Table of Contents Hide
- What Is Analogous Estimating?
- How Do You Use Analogous Estimating?
- When Does Analogous Estimating Come Into Play in Project Management?
- The Benefits of Analogous Estimating Technique
- Disadvantages of Analogous Estimating Technique
- Applications of Analogous Estimates
- What is the Distinction Between Analogous and Parametric Estimating?
- Analogous Estimating FAQs
- How accurate is analogous estimating?
- Why is analogous estimating less accurate?
- Which type of estimating approach is the most accurate?
Estimating the cost and duration of a project is important to its success. By comparing them to previously known data, project managers can predict project expenses. Analogous estimating is one estimation technique that might help you have project management success. In this post, we will define analogous estimating, discuss its applications, pros, and downsides, and present an example.
What Is Analogous Estimating?
Analogous estimating is a type of estimation approach that is also known as top-down estimating. It entails applying observed cost, time, or resource needs to a current project or portions of a project based on the estimators’ experience or historical data from previous projects. Analogous estimating does not necessitate the manipulation of data or statistical modifications.
This method is handy when you need to generate estimates but don’t have a lot of information. This could be the case during the project selection or commencement phases when overseeing a portfolio of projects, or in the early stages of a project. Estimates might be for the entire project or for specific portions of the project, such as work packages or activities.
What Is an Estimate Range?
A range estimate, as opposed to a single figure, is made up of a range of possible values. However, it is frequently accompanied by a most likely estimate. The three-point estimation is a frequent sort of range estimate (which is sometimes referred to as a type of estimate on its own).
What Is a Three-Point Estimate?
Three-point estimating necessitates the project manager or team to develop three distinct estimates:
- optimistic prediction
- a negative forecast, and
- most likely guess
The triangular or PERT distribution is then used to turn these values into a final estimate.
How Do You Use Analogous Estimating?
Analogous estimating typically consists of the following steps:
- Make a list of projects that are comparable (you can start with a longlist first and refine it later).
- Obtaining historical costs, durations, and/or resource requirements, as well as supplementary information on the characteristics of previous projects, such as scope, activities, complexity, environmental considerations, and so on.
- Refining the longlist by deleting earlier initiatives that are no longer considered relevant. As a consequence, a list of projects that are comparable to the current one is created.
- Choosing the appropriate sort of estimate based on the needs of the stakeholders, the availability of data, and the estimators’ confidence. The definitions of the various outcome types of analogous estimating can be found in the first section of this article.
- Choose or compute an estimate based on past data.
When Does Analogous Estimating Come Into Play in Project Management?
Here are a few applications of the analogous estimating technique in project management to help you understand when and how to utilize it:
#1. During the project’s early phases
Analogous estimating is one of the most effective methods for assigning an initial value to a project and its components. At this stage of the project, you can utilize analogous estimating to decide whether the project is viable or whether to put a bid on it. You can fine-tune your estimations as the project advances.
#2. When you just have a limited number of estimating resources
If you have little to no previous data to make a precise comparison but need to develop an estimate to decide whether to undertake a project, you might use analogous estimating.
#3. When there is limited project detail available
If you don’t have many details or don’t have access to the present project’s information, utilize analogous estimation to calculate the cost and duration.
#4. When you merely require a preliminary estimate
When a company bids on a project, all they require is a rough estimate of its cost and time. An analogous estimation could be the most resourceful solution.
#5. When you require skilled advice
If a project manager has the experience and information to develop an analogous estimation based on their involvement in similar former projects, they may use comparison.
The Benefits of Analogous Estimating Technique
The following are some of the benefits of using an analogous estimating technique as a project management tool:
- It saves you time. The time of top- and middle-level management is valuable, and our estimation tool may rapidly give them a basic estimate using the fewest parameters.
- It helps you save money. If cost is a consideration, analogous estimating is a viable alternative because it involves less documentation and few processes.
- While analogous estimating is most useful at the early stages of project planning, you can use it to fine-tune your estimation at any time during the project.
- It is useful when there is a lack of historical data for a project.
- It involves few resources and is simple to carry out.
Disadvantages of Analogous Estimating Technique
The following are a few disadvantages of the analogous estimating technique in project management:
- Analogous estimating is less precise than other project estimation methodologies since it operates at a fundamental level.
- When project managers use analogous estimation, they presume that numerous factors from a similar previous project will remain the same for the present project. Because variables like resources and inflation rates fluctuate on a regular basis, the figures managers use in their estimation may be inaccurate.
- Analogous estimating is more appropriate for the initial planning stages of a project than for the execution stages.
What Are the Most Common Applications of Analogous Estimating Technique in Project Management?
Project managers of practically all types of projects employ analogous estimations. Its use is frequently determined by the project’s phase and the availability of data, rather than the subject matter of a project or activity.
Analogous estimations are most popular in the project selection or start phases of a project’s lifespan (source). However, this method might also be used to estimate the assumptions for a cost-benefit analysis of change processes or less critical aspects of a project.
One can apply this technique to any granularity level within the job breakdown structure. However, it is especially typical in the early planning stages to estimate entire projects or major segments of a project.
You should think about using the analogous estimating technique in situations where
- Estimating resources is limited.
- There aren’t many details regarding the project (or analogous projects) that are known, or
- A rough estimate is adequate for the purpose.
In practice, project managers typically rely on analogous estimating when resources are restricted or input information is limited. Another common use case is producing ‘good enough results for a phase or section of a project.
Program management is another example: Rough estimations are frequently sufficient for producing data as a foundation for strategic decisions in the high-level management of a portfolio of projects.
