What is Three-point Estimating in Project Management?

Uncertainty is a constant companion in project management. To overcome this uncertainty and make informed decisions, project managers rely on the three-point estimating. This method considers three estimates for each task: the best-case scenario, the worst-case scenario, and the most likely case. By analyzing these estimates and assessing their probabilities, project managers can better understand probabilities, manage risks, and create a comprehensive project plan Three-point estimates for the project managers are able to embrace uncertainty and make data-driven decisions for project success.

Many successful businesses opt for the three-point estimating technique, which proves highly advantageous in project management. This technique enables project managers to make well-informed predictions regarding project outcomes. You can learn these techniques using the best Project Management training courses.

To learn more about what is three point estimating technique, including its benefits and formulas, continue reading for a comprehensive overview. 

What Is the Three-Point Estimation in Project Management?

Three-point estimating is a project estimation technique used to assess the likely outcomes or costs of anticipated. This approach enables project managers to generate realistic estimates and derive an expected value through a comprehensive evaluation, even with limited information.

This is a powerful approach that involves analyzing and incorporating multiple estimates: optimistic (O), pessimistic (P), and most likely (M). They are described below: 

  1. O – The “O” represents an optimistic estimate, also referred to as a best-case scenario or best-case estimate. This estimate assumes that everything will progress smoothly, with minimal obstacles or challenges.
  2. P – The symbol “P” represents a pessimistic estimate, which is also referred to as a worst-case scenario or worst-case estimate. This estimation assumes that everything will go wrong, leading to a more negative outcome than initially anticipated.
  3. M – The “M” represents the most likely estimate, which falls between the optimistic and pessimistic estimates. It represents a middle ground, acknowledging that some aspects of the future event may go right while others may encounter difficulties.

The three-point estimate is derived through a formula that calculates the average activity of the estimates. More information about this calculation and formula will be discussed in the following sections.

While the three-point estimation technique aids in determining the most realistic estimate, the process of calculating the probabilities of an event can be arduous and mentally exhausting. Fortunately, the use of invoicing and estimation software can alleviate this burden.

What is the Three-point Estimating Formula?

Project managers utilize three point estimating formulas to determine the most likely estimate when multiple variables are involved. Two common types of three point estimating formula are the triangular distribution and the Beta distribution (PERT).

Triangular Distribution:

The triangular distribution provides a straightforward method to calculate the average outcome. It involves taking the mean value of the components in the three-point estimate.

For example, considering the previous example of daily work hours:

E = (14 + 10 + 12) / 3

E = 12

According to the triangular distribution formula, the ideal time range to complete all tasks would be 12 hours.

Beta Distribution (PERT):

The Beta distribution, also known as Project Evaluation and Review Technique (PERT), is a more intricate approach to three-point estimating in project management calculation. It entails applying a weighted average of the Optimistic, Pessimistic, and Most Likely estimates.

The PERT beta distribution involves multiplying the Most Likely estimate by four, which is four times its original value, and then dividing the sum of the three estimates by six.

For example:

E = (14 + 4(12) + 10) / 6

E = 12

After applying the PERT beta distribution formula to our fictional data, the resulting estimate remains 12 hours.

Having explored the three-point estimation formulas, let’s now delve into the benefits and understand how three-point estimating can positively impact your business and enhance project management.

How to Use Three Point Estimating in Project Management?

To use three-point estimating effectively in project management, follow these steps:

1. Identify the Task: Begin by identifying the specific task or activity for which you need to estimate the duration, effort, or cost.

2. Determine Three Estimates: Establish three estimates for the task based on different scenarios: optimistic (O), pessimistic (P), and most likely (M). The optimistic estimate represents the best-case scenario, the pessimistic estimate represents the worst-case scenario, and the most likely estimate represents a realistic expectation.

3. Apply the Chosen Formula: Select the appropriate three-point estimating pmp formula based on your preference or the specific requirements of your project. The two common formulas are the triangular distribution and the Beta distribution (PERT). Apply the formula to calculate the estimated value.

