Definitive Estimates (also known as Detailed Estimates) are in the accuracy range of -5% to +10% so if you’ve done a Detailed Estimate at $100,000, it should not cost more than $110,000 (+10%)
Estimation Techniques include:
- Parametric Estimating
- Bottom-up estimating
- PERT
- Analagous Estimating (Top-down Estimating)
- Three-point Estimating
If you need a high level cost estimate (Rough Order of Magnitude) then use an accuracy range of -25% to +75%.
Activity Durations should be estimated by the person or group most familiar with the nature of the work.
Estimation Techniques Described
Parametric Estimating is used for quantitative estimates, such as dollars per square foot of tile. It is not a technique for all activities because not all costs can be estimated quantitatively. It combines historical data and square foot of tile (or whatever the variable is) to come up with the Parametric Estimate.
Bottom-up Estimating is used when you have significant detail about activities. A detailed assessment of the resources, capabilities, and dollar amounts are used to determine accurate duration and/or cost estimates. This is the most accurate estimation technique, but it also takes more time and money to perform.
Top-down Estimating (Analogous Estimating) can be used to validate the results of Bottom-up Estimating. Top-own estimates are less accurate than Bottom-up. They are fast and less costly than Bottom-up Estimates.
Analogous Estimating is generally less costly and less accurate than other estimating techniques. It is a tool and technique that helps you to estimate durations, costs, and activity resources.
PERT – Estimates Activity Durations based on probability.
Three-point Estimating, handles uncertainty by calculating optimistic (best outcome, O), most likely (ML), and pessimistic (worst case, P). The most likely estimate is weighted most heavily since probability is the highest for that outcome. Three-point estimating takes risk into consideration.
(O + 4ML + P) / 6 is the formula for the Beta Distribution Three-point Estimate.
(O + M + P) / 3 is the formula for the Simple Three-point Estimate.