Most projects start with a plan in the initial phase. Depending on the scope and scale of the project this can be a time-consuming task. It is an essential step since all the things required for the project need to be estimated and secured. Whether it is a budget, workforce requirement, or time estimate, a project cannot go ahead without a fair estimation of these different factors. The modern pmp training course focuses on these challenges as they become more complex. Parametric estimating PMP tool can be used to arrive at accurate estimates for your project.
What is Parametric Estimating?
Parametric estimating is a method of estimating (eg. Planning poker) values for a project based on parameters. These parameters are calculated based on past data. The past data is used to estimate the requirement for current data by using both values in an equation. For example, if an employee is paid $30 per hour for a particular task, this allows you to estimate the cost of the task. If you know that it takes 10 hours to finish, then you will have to spend $300 on it. Let us see how this calculation works with an example.
We need a historical value to do a parametric estimation. We know that in previous projects 5 hours spent on a particular task cost $150.
The task in our new project requires ten hours of work. So, we calculate the new estimate or the parametric estimate as follows:
Parametric estimate = (a_old / p_old) x p_curr
In this equation a_old is the actual cost of the task in the past, in this case it was $150. Here hours of work is the parameter so p_old will be 5, and p_curr will be 10. Inserting the values into the equation we get:
(150/5) x 10
= $300
Similarly other values can also be calculated using this equation. This equation assumes that the rate of $30 per hour has not changed.
In actual projects sometime the rate changes depending on the volume of work, the time in which it needs to be done and a host of other factors. There are certain measures you should take to make sure that your estimates are at least reasonably accurate.
This is an important and useful formula for project managers. Online project management course focus on you gaining such practical skills that come in handy in actual projects.
How to Improve Your Parametric Estimating Techniques
If you have accurate estimates of resources required for your project, your plan will be that much better. To get accurate estimates using parametric estimating techniques you will have to bear a few things in mind.
1. Identify sub tasks
Parametric estimates should not be applied over the entire project or a task that has too many sub tasks in it. Identifying tasks that can be comparable to similar tasks in previous projects is key to the accuracy of parametric estimates.
2. Data accuracy
The availability and accuracy of historical data is key to getting a reasonably accurate estimate. Collecting this data and ensuring that the numbers are reliable is a time-consuming process, but it is important to do due diligence at this stage rather than trust data that could give inaccurate estimates
3. Parameters
Another key step in this process is identifying the right parameters for estimation. The parameter should be scalable without too much variation. It should also be comparable between both old and new projects to give a useful estimate.
4. Variables
There needs to be an investigation into the several factors that could affect the estimate. These could be qualitative in nature, but if it has a significant impact on the estimates then it reduces the credibility of the estimate. For example, if it is a manufacturing project with a raw material value that is highly volatile, then estimating costs would become difficult. It is helpful to use a probabilistic approach and produce a range of estimates when there are variables that cannot be predicted too accurately.
To understand how to get an accurate estimate you need to do these calculations in real-world projects or cases that simulate actual projects. Courses like the KnowledgeHut PMP training course have exercises where you will practice such calculations on cases that are close to real-world projects.
How is Parametric Estimation Used in Project Management?
For Parametric estimation to be used in a project, the project must be broken down into tasks that are comparable to other tasks that have been accomplished in the past. If we have substantial and reliable data on this, then the estimates will be more likely to be accurate.
Once the tasks have been calculated in terms of the time needed to complete or the cost it is likely to incur, then you can start calculating estimates based on the present project requirements.
If you account for variations and if it can be assumed that the statistical numbers haven’t changed a lot, then your estimates would be accurate, and you can design project plan that is more reliable to all the stakeholders.
Parametric Estimating in PMP Exams
PMP continues to be the most in-demand certification for project managers around the world. The PMP exam ensures that only those professionals who have understood project management concepts and know how to apply project management practices are awarded with the PMP credential.
To pass the PMP exam it is important that you not just understand what parametric estimation is. You should also be able to use this technique in real projects and make the calculation with real values. You should also understand when to use the method and under what circumstances the method does not work.