After a project has been running for a while, such estimates are frequently modified or replaced with more accurate sorts of projections (e.g. bottom-up or parametric estimates).
Analogous Estimating in Projects: An Example
In this example, the several types of analogous estimating techniques are used to solve the following problem:
A prospective customer requests that an IT provider estimate the cost of implementing off-the-shelf software. The provider has completed similar jobs in the past and has saved crucial indications from previous projects in a dedicated database. For a long list of comparable projects, the database displays the following information:
|Historical project data||Cost (in $1,000)||Duration (in days)|
To arrive at an analogous estimate, the estimators compare the forthcoming project’s attributes to those of the six past projects for which they received historical cost and duration numbers.
Estimation in One Point
The team utilizes expert judgment and decides that the current project’s characteristics are comparable to Project E’s. There is actually some overlap in terms of extent, complexity, and resource availability. As a result, they are basing their analogous estimate (E) on the observed cost and duration of that project:
- $120,000 for E cost
- E duration is set to 60 days.
- Estimated range and three-point estimate
If the estimators cannot identify an exact match in their previous data, they prefer estimating a range rather than a single value.
They exclude project C in this scenario because it is an outlier in terms of scope (narrower than the present scope) and cost (low). Their estimates are as follows:
- E minimum cost = $100,000
- The E max cost = $200,000
- E minimum duration days = 40 days
- E minimum duration days = 70 days
This range is communicated by the estimators. However, because this range is so vast, the stakeholders request that the estimators provide a ‘most likely’ estimate. The team then uses the one-point estimate indicated above (based on identical reasons) as the ‘most likely’ estimate:
- E most likely cost = $120,000
- E most likely duration = 60
The team uses the minimum and maximum estimations as to the optimistic and pessimistic points for a three-point estimate that can be further processed in a triangular or PERT distribution.
A ratio estimate might also be determined by the estimators. For example, if they projected the present project to cost 30% more and take 20% longer than Project A, their estimations would be:
- E cost = $100,000 multiplied by 1.3 = $130,000
- E duration = 40 days multiplied by 1.2 equals 48 days.
A project breakdown into multiple segments may be required for some projects. Project efforts and time are typically distributed as follows, based on the team’s experience:
- 10% for project management
- 10% for installation
- 50 percent customization
- 10% for documentation
- 20 percent for testing and quality assurance
Their figures, when applied to their earlier estimate, are as follows:
|Typical share||Cost estimate||Time estimate|
|Testing and quality assurance||20%||24||9.6|
Applications of Analogous Estimates
Depending on the estimators’ confidence, these estimates may or may not be considered good enough to quote a price for their customer’s project.
In any scenario, the team will most likely share the range (100 to 200 dollars and 40 to 70 days) as an order of magnitude. At the same time, they may wish to request further information from their prospective client, such as a list of criteria or areas that require customization. This feedback can then be utilized to generate more precise estimates.
The estimators may want to use the ‘most likely’ or ratio estimations for internal communication, such as with their account management team. These figures can assist in determining whether the seller is willing and able to pursue this possibility. They may also rely on the breakdown (ratio estimate) to determine resource availability, such as if the customization specialists needed for this project are accessible for 24 days.
If analogous estimating is utilized in an organization’s internal projects, the ratio estimate can also be beneficial to quantify resource requirements in the early stages of a project and to determine the extent to which departments or entities are affected by a project.
In any case, these analogous estimates are still extremely approximate, so an organization would most likely wish to update them with more exact figures as a project progresses.
What is the Distinction Between Analogous and Parametric Estimating?
Parametric estimating is another, more accurate approach to estimating a project’s variables and parameters. A statistical method to project cost and duration analysis that employs an algorithm or a formula is known as a metric estimation. So, it takes the relationship between variables and converts it to a unit cost. The estimation of metrics is based on historical data from:
- Previous initiatives within the organization
- Identical projects from comparable organizations
- Publications in the industry
Project managers can alter the parametric variables to adapt to the current project in the same way that analogous estimations can.
When comparing the two widely used methods, analogous estimation:
- Because it does not require thorough statistical analysis, it is less time-consuming and less expensive.
- Its best suited at the beginning of a project, when project managers have little data accessible.
- It is less precise in comparison.
- Expert judgment is required to draw inferences based on limited historical evidence.
- Significantly less documentation is required.
Parametric estimation, on the other hand:
- Because it involves formulas and algorithms, it is more expensive and time-consuming.
- Extensive data is required.
- Is a more precise method of project estimation
- It is dependent on meticulous calculations based on statistical models.
- A multivariate analysis is required.
Although analogous or top-down estimation is frequently rough and high-level, it is very useful in practice. Analogous estimating can be used when there isn’t a lot of information (yet) or when an order of magnitude is needed rather than a precise estimate.
However, if you require more precise numbers, you might explore using different estimating approaches.
Analogous Estimating FAQs
How accurate is analogous estimating?
Analogous is a top-down approach that is less accurate than parametric. Analogous estimating employs the concept of “analogy,” or comparing a previous similar project to your current project. When the underlying data is scalable, the metric is more accurate.
Why is analogous estimating less accurate?
Analogous estimating is the process of leveraging the figures (cost, resources, and duration) from a previous project to develop a “generic” estimate for a new project. As a result, the speed with which the estimate is obtained is achieved at the expense of accuracy.
Which type of estimating approach is the most accurate?
Bottom-up estimating is sometimes known as the “definitive technique.” Although this is the most precise cost estimation tool, it takes time and resources. In this section, you will calculate the cost of each individual action in great detail and then add them all up to calculate the entire project cost.