3-Point Estimating – How to Improve Projects
31 July 2009
Topics: project management, PERT, 3-point estimating, cost, schedule
Estimating the time or the cost to complete tasks is a problem common to many businesses. Engineers and other professionals with strong technical training often are called upon to make detailed estimates. The design, specification, fabrication, purchase, and selling of most supplies and services requires good estimates.
Typical Discussion on Schedule and Cost
Haven’t you heard this conversation before? Jim phones a coworker, “Susan, I need an estimate when you will complete the Harrison job. Can you get me an estimate by this afternoon?”
Susan cringes. She is busy with other work. She has been through this routine before. “Well, it could take as much as a month or more.”
“That seems like a long time.” Jim responds.
“Well, lots of things could go wrong, and that’s my conservative estimate.” she adds.
Jim rejoins, “I don’t want your padded estimate. I just want your best shot at how long it will take.”
Susan answers, “Well, the earliest we could finish the job is two weeks. And that could only happen if everything falls in line perfectly and I get a lot of help from Alice and Rob.”
Jim replies, “You’d better not count on everything working out perfectly. And you’re a better judge than me to know if Alice and Rob will be available.”
Susan is feeling overwhelmed and wanting to get back to what she was working on before Jim called. She adjusts the result and gives Jim an estimate of four weeks. Jim is not happy with this, and he begins pressuring Susan to reduce her estimate. They dicker, and reluctantly Susan agrees to 3 weeks.
Later, when Jim attempts to nail down the project cost, a similar discussion ensues. Jim and his client want the estimate to be as low as possible. On the other hand, the people doing the work—like Susan—want an estimate that contains as much flexibility as possible.
What is a project manager to do?
PERT
The US Navy faced similar, but greatly more complex, questions in the late 1950s when developing the Polaris missile. As part of this program, in 1957 the Navy established a Special Projects Office under the direction of Admiral W. F. Raborn. Raborn saw the need for an integrated planning and control system to improve project scheduling and cost estimating. He authorized the development of a Program Evaluation Research Task.
By early 1958 the Navy, their contractor Lockheed, and the consulting firm Booz-Allen & Hamilton began developing a method they called the Program Evaluation and Review Technique (PERT). Willard Fazar and D. G. Malcolm played key roles.
The technique used 3-point estimates to overcome the limitations of single point estimates for cost and schedule. The three PERT estimates included optimistic, pessimistic, and most likely views of the time and cost to complete each task. Using computers, the team then calculated the time to complete immensely complex series of tasks. This provided the probability of completing projects on time and at various cost levels.
In my own work I have been able to apply the PERT 3-point estimating methodology to improve the quality of estimates. This approach helped a project team improve the speed and ease of making estimates. Most important, the method provided management with more confidence around the accuracy and precision of the team’s cost and schedule estimates.
3-Point Estimating Method
The method—called the 3-point estimating method—consists of making individual estimates of the best, worst, and most likely cost or time required for the many small tasks that comprise a complete project.
The technique works equally well to quantify capital and schedules.
Project managers can further enhance their estimates by using a panel of experts to make various independent 3‑point estimates for the small tasks and then compile those estimates. This improves objectivity.
Theory and Calculations
The power of the 3-point estimating method becomes even more apparent when we make a few reasonable assumptions. These include:
- The estimates for the small tasks are statistically independent.
- Worst task estimates, A, and the best estimates, B, lie approximately 3 sigma from the mean.
- The most likely estimates, M, represent the mode (the most often encountered value).
- The overall estimate (the critical path for schedule and the overall cost for cost estimating) is the sum of the expected values for the many tasks; and in like fashion, the overall variance is the sum of the task variances.
- The aggregation of the many small task estimates is normally distributed—this is an application of the central limit theorem, which teaches that many random measurements of the tasks yields an overall project result that is normally distributed.
With these assumptions, we can calculate such useful information as the expected value (or mean), the standard deviation, and confidence limits with the following formulas:
- Expected value = Mean = μ= (A + 4M + B)/6
- Standard deviation = Sigma = σ = (B-A)/6
- Upper 95% confidence limit is the Mean + 2 Sigma = μ + 2σ
- Lower 95% confidence limit is the Mean – 2 Sigma = μ - 2σ
The mean +/- 1 sigma embraces 68% of the possibilities. This is approximately 2/3s, and it is for this reason that the mode, M, is weighted at 4/6 as reflected in the formula for calculating the expected value.
The mean +/- 2 sigma embraces 95% of the possibilities; thus yielding the upper and lower confidence limits.
Conclusion
In summary, the 3-point estimating method provides a project manager with a powerful tool for enhancing the quality of cost and schedule estimates. The technique offers:
- More accurate and precise results
- Speed and ease of preparation
- Confidence to estimators, clients, and management
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