Three-Point Estimates – PERT Method

We have already covered Analogous and Parametric estimating, the next in the list is quite popular and can provide even more accurate estimates, the method is called the Three-Point Estimates.

Three-point estimate is one of the best ways to come up with a collaborative estimate. It is named such because the team members provide three values viz. pessimistic, optimistic and most likely estimates for their respective deliverables. A simple average of these 3 values is the final estimate.

Three-point estimation technique can be used for both Cost as well as Duration. Also, do note that the estimation can be done for the entire project, a WBS component or it can go as granular as an activity in the WBS.

Formula of Three-Point Estimation Technique

E = (o + m + p ) / 3

where,
E = Estimate
o = optimistic estimate
p = pessimistic estimate (also known as least likely estimate)
m = most likely estimate (also known as best guess estimate)

Do note that this formula is also known as Triangular Distribution and in some texts it is also referred to as Simple Average (because it actually is simple average, duh!)

PERT

Now where does PERT fit into this picture?

PERT stands for Program Evaluation Review Technique and it is the most common form of three-point estimation.

It was developed jointly by the U.S. Navy, Lockheed Martin and the consulting firm of Booz, Allen and Hamilton working on the Polaris nuclear submarine project during the 1950s. Don’t worry, you don’t have to remember these names as it won’t be questioned in your PMP Exam!

PERT is one of the most commonly used techniques used along with Critical Path Method (CPM) to estimate the minimum time needed to complete a project.

PERT Formula

E = (o + 4m + p ) / 6

where,
E = Estimate
o = optimistic estimate
p = pessimistic estimate (also known as least likely estimate)
m = most likely estimate (also known as best guess estimate)

Do note that this is also known as Beta Distribution. It is also referred to as the weighted mean or weighted average.

You may wonder what do we gain by using Beta Distribution over Simple Average. The answer to that is actually quite simple. As is evident from the formula, the beta distribution gives more weight to the most likely estimate. This way the most likely estimate is made to increase the accuracy of the entire estimate. In most cases, the beta distribution (or simply the PERT) has been proven to be more accurate than the triangular distribution (or the three-point estimation).

Do note that PERT and CPM are two of the most common techniques used for project duration estimation.

Advantages of Three-Point Estimation and PERT techniques

1.Increased accuracy over one-point estimates

Usually, when asked to provide estimates, the team members think about a single number and pad it as much as they possibly can. They realize that the project manager may cut down on it. That is definitely not the way to get good estimates.

2. Better commitment from the project team members

Since the estimate is provided by the team members, they are much more accountable.

3. Realistic estimates

By estimating in a range, you are able to generate a more realistic estimate. This is a clear indication to the stakeholders and project sponsor that the estimates are not 100% accurate. There are risks that have been considered that may impact the amount of time and cost the task will take. This approach addresses some of the team members’ uncertainty that is associated with the estimation process.

Sample Question

Q: You are the software development Project Manager majorly working on ecommerce websites. On your new project you are pretty sure that the ecommerce website can be developed in 8 weeks with a most optimistic estimate being 6 weeks, and the worst-case scenario of 10 weeks. What must be the estimate for this project using PERT?
A: 8 weeks
B: 6 weeks
C: 10 weeks
D: None of the Above

Solution:

Doing the calculations, you can arrive at

E = (6 + 4*8 + 10) / 6
  = (6 + 32 + 10) / 6
  = 48 / 6
  = 8 weeks

So the correct answer would be A

Check out all the 16 Formulas you need to know to clear the PMP Exam

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