Basic estimation techniques

Abstract

When managing a project, a manager has to achieve specific objects within time, resources and money. This can often be challenging, as there is a lot of uncertainty in doing so. "How can the amount of time for each activity be calculated"? "How many resources are needed to complete every task"? "And how much will the project cost in the end"? This article deals with answering all these questions and focuses on how to come up with educated guesses to these uncertainties.

In the first section, a definition of what an estimation is will be given. A variety of standard tools used in the estimation process will then be presented. Some of these tools and techniques are more complex than others and will therefore require a more detailed explanation. For every presented technique, advantages and disadvantages, as well as examples on how to apply these, will be given in order to give the reader an understanding of how the methods works and what they can be used for.

Lastly, the challenges and limitations of using these tools will be discussed, as these can variate in accuracy depending on the size and the type of the projects. The involved risks when estimating will also be covered here.

Definition and techniques for estimating

Model of estimation process

The process of estimating is a common practice within Project Management of predicting a specific value that is not known with a relative accuracy. An estimation can serve different purposes, for example give an indication of the duration for a specific activity, or the amount of resources that must be assigned to a task in order to be completed in time. Figure 1 shows a model for the estimation process.

Estimations are based on different inputs. These can be components from the project management plan as the scope baseline or the schedule plan; project documents as list of activities, assumptions log, resource requirements, register for learned lessons; enterprise environmental factors as market conditions, organizational culture, resource availability; and organizational process assets as policies, scheduling methods and historical data from similar projects. The result of the estimation process, the output, are the calculated estimate and the detailed documentation that supports the approximation. Furthermore, as a result of carrying out the estimation process, some project documents may also be updated.

There exist different estimation techniques. It is important to mention that these techniques are not only limited to the planning phase but can be used throughout the whole project. This chapter will describe some of the most used techniques in managing projects and give examples of their application.

Expert judgment

This technique is quite simple and consists in obtaining the judgment of a group or a person with specialized education, knowledge, skill, experience, or training, in the subject that has to be estimated. The expertise can either be provided in the corporation, or externally, for example by turning to a professional consulting agency. An example of carrying this method out, could be having a group of experts to estimate how much the cost for a specific construction material will fluctuate in the next five years. The group will have an open discussion and will eventually at the end agree on what they believe to be the most valid prediction. The problem with doing so, is that there could be a tendency to be persuaded by the majority opinion or the members with the greatest authority on the matter.

A well-known method to overcome these issues, is the Delphi method. According to Helmer (1967), the purpose of this method is to obtain the most reliable consensus of opinion from a panel of selected experts, by questioning them individually around a central subject in a series of rounds, without having the experts confronting each other directly. After every iteration, a host presents the given answers to the group anonymously, thus encouraging the experts to revise their judgement, based on factors other have brought up and that they maybe did not have in consideration during the previuos iteration. At the end of the process the answers are expected to converge towards a more reliable and unbiased estimate for the object of interest.

Critique on using estimates

One conundrum in estimating, especially for public-sector projects, is that bidders sometimes make overly optimistic estimates in order to win the business.