Simple Estimate Blog

Three Point Estimation And Why Use It

Published on February 2, 2022

Estimating large projects always comes with some degree of error, and project managers have always been trying to figure out how to deliver more accurate estimates. There are many techniques available; it can be overwhelming to choose the right one at times. Three point estimation is one such method. It has a rich history of usage across many different industries and types of organizations.

History of the PERT Method

Three point estimation can also be called the PERT method. PERT stands for Program (or Project) Evaluation and Review Technique. It was originally developed for the U.S. Navy Special Projects Office in 1957 during the U.S. Navy’s Polaris nuclear submarine project. It has also been used in other notable applications like the 1968 Winter Olympics that took place in Grenoble. And it continues to be used today in the aerospace industry and for other large projects.

What is the PERT Method?

The idea of three point estimation is quite simple. After breaking down work into smaller tasks, you evaluate each task separately. Instead of estimating that a task will take 10 hours, you allow for some uncertainty in the equation. With PERT, you come up with three numbers for each task:

  1. Optimistic: (Low Estimate) This is the “happy path” where everything goes right and the task takes the minimum amount of time that it could take.
  2. Most Likely: (Best Estimate) This is the best guess that you have, if all proceeds somewhat normally and there are a few bumps in the road, the task will take this long.
  3. Pessimistic: (High Estimate) This is the worst case scenario, where everything goes wrong. You assume the worst and try to plan for it.

How Would I Use 3 Point Estimation?

So let’s pretend for a moment that you are estimating a task like “Integrate Salesforce Contacts“. Using the PERT methodology you would think something like this:

  1. Optimistic: 5 Hours
    Maybe Salesforce already has an existing way of integrating contacts and all we have to do is configure it for our needs. We can’t be the first ones wanting to accomplish this task, so maybe we can use existing code or functionality that someone else has already created.
  2. Most Likely: 20 Hours
    We know that Salesforce is a complex program, and even if we are able to use some existing code or functionality, we may need to do a lot of customization on it since our application has its own unique needs and functionality.
  3. Pessimistic: 40 Hours
    Even though some code or functionality may already exist, we may need to code our own solution. This could become a complex task that would involve a lot of time spent reading documentation and writing extensive code.

The PERT Method Formula

And while these three data points are useful by themselves, the additional benefit of the PERT method is the formula you use to determine the PERT estimate.

PERT ESTIMATE = (OPTIMISTIC + (4 * MOST LIKELY) + PESSIMISTIC) / 6

Essentially what this formula does is give more weight to the most likely number by multiplying it by four, but then balancing out the estimate by dividing it all by 6. This gives you an estimated number that is not simply the Most Likely number, but an estimate that balances the low, the high and the most likely.

Just because you have now calculated your PERT estimate doesn’t mean you should throw away your high and low values! Those inputs are still valuable when it comes to estimating time. Often it can be best to think in ranges when it comes to estimating projects, knowing the worst case and the best case can still be valuable information to take into account.

Calculating Standard Deviation

An optional element that can be added to the PERT methodology is calculating a standard deviation using your low, high, and most likely values. The standard deviation can be used as a measure of how much variation there is in your estimates. A higher number may indicate a greater degree of uncertainty in your estimate.

STANDARD DEVIATION = (PESSIMISTIC – OPTIMISTIC) / 6

Many teams will agree to a standard range that the standard deviation should fit into. In cases where your standard deviation does not fall in that range then it may be necessary to gather more information or make changes to your estimate in order to increase the level of certainty in your estimate. For example, the range for Integrating Sales Force may fall outside that range with values as low as 5 and as high as 40. A range of 35-40 would have a lower standard deviation.

Benefits of Three Point Estimation

  • Easier decision making with more helpful data points
  • Make project stakeholders and/or clients happier
  • Thinking in ranges rather than exact numbers
  • Fewer surprises at the end of a project
  • Higher employee satisfaction with more realistic expectations

Downsides of Three Point Estimation

  • These are still subjective guesses and may still lack accuracy based on false assumptions
  • Can be less accurate for smaller projects
  • Can be tricky to calculate on huge projects with many variables

Our software Simple Estimate has the ability to estimate out of the box with One, Two, or Three point estimation techniques. In addition it can speed up the estimating process by pre-filling hourly rates for various roles in your agency or organization and allowing you to refine your own templates or partial templates that you can quickly start new projects from.

Three point estimation is one of the estimation tools you can use to gain valuable insights into your upcoming project and gain a larger degree of confidence than you would have with a single data point. The PERT methodology has been successfully used across many organizations and industries to plan projects since its invention in the 1950’s.

And while the PERT formula is helpful, it is always wise to remember that projects can still go awry, and so it is best to have plans in place when that happens. Have contingency plans in place for when things go wrong and build workplace expectations around understanding the estimating process and how it could be improved for your organization.

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