Analogous Estimation: Definition, Uses, Examples

When doing a new project, you should estimate what it will cost and how much time it will take to finish in accordance with the plan. It can be challenging to calculate the entire cost of the project precisely. As the project develops, you will have more information to estimate the finishing cost, but how can you produce an accurate evaluation in the early phases with sparse data? A top-down estimate of project costs, assets, and timelines is analogous to calculating. It has the potential to get an initial estimate or an order of magnitude, even if it is less accurate than other techniques.  

As a result, it is a common technique used when selecting or commencing initiatives. In this article, we will talk in detail about analogous estimating, its definition, and everything else you need to know about it. If you want to learn about analogous estimating in project management, we suggest Project Management professional certification program get started with your learning journey.  

What is Analogous Estimating?

By using the analogous estimation technique, the project manager analyzes any related historical work, evaluates its factors, and employs that information to calculate the size and expense of the current project. The more data the project manager has access to, and the more precise their assessment will be because the project manager builds their estimates on the comparative. This kind of estimation method is simple to comprehend and apply. Project managers typically use it when they are short on data on their current projects. 

Analogous cost estimating is a top-down approach that entails estimating the expense of the complete project and then breaking it down into various smaller proposed projects. You can use it to determine the price and timeframe required to complete a project or just the jobs for which you lack primary data.

How to Employ Analogous Estimating?

For your benefit, we have further divided the analogous estimate application process:

Listing Things

Construct the components that seem to be relevant for analogous estimating initially. You can further break your project into several pieces and use the tool for everyone, such as price, duration, and resources. Next, list all the similar works you may use as historical data.

You must analyze the sources and confirm each one's viability as you compile the list. Furthermore, you must verify the risks and characteristics of the initial project. If your project's risk analysis reveals potential threats, you should evaluate those risks to those associated with previous projects.

Once you're done compiling this list, shorten it and eliminate any previous projects that are redundant or just vaguely related to your project's characteristics. As a result, you will have several previous projects that you may employ as references for your estimation method.

Choosing the Parameters

The appropriate estimation methods can be decided once the parts have been selected and adequate funds have been gathered. Different types of estimation processes are required for other projects. Given that Analogous Estimation falls into four categories (Absolute-value or single point estimate, Ratio estimate, an estimated range, and a three-point estimate – these are detailed in the next few sections) you must examine the components and choose the method that operates the best. In such a situation, decision-making is helpful. The parameters can then be established, which will result in more calculations.

Determining the Price and Time

Once you've calculated the estimation, you may estimate the project's estimated cost and time to use the past data. The project manager will then discuss higher-ups and stakeholders with the anticipated outcomes. The project can be organized and scheduled around the anticipated cost and duration with the support of expert opinions.

Analogous Estimation Requirements

The details mentioned are required for analogous estimating:

• Comprehensive data from earlier similar works projects executed 
• Assistance from the team's senior members and subject area professionals. 
• Participation of the entire project and professionals in cost estimation.

Inputs to Analogous Estimation Method

Information on Estimation 

• Before employing a similar estimation approach, it is advisable to confirm the accuracy of the information gathered. Assume that the work plan estimate is based on historical information. In that situation, it is crucial to ensure that there is no opportunity for confusion or assumptions by providing it is suitable for the project's environment and conditions. 
• The success factors and definition of done should be the basis for all calculations. These two parameters are crucial to ensure the actual work equals planned work.

Estimators

• Experts in their areas and estimators should have experience. 
• For accurate predictions, each person must be aware of their skills and embrace responsibility for their actions. 

Assets Associated with Organizational Processes and Enterprise Environmental Factors

• Enterprise environmental factors impact an estimate's quality and accuracy. 
• When used, strategies, procedures, or systems should be noted as a project management plan.

Unbiased Project Cost Estimates

• External project estimates from an alternative group are essential in some professions and regulated contexts. 
• Project team projections and independent estimates may not concur. Both should be subject to normalization. 

Outputs of Analogous Estimation Technique

Finished Estimates 

• The output variables are estimates for prices, supplies, and project duration. Rather than presenting precise figures, the result is a projection of the project's outcome.

Estimates' Base

• In this research proposal, the estimation method is explained. They illustrate the level of detail involved while offering a clear and thorough understanding. Information on premises, units, or factors, as well as reference data, are included. A list of the risks associated and the items on the presumption log should be included in this material.

Previous Data Normalized

• Project completion, execution phase location, variations in productivity measures, quality measurements, ultimate specific product features, etc., are among the adjusting variables to be considered. 
• An effective estimation procedure should take into consideration prior experience.

Parametric vs Analogous Estimating 

• By employing the figures from past work, analogous estimating can create a "generic" estimate for a new project. This includes data about the length, spending limit, price, and scope of comparable projects.
• On the other hand, parametric estimating employs activity unit prices to calculate the quantity of money and investment needed and duration estimations. Each unit must be identified to define prices, time, and materials correctly. 
• A parametric estimate gives the data required to produce an estimate for the new project using specified parameters, such as similar features in materials, price of premises, and employee costs. A parametric vs. analogous estimating PMP will help you better understand the variations between the two.
• Analogous estimates are easier than parametric estimates and entail numerical calculations. This quantitative evaluation system can result in greater accuracy but may take more time and is only suitable for tasks that fulfill specific criteria.