Advantages of Parametric Estimating
The biggest strength of parametric estimating is that it gives accurate estimates without too much of a problem. These numbers are based on actual projects and hence can be trusted to a certain degree. As you accumulate data from each project, further estimates become even more reliable.
The numbers arrived at with this technique can be used in estimating resources required for the project. If you know that one person will take ten days to complete a particular task, with two people you can reduce the time to five days provided there is no other limitation.
The estimates give clarity to all the stakeholders, and everyone involved in the project will have a better clarity in terms of what to expect. Parametric estimating sets expectations in a reliable manner.
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Disadvantages of Parametric Estimating
Parametric estimating needs some time and effort in gathering data if it is not readily available. Hence it can be expensive and time-consuming, especially if it is being done for the first time.
The availability of data is a major issue in certain cases where projects or tasks are not uniform. This is a crucial component and determines whether this method can be employed or not.
The method assumes uniformity and relies on the premise that tasks in previous projects can be mapped to similar tasks in current projects to get accurate estimates. There may be tasks that are unique to a project or are different from other projects.
Parametric Estimating Software
As you have realized by now parametric estimating involves a lot of steps and time-consuming calculations where a project must be broken up into tasks, and then these values may be aggregated to arrive at the project estimates.
There is a range of software available that could make these calculations easier. It is advisable to look for software that is developed for your industry. Some of such software come with pre-loaded figures that are backed with data gathered across different projects to calculate standard tasks that are common to the industry.
Costimator is software that is designed for the manufacturing sector.
COCOMO (Constructive Cost Model) does this for the software industry
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Parametric Estimating Examples
Parametrics estimating is used to make estimates of cost or time required for a task. Let us see how we calculate these with examples.
Let us say that a five-member tech support team in a previous project could solve 100 tickets on average every week. We are entering into a project that will generate 300 tickets every week.
Using the formula, we have: Parametric estimate = (a_old / p_old) x p_curr
We can calculate the number of team members needed to handle the project.
(5/100) x 300 = 15 members
Now let us consider that the weekly cost accrued for the past project was $15,000. We could estimate the cost since we know the strength of the team in the previous project (5) and the strength of the team that will be required for the upcoming project (15).
Using the same formula, we get
(15000/5) x 15 = $45.000
As you can see the accuracy of these estimates depend on the nature of tickets remaining comparable to each project, the cost of the team members being constant etc.
Frequently Asked Questions(FAQs)
1. What Are the Alternatives to Parametric Estimation
As we have seen parametric estimates are not suitable for all projects or all situations. There are other methods that can be relied on. Each method comes with its own advantages as well as limitations.
Analogous estimation is a technique where the estimate is based on a similar task in a previous project without using an equation. This is also called a top-down approach. This gives faster calculations but is not as accurate.
A 3-point estimation or a probabilistic estimation gives 3 estimates to work with, an optimistic one, a pessimistic one, and a most likely one. This is suitable for a project that is dependent on a lot of variables.
Bottom-up estimates break down tasks to the lowest detail possible and calculate the cost or estimate at the micro level. The aggregate from all the estimates is likely to be the most accurate estimate, but it is a process that requires a lot of time and effort.
The method that you eventually decide to make your estimates will depend on the nature of your project and the amount of data you have at your disposal. You will also need to decide whether to invest more time and effort to produce more accurate estimates.
2. What is the formula for parametric estimating?
You can find the parametric estimate by using the below formula. In this formula a_old stands for the historic value of the previous project. The value denotes the parameter value of the old project p_old and p_curr is the value of the current project.
Parametric estimate = (a_old / p_old) x p_curr
3. How is the parametric cost estimating method used?
In parametric cost estimating, the per unit cost is calculated using the old values and it is multiplied by the number of units required for the new project. Let us say $300 was the cost to add buttons to 600 shirts in a previous project. For the new project we need to add buttons to 1000 shirts. The estimate will be calculated as
(300/600) x 1000
= $500
