How to use analogous estimating effectively in project management

One of a project manager’s primary roles is financial management — accurately forecasting how much a job will cost and how long it will take to complete. That’s no mean feat, especially at the initial stages of a project when details are still in flux and data is limited.

Thankfully, a simple technique known as analogous estimating can help establish budgets and timelines based on data from previous projects. Whether you need a complete financial forecast or a task-by-task estimate, this methodology will provide projections you can feel confident including in the project plan.

What’s analogous estimating?

The Project Management Institute’s (PMI) Project Management Book of Knowledge (PMBoK) defines analogous estimating as:

“...an estimation method based on information from historical data from previous projects for similar tasks or deliverables.”

Comparing variables from similar projects allows project management to work with limited data to estimate outcomes and plan work accordingly. These variables can include:

• Project scope

• Costs

• Duration

• Activities

• Tasks

Analogous estimating in project management is a top-down estimation method, meaning leadership initially establishes the job’s total cost or duration and then divides that value according to the work breakdown structure (WBS). Managers use this technique to create estimates for the entire initiative or individual tasks that make up the project.

The 4 analogous estimation categories

Every analogous estimation falls into one of four primary categories:

1. Absolute-value or single-point estimate: This estimate provides an absolute value for cost or duration based on similarities between current and past projects.

2. Ratio estimate: For this estimate, you apply a modifying factor to historical data to improve accuracy. So if costs have increased by 5% since completing a previous initiative, the project manager would calculate the current estimate and apply that variable to the data.

3. Range estimate: Primarily used in adaptive or agile project management, range estimates evaluate parameters from multiple similar projects to determine the potential cost and duration distributions.

4. Three-point estimate: The three-point method generates three forecasts — an optimistic, pessimistic, and most likely projection. The project manager then finalizes the estimate using triangular or PERT distribution analysis

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Applying analogous estimating: 5 circumstances

While there are several circumstances where analogous estimation is the go-to forecasting method, we wanted to highlight the following five most common conditions.

1. Project initiation

Analogous estimating places a preliminary value on the project and its elements to determine whether it’s viable and worth pursuing. As you uncover insights and projections during project planning, you can revisit initial estimates to refine the forecast.

2. Limited data

If you’re working from little-to-no historical data, it can be difficult to anticipate a project’s potential for success. Analogous estimating lets leadership create a forecast to determine whether it’s worth proceeding.

3. Vague parameters

When bidding on a project, you may find that the RFP contains few details or no access to useful project information. The estimator can apply the analogous methodology to generate rough budget and duration forecasts.

4. Past experience

An experienced project manager has a bounty of prior knowledge to draw from. They can use their learnings from previous initiatives to establish an analogous estimate by comparing past and present project requirements.

5. Minimal requirements

At times, an organization bids on a project that only requires a basic idea of cost and duration. Analogous estimation is the least labor-intensive method to obtain the information stakeholders need.

Analogous estimating pros and cons

It’s essential to understand the pros and cons of this estimation method to ensure realistic expectations regarding accuracy. You must also prepare contingencies to address shortfalls between estimates and actual results.

Pros

• Estimating produces highly accurate forecasts when using comparable projects

• Stakeholders obtain valid cost estimates during project initiation

• You can calculate trade-offs between time and cost

• It’s easy to weigh individual task effort and duration

Cons

• Data from historical projects may not be comparable

• A lack of information could lead to incorrect forecasts

• Estimators commonly overlook low-level components like smaller tasks assigned to particular departments or individuals

• The estimate may fail to account for the complete list of resources or inflation, leading to inaccurate cost predictions

• Risks or issues may be unaccounted for, resulting in additional expenditures and cost overruns

Analogous versus parametric estimating

The other option to forecast project budgeting and timeline is parametric estimating. This method uses a mathematical formula and historical and statistical data from industry sources to accurately calculate the time, costs, and resources a project needs for completion.

Here’s the algorithm:

E_parametric = A_old / P_old X P_curr

where,

E_parametric = parametric estimate

A_old = historical cost or time value

P_old = historical parameter value

P_curr = current value of the project parameter

Both analogous and parametric estimation techniques are valuable and valid in project management. But because parametric estimating considers differences between new and old projects and uses unit-wise calculations for cost, duration, and other variables, the statistical model delivers greater accuracy to its forecasts.

How to use analogous estimation: 6 steps

If you’ve concluded that analogous estimation is the best course for your project, a systemic approach to generating your predictions is critical to ensure accurate forecasts. Here’s the step-by-step process to apply the model.

1. Identify the project’s domain and resources required

Determine which discipline your project will involve. Knowing whether you’re working on a marketing initiative or product development will help source information on technology, materials, and staffing requirements. Once you understand the domain, search the company archives for comparable projects to ground your estimations.

2. Locate similar endeavors

List 15–20 past projects similar to yours based on variables like project scope, context, and team structure. Then, narrow the list down to one or two comparable projects to work from. Remember: The stronger the comparisons, the more accurate final estimation will be.

3. Compare current and historical projects

After identifying your comps, compare projects based on strongly similar variables. Review project boards for information about timelines, team size, and budget. This information will inform estimations for your current initiative.

4. Formulate estimates

Generally, project managers generate rough analogous cost estimates and timeline projections at this phase. Make a rough estimate for both these parameters based on projected tasks and stakeholder requirements.

5. Review historical tasks and activities

Search for similar activities in previous and current projects to find comparable elements. These commonalities will help generate reliable cost and duration estimates for individual requirements.

6. Consolidate information to finalize estimates

Decide whether you want to present stakeholders with a single value, range, or three-point estimate, then calculate your projections. Once you’ve established the values, use the WBS to visualize project execution. From there, you can define priorities and assign tasks and deadlines to team members, keeping everyone on track.

If you can’t locate projects similar to yours, don’t worry — you can break down the work into tasks and research to find similar elements across archived projects. The process is a little more extensive and relies on your judgment to define similarities, but it’s still viable.

Bringing it all together with Tempo

Take some guesswork out of project estimations using Timesheets, Tempo’s time, cost, and resource management tool. The Timesheet platform helps project managers visualize their work’s size, scope, and resource commitments to generate accurate forecasts for all stakeholders.

Once the transition from project planning to execution is complete, leverage Jira-enabled Strategic Roadmaps to create audience-friendly roadmaps that keep your team on track. Roadmaps include budget milestones and task deadlines to help you prioritize tasks, build alignment, and ensure deliverables arrive on time.