What are the benefits of using past project estimates and actuals to create a new project estimate?

Without accurate estimates, it’s impossible to plan your project. If you don’t have an idea of how long the project will take or what resources you will need, there is no way to ensure you’ll have the right people, materials, or tools available when you need them. There are six key areas of a project: Cost, Time, Scope, Risk, Resources and Quality, that benefit from the use of project estimation methods.

Estimation Methods

Here are six common Estimation Methods in Project Management:

• Top-down Estimate - A top-down estimating technique assigns an overall time for the project and then breaks it down into discrete phases, work, and tasks usually based on your project’s work breakdown structure (WBS). For example, if a client tells you the project has to be done within eight months, a top-down approach allows you to take that overall timeline and estimate how much time you can take for each activity within the project to complete it on time.
•  Bottom-up Estimate - A bottom-up estimate is a reverse of top-down. Using this estimation technique, you start by estimating each task or aspect of the project. Then you combine all those separate estimates to build up the overall project estimate. Since each activity is being assessed individually, this type of estimate tends to be more accurate than the top-down approach. But it also takes more time.
•  Expert Judgment - Expert judgment is one of the most popular estimation techniques, as it tends to be quick and easy. This technique involves relying on the experience and gut feel of experts to estimate projects. It’s most useful when you’re planning a standard project that is similar to the ones your team has completed before. Expert judgment can be used for creating top-down or bottom-up estimates.
•  Analogous Estimation - Analogous estimation uses past project data combined with a top-down approach to estimate project duration.
•  Parametric Estimation - Parametric modelling also uses past project data, but it attempts to adjust the data to reflect each project's differences. This technique takes the details of past projects and processes them to estimate the current project. For example, if you are painting a wall and you know the per square meter painting cost then you can easily calculate the painting cost of a 100 square feet wall.
•  Three-point Estimating - Three-point estimating is a technique sometimes used for creating bottom-up estimates. Rather than assuming one duration for a task, you may assign three: optimistic, pessimistic, and most likely. These three numbers are averaged to create your actual estimate. The PERT (Program Evaluation and Review Technique) method uses three-point estimating, but it takes a weighted average of the three points, with the ‘most likely’ guess carrying more weight. Pert Estimate = (Optimistic + (4 X Most Likely) + Pessimistic)/6

 Estimation Technique

Above mentioned estimation methods can be implemented by various estimation techniques. A few of the important estimation techniques are:  

 Function Point Estimation 

The function point is a "unit of measurement" to express the amount of business functionality an information system (as a product) provides to a user. Function points are used to compute a functional size measurement (FSM) of software. The cost (in dollars or hours) of a single unit is calculated from past projects. There are several recognized standards and/or public specifications for sizing software based on Function Point. These are FiSMA, IFPUG, Mark-II, Nesma and COSMIC. Out of these IFPUG is widely accepted.

The International Function Point Users Group (IFPUG) is a non-profit, member-governed organization founded in 1986. IFPUG owns Function Point Analysis (FPA) as defined in ISO standard 20296:2009 which specifies the definitions, rules, and steps for applying the IFPUG's functional size measurement (FSM) method. IFPUG maintains the Function Point Counting Practices Manual (CPM) which is the documented guideline for Function Point Analysis.

Types of FP Attributes

All these parameters mentioned below are then individually assessed for complexity.

Data Functions

Internal Logical Files (ILF) - Databases and directories

External Interface Files (EIF) - Shared databases and shared routines

Transaction Functions

External Inputs (EI) - Input screen and tables

External Outputs (EO) - Output screens and reports

External Inquiries (EQ) - Prompts and interrupts.

The functional complexities are multiplied with the corresponding weights against each function, and the values are added up to determine the UFP (Unadjusted Function Point) of the subsystem. The Function Point (FP) is thus calculated with the following formula.

FP = Count Total * CAF

CAF = [0.65 + 0.01 *∑(fi)]

Story points

 Story points are units of measure for expressing an estimate of the overall effort required to fully implement a product backlog item or any other piece of work. Teams assign story points relative to work complexity, the amount of work, and risk or uncertainty.

Planning poker, also called Scrum poker, is a consensus-based, gamified technique for estimating, mostly used for timeboxing in Agile principles.

Teams starting with story points use an exercise called planning poker. The team will take an item from the backlog, discuss it briefly, and each member will mentally formulate an estimate. Then everyone holds up a card with the number (Fibonacci series) that reflects their estimate. If everyone agrees, great! If not, take some time (but not too much time–just a couple of minutes) to understand the rationale behind different estimates. Remember though, estimation should be a high-level activity. If the team is too far into the weeds, take a breath, and level up the discussion.

Constructive Cost Model (COCOMO)

The Constructive Cost Model (COCOMO) is a procedural software cost estimation model developed by Barry W. Boehm. The model parameters are derived from fitting a regression formula using data from historical projects. It is a regression model based on LOC, i.e., number of Lines of Code.

COCOMO consists of a hierarchy of three increasingly detailed and accurate forms. The first level, Basic COCOMO is good for quick, early, rough order of magnitude estimates of software costs, but its accuracy is limited due to its lack of factors to account for the difference in project attributes (Cost Drivers). Intermediate COCOMO takes these Cost Drivers into account and Detailed COCOMO additionally accounts for the influence of individual project phases. The last one is the Complete COCOMO model which is a shortcoming of both basic & intermediate.

Work Breakdown Structure (WBS)

A WBS in project management and systems engineering is a deliverable-oriented breakdown of a project into smaller components. A work breakdown structure is a key project deliverable that organizes the team's work into manageable sections. The Project Management Body of Knowledge (PMBOK 5) defines the work breakdown structure as a "hierarchical decomposition of the total scope of work to be carried out by the project team to accomplish the project objectives and create the required deliverables."

A work breakdown structure element may be a product, data, service, or any combination of these. A WBS also provides the necessary framework for detailed cost estimation and control while guiding schedule development and control.

Once the WBS is created, the team must create an estimate of the effort required to perform each task. The most accurate estimates are those that rely on prior experience. Team members should review previous project results and find how long similar tasks in previous projects took to complete. Sources of delays in the past should be considered when making current estimates.

The most important quality of being a successful Project Manager is being able to deliver quality projects. The Standards for Project Estimation helps managers all over different industries to analyse various factors and estimate them to deliver perfect projects that can satisfy all the stakeholders. All the six key areas of the project can be estimated and provided as per the requirements of the project. Knowledge in this area can be the foundation of being a successful project manager.

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