  • Triangular Distribution: Use the 3-point estimate formula E = (O + M + P) / 3, where E is the estimated value.
  • Beta Distribution (PERT): Use the formula E = (O + 4M + P) / 6, where E is the estimated value.

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4. Analyze the Results: Review the estimated value obtained from the formula. It represents the most probable estimate for the task. Consider this estimate along with the range between the optimistic and pessimistic estimates to gain insights into the potential variability or risks associated with the task.

5. Communicate and Document: Share the estimated value, along with the corresponding optimistic and pessimistic estimates, with relevant stakeholders. Document the estimates in your project management documentation, such as the project schedule or cost estimation.

6. Monitor and Refine: As the project progresses, monitor the actual performance and compare it to the estimated values. This feedback loop helps you refine and improve your estimation techniques over time, increasing the accuracy of future estimates.

By using the three-point estimating method in project management, you can account for uncertainties, variability, and risks associated with different tasks, enabling more informed decision-making and better project planning.

What are the Benefits of Using Three-point Estimating?

Using three-point estimating in project management offers several benefits:

1. Improved Accuracy: Three-point estimating considers multiple scenarios, including best-case, worst-case, and most likely outcomes. This approach provides a more comprehensive view of the potential range of results and increases the accuracy of estimates compared to relying on a single value.

2. Risk Assessment: By considering both optimistic and pessimistic estimates, three-point estimating helps project managers assess and manage risks more effectively. It highlights potential risks and uncertainties, allowing proactive risk mitigation strategies to be implemented.

3. Enhanced Decision-making: The range of estimates provided by three-point estimating gives project managers valuable information for decision-making. It allows for a more nuanced understanding of the potential outcomes and helps in making informed choices regarding resource allocation, project scheduling, and risk management strategies.

4. Stakeholder Communication: Three-point estimating provides a transparent and comprehensive approach to estimation. Sharing optimistic, pessimistic, and most likely estimates with stakeholders promotes transparency and fosters understanding of the potential variability in project outcomes.

5. More Realistic Planning: Three-point estimating encourages project managers to consider the uncertainties and risks associated with tasks or activities. This leads to more realistic planning, setting achievable project goals and milestones based on a balanced understanding of best-case, worst-case, and most likely scenarios.

6. Continuous Improvement: By comparing the estimated values with actual performance, project managers can identify areas of improvement and refine their estimation techniques over time. This feedback loop contributes to continuous improvement in estimating accuracy and enhances overall project management processes.

Hence, three-point estimating improves accuracy, facilitates risk assessment and decision-making, enhances stakeholder communication, enables realistic planning, and supports continuous improvement in project management. It is a valuable technique for mitigating uncertainties and increasing the chances of project success. Join Prince2 Foundation and Practitioner online course today to learn everything about Project Management.

Examples of Three Point Estimating

Suppose you need to reach the airport, and the route you typically take is prone to heavy traffic. In this scenario, your optimistic estimate for the travel time could be 20 minutes, reflecting the best-case scenario. Conversely, your pessimistic estimate, considering potential traffic congestion, could be 60 minutes. A more realistic estimate, representing the most likely outcome, would be 40 minutes.

Let’s learn how do you calculate a 3-point estimate?

To derive a reliable estimate using the three-point estimate formula, you would calculate (20 + [4 * 40] + 60) / [6]. This three-point estimation technique example calculation results in an estimate of 40 minutes, taking into account the three different estimates. By considering all three estimates, the resulting estimate is more realistic.

In this example, the standard deviation can be calculated as (60 – 20) / [6], which equals 6.7 minutes.

Let’s take another three-point estimating example!

Suppose you are the owner of a construction business and currently work for 12 hours each day. As you are taking on more contracts, you plan to expand your operations. Your optimistic estimate (O) is that you will be able to work for 14 hours daily to handle the increased workload and complete more project tasks.

