Today, we will discuss the cost and schedule estimation technique called analogous estimation.
Project managers often need to make a project cost or duration prediction with limited information
For example, the management needs an initial budget to perform a cost-benefit analysis for a feasibility study. There is no detailed project scope available. However, you have completed similar projects in the past.
To calculate the budget, you will use an analogous estimation technique.
This method is useful when you have only high-level information, and you need a quick estimation to provide to the management or client.
Now let’s discuss it.
This is a quantitative technique to estimate effort, duration, or cost numerically.
Analogous estimation is for a rough estimation and using little project information. The accuracy of this prediction depends on your experience and your current project’s similarity with the past one.
The estimation from this technique is a rough order of magnitude, and the accuracy is between -25 to +75%
Analogous estimation is also known as a top-down estimation because the overall project is predicted first. Individual tasks are then apportioned by taking into account the judgment of experienced experts.
This technique is less accurate because it relies on judgment, but estimations can be done quickly. When details are not available this is the best way to proceed.
Examples of Analogous Estimation
Your organization has a project to develop Graphical User Interface software for a community bus transit website. You have completed a similar project and it took two months with a cost of 20,000 USD.
However, the current project doesn’t need sophisticated websites, and the traffic is low compared to the current project, so they might not need high-end servers. Based on this data, expert estimators can come to a single-point estimate of 17,000 USD as an example.
Different Analogous Estimation Techniques
- In this technique, the cost of a project is linear to one or more basic features of its deliverable. For example, the estimated cost of a construction project is twice the material and equipment cost.
- Analogous estimates are not accurate. So, the estimator should provide the most likely value and the full range of all possible values to increase the probability of capturing the project’s final cost.
- This technique is primarily used in Adaptive/Agile projects as there is low visibility in the initial stages.
- For example, a project team offers the following ranges for the costs of a new graphic interface: three to eight resource months and 150,000 USD to 320,000 USD.
The Program Evaluation and Review Technique (PERT)
- This is a sophisticated form of the range estimation technique. Three separate values for the project’s cost (or duration) or the cost of individual elements of the project are averaged: optimistic, pessimistic, and most likely.
- PERT analysis uses a statistical probability outcome to calculate an expected proposed value based on a weighted average of the three values. The most likely data is weighted by four times its value to reinforce its significance. The PERT formula is E = (O + 4ML + P)/6, which results in a beta distribution formula.
Inputs to Analogous Estimation Technique
- Before using the analogous estimation approach, it’s wise to validate the quality of the information gathered. If the new project estimation relies on historical data, verify that it meets project culture and situation to remove any ambiguity or assumptions.
- All estimations should be based on the success criteria and definition of done. These two factors play a key role in ensuring actual work is meeting the planned work.
- Estimators are experienced, subject matter experts.
- Each individual knows their capabilities and should take ownership of their work, so their estimates will be accurate.
Enterprise Environmental Factors and Organizational Process Assets
- Enterprise environmental factors influence the quality and accuracy of an estimate.
- Organizational process assets, such as estimating tools, techniques, procedures, or models, should be identified when they are used.
Independent Project Estimates
- Independent project estimates by an independent party are required in some industries and in highly regulated environments.
- Independent estimates can differ from project team estimates. Normalization should be applied to both.
Outputs of Analogous Estimation Technique
- Estimates for activity duration, activity resources, and costs are the key outputs. The output is a prediction of the project outcome, not definitive values.
Basis of Estimates
- This supporting documentation shows how the estimation is derived. They show the level of detail and provide a clear and complete understanding. This can include assumptions made, factors or units used, and comparative information. Identification of risks and items on the assumption log should also be in this documentation.
Normalized Historical Data
- The normalizing factors to be considered include project completion, project execution location, changes in productivity metrics, quality metrics, final specific product characteristics, etc.
- A good estimation process should include historical lessons learned.
Advantages of Analogous Estimation Technique
- Requires minimal project details, is faster, easier, and less expensive.
- Useful when cost estimates are needed in the very early phases of a project.
- Allows you to focus on system-level activities like integration, documentation, configuration management. System-level activities are often ignored by estimating methods.
- Greater commitment and support from senior management.
- Effective features like cost-time trade-off capability, providing a global view of the project.
Disadvantages of Analogous Estimation Technique
- Sometimes provides false estimation due to limited information.
- Inappropriate historical examples could be used.
- Can overlook low-level components and often does not identify difficult low-level problems.
- Does not provide any detailed basis for justifying decisions or estimates.
Analogous estimation is a useful technique to predict project cost estimation quickly when limited information is available. Although the result is not the most accurate, it provides a reason for management to go ahead with a cost-benefit or feasibility analysis.
Once management approves, you can use other estimation techniques and find an accurate estimate.
Please note that, if you are preparing for the PMP certification exam, this is an important topic and you may see a few questions in the exam from this analogous estimation technique.
Has analogous estimation helped you with your projects? Please share through the comments section.