Analogous estimating is a top-down estimation technique for estimating the cost, resources and durations of projects (according to PMBOK®,
6th edition, ch. 6.4.2, 7.2.2, 9.2.2). While it is less accurate than other methods, it can be used to produce an order of magnitude or an initial estimate. Therefore, it is a common technique during the selection or initiation of projects. In this article, we will give an overview of this technique, its definition, typical
uses as well as examples of analogous estimating in project management. Analogous estimating is an estimation technique is also referred to as top-down estimating. It involves leveraging the estimators’ experience or historical data from previous projects by adopting observed cost, duration or resource needs to a current project or portions of a project. Analogous estimating does not require data manipulation or
statistical adjustments. This technique is useful if you need to produce estimates without having plenty of information available. This may be the case during project selection or initiation phases, when overseeing a bunch of projects at the portfolio-level (source: PMI Practice Standard for Project Estimating),
or in the early stages of a project. Estimations can relate to a whole project or parts of a project, such as work packages or activities. The PMI project management framework lists analogous estimating under the techniques of the processes
estimate costs, estimate activity durations and estimate activity resources
(PMBOK®, 6th edition, ch. 6.4.2, 7.2.2, 9.2.2). Analogous estimating is typically used to get 4 types of estimates: This term refers to an estimation result that consists of a single absolute value. For instance, if the cost of a previous project used to be $100,000 and it is estimated
that a new, similar project requires a similar budget, the analogous estimate would be $100,000, an absolute value. What Is a Ratio Estimate?A ratio estimate describes the relative application of historical data or experience to a current project. One form is estimating by applying a factor to observed historical values. Estimators might expect, for instance, that the current project will require 125% of the time of the previous project. Another use is the estimation of a breakdown or parts of the full project cost. Based on historical data, a company may conclude that the expenses for user acceptance tests typically amount to 25% of the total cost of an IT project, for instance. This approach assumes a linear relationship between different aspects of a project. It is not dissimilar from a basic implementation of a parametric estimation. Yet it tends to be rather expert judgment-based and lack the statistical evidence. What Is an Estimate Range?A range estimate comprises of a range of possible values, rather than a single number. It is however often accompanied by a most likely estimate. A common form of range estimates is the three-point estimation (which is sometimes referred to as a type of estimate on its own). Chart showing a range estimate determined through analogous estimating based on historical data (click to enlarge the image).What Is a Three-Point Estimate?Three-point estimating requires the project manager or the team to come up with three different estimates:
These values are then transformed into a final estimate using the triangular or the PERT distribution. Read our detailed guide for more details. What Is the Difference between Parametric and Analogous Estimating?Parametric estimating uses historical data in a different way than analogous estimating. It requires calculations and adjustments to account for the characteristics of the current project. This is typically done using a statistical approach. It involves identifying parameters in historical data that correlate with cost, duration or resource-related values of a project. Inserting the parameters of the current project will then lead to the estimates for the current endeavor. The implementation of this technique varies greatly among organizations – it generally ranges from a simple ‘rule of three’ calculation to complex statistical models and algorithms. Analogous estimating, on the other hand, does not usually involve an adjustment of data. It also does not require statistical evidence of assumed relationships. Instead, it relies more on expert judgment. All in all, parametric estimating tends to produce more accurate results thanks to its statistical and data-driven approach. Analogous estimating, on the other hand, requires fewer data and fewer resources and can therefore be used when only a little information is known. How Do You Apply Analogous Estimating?Analogous estimating usually involves the following steps:
Read this step-by-step instruction for more details and guidance. Advantages and Disadvantages of Analogous EstimatingLike any other approach to estimating cost, schedule or resources, the analogous estimation technique comes with a number of advantages and disadvantages. Pros
Cons
What Are the Typical Uses of Analogous Estimating in Project Management?Analogous estimates are used by project managers of almost all kinds of projects. Its application is often dependent on the project’s phase and the availability of data rather than the subject matter of a project or activity. Within the lifecycle of a project, analogous estimates are particularly common in the project selection or initiation phases (source). However, the assumptions for the cost-benefit analysis of change processes or less significant parts of a project could also be estimated using this method. This technique can also be applied to any level of granularity within the work breakdown structure. However, it is particularly common to estimate entire projects or larger portions of a project in an early planning stage. You may consider applying the analogous estimation technique in cases where