However, you are aware that unforeseen circumstances can arise, and you may not always be able to work uninterrupted for 14 hours. There could be urgent errands to attend to or unexpected guests to entertain. In such situations, your pessimistic estimate (P) is that you might only be able to work for 10 hours, considering it as a worst-case scenario and a negative outcome.

Additionally, you anticipate that some days will be a combination of both, with a balance between smooth progress and potential disruptions. In this most likely estimate (M), you plan to work for the standard 12 hours, representing a typical day where things go as planned.

To accurately predict your actual work time, you can utilize any of the available three-point estimate formulas.

3-point Estimating vs Triangular Distribution

Here’s a table comparing the three-point estimating technique with the triangular distribution. Let’s go through it:

Aspects Three-Point Estimating Triangular Distribution
Definition A technique that uses optimistic, most likely, and pessimistic estimates to calculate an expected value. A probability distribution model that assumes a symmetric distribution between the optimistic and pessimistic estimates.
Calculation Estimated value = (O + ML + P) / 3 Estimated value = (O + ML + P) / 3
Weighting of Estimates Equal weighting of all three estimates Equal weighting of all three estimates
Range of Estimates Considers the entire range of estimates
(from optimistic to pessimistic)
Focuses on the middle value between the optimistic and pessimistic estimates
Standard Deviation Can be calculated using (P – O) / 6 Standard deviation not explicitly calculated
Risk Assessment Allows for risk analysis and identification based on the range of estimates Less emphasis on risk analysis
Application Suitable for scenarios with varying levels of uncertainty and risk Suitable for scenarios where there is a
smaller range of estimates
Complexity Simple and easy to understand Straightforward calculation method
Preferred Use When a wide range of estimates is expected When estimates are relatively close together

How PERT Differs from Three-point Estimate?

PERT (Program Evaluation and Review Technique) is a project estimation technique that differs from the basic three point estimating in several ways:

  • Methodology: PERT uses a weighted method that takes into account the optimistic, pessimistic, and most likely estimates to calculate long-term expectations. The three-point figure directly includes these three figures without additional weighting. 
  • Weights: PERT assigns weights to estimates based on predefined criteria (usually using Beta distribution). This weight makes the most likely estimate more important. No exact weighting was applied to the estimates in the three-point estimates.
  • Interpretation of Results: PERT provides the expected long-term value as a result, which represents the likely duration of the project. In contrast, the three-point estimate results in different possible durations based on the best, worst, and most likely estimates. This section provides a more detailed understanding of possible project outcomes. 
  • Risk assessment: PERT incorporates risk assessment by calculating the standard deviation of the calculated period, resulting in uncertainty. The three-point estimate also allows for risk assessment by analyzing the likelihood of meeting project deadlines considering possible time scales 
  • Application: PERT is typically used in projects with high uncertainty and limited historical data. Three-point statistics are generally applicable and can be used in various stages of the project.

Conclusion

In conclusion, three-point estimating is a valuable technique in project management that helps project managers generate more realistic estimates by considering multiple scenarios and variables. By using optimistic, most likely, and pessimistic estimates, project managers can capture a range of possibilities and account for uncertainties.

The three-point estimating technique offers several benefits. It allows for a more comprehensive assessment of potential outcomes, helps identify and manage risks, and supports informed decision-making. It also provides a clearer understanding of project timelines and resource allocation. Try Knowledgehut Project Management courses to know more.

Two common methods within three-point estimate formula project management are the triangular distribution and the beta distribution (PERT). The triangular distribution calculates the average outcome by taking the mean value of the three estimates. On the other hand, the beta distribution (PERT) involves weighting the most likely estimate and applying a specific formula to derive the expected value.

By incorporating three-point estimating in project management, organizations can reduce bias, create more accurate project schedules, allocate resources effectively, and enhance overall project success. It is a valuable tool for project managers to make informed decisions, mitigate risks, and achieve project objectives efficiently.

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