Estimation is one of the most basic concepts of Project Management. In fact poor and improper estimation is one of the main causes of challenged projects. There are many ways to Estimate. Some of these estimation techniques are specific to an industrial domain like software size estimation techniques. While other techniques can be applied to any kind of projects (or daily life activities) e.g. Analogous and Parametric Estimation.
Let us concentrate on another estimation technique called 3-Point Estimation. 3-Point Estimation improves accuracy by considering uncertainty arising out of Project Risks. Expected Value (or mean) in a 3-Point Estimate can be calculated by using PERT formula or by doing a Simple Average.
Let us try to understand what is 3-Point Estimate and what is PERT & Simple Average?
A note on PMP® Exam
PMP® exam has many formula based questions. Some of these questions are based on 3-Point Estimate. Many of these questions can be solved by using either PERT formula or Simple Average formula. Usually these questions are relatively easy to solve. The underlying concept, itself, is very simple. However, I have observed many PMP® Aspirants get confused by this topic. During PMP® Exam training, many students ask questions like “Is 3-point estimation same as PERT?”, “Why are there 2 different formulas for arriving at 3-Point estimate?”, “Which formula should be used to solve the questions in the PMP® exam?” et. el.
I believe this confusion comes mainly due to the different terminology used by different Project Management authors. My humble suggestion is that if you are a PMP® Aspirant then you should follow terminology from PMBOK® Guide. All others sources of the information like books, websites and blogs (including this one) should be read with a bit of skepticism. You should follow other sources only if you find the information contained in these sources is conformant with the PMBOK® Guide.
What is PERT and 3-point Estimate?
3-Point Estimation is based on 3 different estimated values to improve the result. The concept is applicable for both Cost and Duration Estimation. 3-Point Estimate helps in mitigating the Estimation Risk. It takes into consideration uncertainty and associated risks while estimating values. The estimation can be done for an entire project, or for a WBS component or for an activity.
In 3-Point Estimation Expected Value of a task is determined by calculating Mean of 3 different values. These 3 different values are
- Optimistic Value (O)
- Pessimistic Value (P)
- Most Likely Value (M)
There are two popular methods to arrive at the Expected Value (Mean).
It is based on Triangular Distribution. The Mean can be determined by the following formula.
PERT (Program Evaluation and Review Technique) is calculated using a Weighted Average. It is based on Beta Distribution. The Mean can be determined by the following formula.
A 3-Point Estimation can be done using either Simple Average or PERT Formula. It improves the Estimation accuracy and reduces Project Risk. It provides a better result than just a Single Point Estimate.
Why have they given 4 weights to M in PERT Formula?
PERT formula has a statistical background. It is based on probability theory and statistics. Specifically PERT is based on Beta Distribution. PERT became part of Project Management literature after statistical and research findings. Historically 3-Point Estimate originated from PERT. PERT was initially developed by US Navy to take care of scheduling uncertainties. The formula mentioned above is a close approximation of Mean found by Beta Distribution. PERT is frequently used along with CPM (Critical Path Method) for Project Scheduling.
Let us consider an example to see how these formulas work. Let us assume that we have to estimate time it takes to go from point A to point B. There could be 3 different Scenario:
Optimistic Scenario – Roads would be free of any traffic congestion and there will be no stopping at Traffic signals
Pessimistic Scenario – There would be serious traffic bottlenecks ( may be due to a major accident) or there will be some unscheduled stops (may be due to vehicle breakdown)
Most Likely Scenario – There would be regular traffic conditions
Let us assume that our 3 estimates (Optimistic, Pessimistic & Most Likely) were 45 minutes, 225 minutes and 90 minutes respectively.
Simple Average Calculations
You will notice that PERT estimates are more close to ‘Most Likely’ value. Some Project Managers believe that a PERT Estimate yields better results but I am yet to see a definitive research suggesting this.
- 3-Point estimation is based on 3 different values
- Simple average is a form of 3-point estimation technique
- PERT average is another a form of 3-point estimation technique
- PERT and Simple Average are 2 of the more popular ways of arriving at 3-Point Estimates.
Over To You
Which formula do you use to determine 3-Point Estimate in your projects? Why do use one method over the other? Please leave a comment.
PMP Exam Formulas
I have also compiled a PMP Formulas Cheat Sheet. It will help you in your exam prep. You can read more about it and directly download it free by joining PMP prep linkedin group. It is the best and most comprehensive cheat sheet based on the PMBOK Guide 6th edition.
If you are looking beyond a cheat sheet, then I would suggest you to buy detailed PMP Exam Formula Study Guide by Cornelius Fichtner. It contains detailed explanations of all the formulas along with examples and 105 practice questions.
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