In practice, project managers tend to rely on analogous estimating mainly in situations where only limited resources or little input information are available. Producing rough results that are ‘good enough’ for a phase or a part of a project is another typical use case. Another example is program management (source: PMI Practice Standard for Project Estimating): For the high-level management of a portfolio of projects, rough estimates are often sufficient to produce data as a basis for strategic decisions. When projects have been running for some time, such estimates are usually refined or replaced based on more accurate types of estimates (e.g. bottom-up or parametric estimates). Read on for an example of how the different types of analogous estimating can be used in practice. Example of Analogous Estimating in ProjectsIn this example, the different types of the analogous estimation technique are applied to the following situation: An IT vendor is asked by a prospective customer to estimate the implementation cost of off-the-shelf software. The vendor has done similar types of jobs a couple of times before and stored the key indicators of past projects in a dedicated database. The database shows the following data for a long list of comparable projects:
In order to determine an analogous estimate, the estimators compare the characteristics of the upcoming project with those of the 6 previous projects for which they obtained the historical cost and duration values. One-Point EstimateThe team applies some expert judgment and concludes that the characteristics of the current project are similar to Project E. There is actually an overlap in terms of scope, complexity and availability of resources. Subsequently, they are using the observed cost and duration of that project as their analogous estimate (E): E_cost = $120,000 E_duration = 60 days Range of Estimates and three-point estimateIf the estimators are not able to find an exact match in their historical data, they tend to prefer estimating a range instead of a single value. In this case, they exclude project C as they consider it an outlier in terms of scope (narrower than the current scope) and cost (low). Their estimates are: E_cost_min = $100,000 E_cost_max = $200,000 E_duration_min = 40 days E_duration_min = 70 days The estimators communicate this range. However, as this range is quite broad, the stakeholders ask the estimators to come up with a ‘most likely’ estimate. The team then uses the above-mentioned one-point estimate (based on identical considerations) as the ‘most likely’ estimate: E_cost_mostlikely = $120,000 E_duration_mostlikely = 60 For a three-point estimate that can be further processed in a triangular or PERT distribution, the team uses the minimum and maximum estimates as the optimistic and pessimistic points, respectively. Ratio EstimateThe estimators could also determine a ratio estimate. For instance, if they expected the current project to incur 30% higher cost and take 20% more time than Project A, their estimates would be: E_cost = $100,000 x 1.3 = $130,000 E_duration = 40 days x 1.2 = 48 days For some projects, a breakdown into different parts of a project may be required. According to the team’s experience, project efforts and time are usually distributed as follows:
Applied to their previous estimate, their numbers are as follows:
Uses of these Analogous EstimatesDepending on the confidence of the estimators, these estimates may or may not be deemed good enough to quote a price for their customer’s project. In any case, the team will probably share the range (cost of 100 to 200 and a duration of 40 to 70 days) as an order of magnitude. At the same time, they might want to request further details from their prospective client, such as a list of requirements or areas that need to be customized. This feedback can then be used to produce more accurate estimates. For their internal communication, e.g. with their account management team, the estimators may want to use the ‘most likely’ or the ratio estimates. These numbers can help obtain a decision of whether the vendor is willing and able to pursue this opportunity. They may also rely on the breakdown (ratio estimate) to check the availability of resources, e.g. whether the customizing experts required for this project would be available for 24 days. If analogous estimating is used in internal projects of an organization, the ratio estimate can also be useful to calculate resource requirements in the early stages of a project and to determine to which extent departments or entities are affected by a project. In any case, these analogous estimates are still quite rough, so an organization will likely want to replace them with more accurate figures over the course of a project. ConclusionAlthough the analogous or top-down estimation technique is often rough and high-level, it is very relevant in practice. Where not much information is available (yet) or an order of magnitude is needed rather than a definitive estimate, analogous estimating can be the method of choice. Nevertheless, if you need more accurate numbers, you should consider using other estimation techniques. You will find an overview of the different methods in this article on cost estimation and this article on duration estimation. What is the difference between analogous estimating and parametric estimating?Analogous estimating is basically comparing one project to another similar in size and complexity at high level and is used when there is limited information available. Parametric estimating is based on unit rates per activity. It is much more accurate than analogous estimating when there is data available.
Which cost estimating technique costs the least and saves the most time?Analogous Estimation
The technique is less costly and less time-consuming. But the accuracy of this estimation is lower than the other estimation techniques as it is purely based on historical data.
What is the prime advantage of using a parametric estimating method?One benefit of parametric estimating is its accuracy. Credible estimates often incorporate years of historical data to arrive at the best answer. As project managers complete projects and compile more data, they can improve the accuracy of their estimates as well. Established models can be easy to reuse and improve.
What is the disadvantage of the estimation by analogy technique?Disadvantages of analogous estimating
Because it functions at a basic level, analogous estimating is not as accurate as other project estimation techniques. When using analogous estimation, project managers assume that various factors of a similar past project will remain the same for the current project.
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