(i) Explain how each of the following estimating methods are used to estimate the costs or timescale of a project:
c. 3 Point Estimating
Comparative – This is where a single known project is taken, scaled up and any allowances are made so that a better value of the project can be produced. This may be if an office block offers 3000 sq.ft of letting space, but the subject property in question has 4000 sq.ft, the cost can be scaled up proportionately by 4/3. Any variables would have to be taken into account such as specification of the building or services the building already has in space, which will affect the cost estimate.
Parametric – This method is where a known number for a unit is multiplied by the amount required. This may be a road whereby a single mile costs £1 million, and the project required 10 miles, therefore the cost is estimated at £10 million. This is a quick and easy method of estimating cost, but can be full of risks such as baseline data not being correct. This would then be multiplied by 10 causing significant errors later in the project life cycle.
3 Point Estimating – This method seeks to remove some of the vagaries from a single point estimate. It uses the best case, most likely and worst case for either cost or time. A PERT (Project Evaluation and Review Technique) can be used in this method, which takes into account the three varying costs/durations and produces a best estimate between the three. The last variation of this method is called Monte Carlo modelling which is a further extension of this technique.
(ii) State 4 generic causes of estimating error
1. Assumptions – These are made during a project in order to get processes moving and carry a large risk as they are essentially educated guesses and can result in changes later on, but can be analyses by the project manager to help mitigate the risks.
2. Lack of previous data – A project which has never been undertaken before will carry a risk that little of no knowledge is available of how to do it, which means a significant amount of work will be required upfront to help the estimate, but even so the risk is still increased.
3. Risks – The allowance of a risk must be taken into account for both the duration and cost of the project, as without this allowance, the project can over-run by an unknown amount unless the risks are evaluated and allowed for.
4. Subjectivity – An estimators experience and therefore their output into the project such as cost, will be subjective to their previous dealings, and so the Project Manager must take this into account and try to dissect any subjective costs which may not be relevant to the project.