Analogous Estimation Categories

There are four critical analogous estimation categories. Here we talk in-depth about all four types: 

1. Absolute-value or Single Point Estimate

Absolute value, also known as the Single point estimate, refers to the concept that the estimated value comprises only one absolute value. You can use a budget with a single value from a past project with similar traits and apply it to your present work. For example, the allocated amount for a previous project will be the same as the budget used. If it were $400,000 this time, it would be the same. Suppose you are searching for some of the best analogous estimating PMP certification courses. In that case, we suggest Project Management course, which helps you understand the categories of analogous estimation in detail. 

• Ratio Estimate  

The comparative application of previous data or knowledge to a current task is called a ratio estimate. Applying a component to observed historical values is one estimation technique. For example, estimators might anticipate that the current project will take 125% as long as the last project. Another application is the estimate of a breakdown or elements of the total project cost. A business may conclude from past data that, for example, user validation testing costs generally account for 25% of the overall price of an IT project. This technique implies a linear link between various project aspects. It is comparable to an essential use of parametric estimation. 

• Estimated Range  

Range estimate is based on a set of parameter estimates, unlike absolute value or the single-point estimate. Evaluating the project's cost and duration in this estimation method provides a range of valuations. However, it is also given a most probable estimation, which is a value that indicates the possible values. The value that the project managers finally choose to execute is the one that represents the characteristics that are most likely to take place. This method is commonly related to the three-point cost estimation process because it presents many variables. 

• Three-point Estimate  

A three-point estimating technique is an estimate in and of itself, even though it is constantly referred to as a range estimate form. The project manager comes to three distinct values to use this estimating technique. These predictions contain the most likely estimate, the most optimistic estimate, and the pessimistic estimate. However, the triangular or PERT distribution is how the project manager gets the final estimate. The project leader will then incorporate the final value as the program's value or cost. 

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Uses of Analogous Estimation

Since analogous estimates require preliminary data, they can only be used in situations with sufficient information from a previous project similar to the one in question. Avoid using this estimating technique if you lack proper information or haven't finished any tasks that will work as a reference. The below scenarios show that perfectly analogous estimation works:

Use 1: The Project is Still in its Early Phases

One of the best approaches for giving a project and its components additional values is analogous estimating. At this point, a similar estimation can be employed to decide whether the project is viable and whether to submit a bid. You can make necessary changes to your predictions as the project progresses.

Use 2: Quick Calculation

If you are bringing in a bid for a project and need a rough estimate, an equivalent estimate might be your best bet. It is possible to establish accurate estimations regarding the final cost and expected time of a project with little homework. 

Use 3: Professionals' Opinion

When there are parallels across projects, project leaders use their knowledge and experience from different projects that they have worked on to come up with equivalent predictions.

Use 4: Quick Calculation

If you're bringing in a bid for a project and need a rough estimate, an analogous estimate might be your best bet. It is possible to establish accurate estimations for the final cost and expected time of a project with a little investigation.

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Advantages of Analogous Estimating

Here we talk about the various advantages of using analogous estimation: 

• Usually, analogous estimating techniques project management will not take up a lot of time or resources. 
• Even with a little amount of information, this analogous estimation can be done. 
• Therefore, it is excellent for activities for which little information and historical data are given and for programs that are just starting. 
• These estimates might be perfect for high-level evaluations and strategic planning because their accuracy is typically adequate for examining the "big picture." Then, it can be utilized for early stakeholder communications or program management, for instance. 
• While little information is available, an initial estimation for a project or specific aspects of a project at a time is usually an equivalent estimate. Then, with time, it will be enhanced.  
• Helps the project team screen a project for feasibility, viability and getting a high level return on investment (ROI). 

Disadvantages of Analogous Estimating

Here we talk about the disadvantages of analogous estimating: 

• Estimates lack adequate precision and tend to be incorrect. 
• The underlying premise is that past data or estimators' experience will apply to the current project. The estimate is worthless if it turns out that this premise was incorrect. 
• Top-down projections are values that can change in practice by political factors or even intimidation rather than by the unique qualities of the project or the knowledge of the subject matter specialists. 
• There are several limitations on analogous estimates for decision-making or project planning and controlling due to their high level and potential for error. 
• There may be instances where the organization does not have historical data or may not have executed similar projects in which case, this estimation method becomes inadequate.  

The analogous estimating pros and cons stated above will help make a better decision when choosing an estimation method.

Examples of Analogous Estimating

The analogous estimating example given below will help you understand the concept better: 

Example 1

Company N got a group project from a big organization, M. Therefore, Company N must estimate the project's cost and time to begin the strategic planning. However, Company N has management experience with projects of a similar nature. Therefore, based on scope and complexity, the project exhibits the most parallels with one of their previous projects after compiling all the relevant past data.

Per data from the last project, it cost $55,000 and took 25 days to complete. Using the absolute value approach, the estimated value is as follows: 

Cost projection: $55,000.

The estimated timeline is 25 days.

Example 2

Newly promoted to project manager at an advertising agency, Tina is now responsible for outlining the price and schedule of a forthcoming project to a client. She hasn't worked on an account like this prior, but the company has run ads like this before. She assesses the user's requirements based on historical data using analogous estimating. She modifies a few variables to account for changes between projects and includes the resulting data in her presentation.

Conclusion

Project managers have a wide range of techniques and procedures involving cost estimates. For future initiatives where an assessment must be provided relatively quickly, and there is no primary data from which to extrapolate, a similar estimating technique is a popular option. The comparable estimating method doesn't use a lot of resources since it only needs a small amount of data and assigns specific ones that are slightly reliable.  

If you want to learn more about the uses of employing analogous estimation in project management, we suggest KnowledgeHut Project Management professional certification course. This course will give you a proper understanding of the uses of analogous analysis along with case studies.