Three-point estimating is one of the popular project estimation techniques. In this article, we shall discuss what Three-point estimating is and the estimates involved in this technique such as the Optimistic, Pessimistic, and the Most Likely Estimate. Then we shall see the formula for calculating three-point estimating, and other aspects involved. So, let’s start.
Before going into Three-Point estimating, we shall first see what One-Point Estimating or Single-point estimating is. In Single-Point Estimating an estimator submits one estimate per activity. But there are problems with this estimating. It is less accurate as the individual activity estimates could be uncertain.
The accuracy of a single point estimate can be improved by considering the estimation of uncertainty and risk. This is where the concept of Three-Point Estimating comes in. It is calculating three different estimates, to factor in risk and estimation uncertainty, and finding their average to get the most optimal estimate.
PMBOK defines Three-Point Estimating as “A technique used to estimate cost or duration by applying an average or weighted average of optimistic, pessimistic, and most likely estimates when there is uncertainty with the individual activity estimates.”.
Three-Point Estimating can be used to estimate both duration and cost.
The Three-Point estimate of duration is called Expected Duration.
The Three-Point estimate of cost is called Expected Cost.
The Three Estimates in Three-point Estimating
Optimistic Estimate (O)
It is the estimate based on the best-case scenario for the activity.
Pessimistic Estimate (P) –
It is the estimate based on the worst-case scenario for the activity.
Most Likely Estimate (M) –
It is the most realistic estimate based on the resources likely to be assigned, dependencies on other participants, possible problems that may arise, etc.
The final Three-Point estimate is calculated by calculating the average of the above 3 estimates. Now, the average can be a simple average or a Weighted average.
The Estimate that uses Simple average is called the Triangular Distribution, on the other hand
The Estimate that uses Weighted is called the Beta Distribution.
The formula for Simple Average or Triangular Distribution is
E = ( P + O + M )/3
The formula for Weighted Average or Beta Distribution is
E = ( P + O +4 M )/6
The concept of the three-point estimating originated from the Program Evaluation and Review Technique (PERT), which uses 3 estimates to define an approximate time duration for an activity. PERT uses weighted average.
Three-Point Estimating – Important Points to remember
- Can be used to estimate both Duration and Cost, but not used to estimate resources.
- More accurate than Analogous and Parametric estimating
- Allows more consideration for risk, uncertainty of estimating, bias, etc in the estimation process.
- Used when there is insufficient historical data or when using more judgmental data.
Other commonly used estimating techniques are –
Also, check the comparison of the Estimating Techniques.