

Expert judgment shouldn’t be used for low risk projects with available historical data of similar projects. It also requires a level of scrutiny, which means someone will have to review and approve the estimates to ensure that they make sense.

2. Analogous estimation technique

This technique is a gross value estimation technique and is used in cases where we have historical data available from our previous similar projects. With this technique, we estimate a project’s duration, size and complexity by looking at the similarities with the past projects and adjusting (usually a percentage of the total) for known differences, wherever required. This project estimation technique is useful for high-level estimates, and is a natural choice for teams that have worked together in the past, and who are aware of each individual's strengths and weaknesses.

Where it should be used

This technique should be used for projects with clear and static requirements, as opposed to open-ended R&D work. This technique is fast and lower-effort, but also less accurate and is dependent on the availability of useful historic data from similar projects. The analogous estimation technique should be only used for giving a ballpark figure for a project and must be used in conjunction with other techniques to ensure that we don’t underestimate the work required. By anchoring your estimates based off of previous projects, it's often the case that team members will underestimate the nuances and complexity of the new project.

Where it shouldn’t be used:

This technique shouldn’t be used for projects with unclear or changing requirements or in cases where historical data is unavailable. It doesn’t work well for projects which require extensive research, and high complexity, since as previously mentioned, there's a natural tendency to underestimate project scopes with this technique.

3. Three-point Estimation Techniques

In all of the previous estimation techniques, usually the work is considered to happen in optimistic scenarios, which is sometimes accounted for by adding an additional buffer time, or padding your estimates. Three-point estimation techniques strive to improve the overall accuracy of your estimates by averaging your estimates over 3 different scenarios:

  • (O)ptimistic: the time required to get the work done in the best-case scenario.
  • (P)essimistic: the time required to get the work done in the worst-case scenario
  • (M)ost Likely: the time required to get the work done in real scenario, depending upon the person completing the work, their skillset, availability and productivity, possibility of interruptions and dependency on other tasks and team members.

To arrive at the final estimate, we then average the estimates using the formula (O + M + P)/3.

A more evolved form of three-point estimate is known as PERT (Program Evaluation and Review Technique), which uses a weighted average to calculate the expected time for the project, with the formula (O + 4M + P)/6. This biases your estimate to weight more heavily what you believe is the most likely estimate.

Where it should be used:

This technique is best used in high risk projects with more uncertainty, since if there are a wide range of estimates, you'll end up taking a weighted average, which accounts for various types of outcomes.

Where it shouldn’t be used:

Three point estimation techniques need not be used in scenarios where the team has well-defined specifications, and where there's little risk of unknowns popping up. In that case, both expert judgment and analogous estimation techniques will suit your project well.

Ready, set, estimate!

We've discussed a few project estimation techniques that you can begin implementing with your team right away. Whenever you make project estimates, it's always a good idea to get the estimates reviewed with the team, regardless of which estimation techniques you use. Using standard templates/formats can also help in creating better estimates, and there are plenty of project management software systems that can make this process more collaborative and seamless in nature. Listing down assumptions and planning for risk can also aid in minimizing gaps between your project estimations, and your actual deliverables.

Bruce Hogan

Bruce Hogan is Co-founder & CEO of SoftwarePundit. He leads the team's research and publishes content about software products and trends. Bruce has experience investing at multi-billion dollar private equity firms, leading teams at venture-backed technology companies, and launching new businesses. You can connect with Bruce on LinkedIn.

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