Analogous estimating is a top-down estimation technique for estimating the cost, resources and durations of projects (according to PMBOK®, 6thedition,ch. 6.4.2, 7.2.2, 9.2.2). While it is less accurate than other methods, it can be used to produce an order of magnitude or an initial estimate. Therefore, it is a common technique during the selection or initiation of projects.
In this article, we will give an overviewof this technique, its definition, typical uses as well as examples ofanalogous estimating in project management.
Contents
- What Is Analogous Estimating?
- What Is an Absolute or One-Point Estimate?
- What Is a Ratio Estimate?
- What Is an Estimate Range?
- What Is a Three-Point Estimate?
- What Is the Difference between Parametric and AnalogousEstimating?
- How Do You Apply Analogous Estimating?
- Advantages and Disadvantages of Analogous Estimating
- Pros
- Cons
- What Are the Typical Uses of Analogous Estimating inProject Management?
- Example of Analogous Estimating in Projects
- One-Point Estimate
- Range of Estimates and three-point estimate
- Ratio Estimate
- Uses of these Analogous Estimates
- Conclusion
What Is Analogous Estimating?
Analogous estimating is an estimation techniqueis also referred to as top-down estimating. It involves leveraging the estimators’experience or historical data from previous projects by adopting observed cost,duration or resource needs to a current project or portions of a project.Analogous estimating does not require data manipulation or statisticaladjustments.
This technique is useful if you need toproduce estimates without having plenty of information available. This may bethe case during project selection or initiation phases, when overseeing a bunchof projects at the portfolio-level (source:PMI Practice Standard forProject Estimating), or in the early stages of a project. Estimations canrelate to a whole project or parts of a project, such as work packages oractivities.
The PMI project management framework lists analogous estimating under the techniques of the processes estimate costs, estimate activity durations and estimate activity resources (PMBOK®, 6thedition,ch. 6.4.2, 7.2.2, 9.2.2).
Estimating Cost of a Project: Techniques and Examples
Analogous estimating is typically used toget 4 types of estimates:
- a single-point or absolute value estimate,
- a ratio estimate,
- an estimate range, and
- a three-point estimate (often defined as a subcategory of range estimates).
What Is an Absolute or One-Point Estimate?
This term refers to an estimation resultthat consists of a single absolute value. For instance, if the cost of a previousproject used to be $100,000 and it is estimated that a new, similar projectrequires a similar budget, the analogous estimate would be $100,000, anabsolute value.
What Is a Ratio Estimate?
A ratio estimate describes the relativeapplication of historical data or experience to a current project. One form is estimatingby applying a factor to observed historical values. Estimators might expect,for instance, that the current project will require 125% of the time of theprevious project.
Another use is the estimation of abreakdown or parts of the full project cost. Based on historical data, acompany may conclude that the expenses for user acceptance tests typicallyamount to 25% of the total cost of an IT project, for instance.
This approach assumes a linear relationshipbetween different aspects of a project. It is not dissimilar from a basicimplementation of a parametric estimation. Yet it tends to be rather expertjudgment-based and lack the statistical evidence.
What Is an Estimate Range?
A range estimate comprises of a range ofpossible values, rather than a single number. It is however often accompaniedby a most likely estimate. A common form of range estimates is the three-point estimation (which is sometimes referred to as a type of estimate on its own).
What Is a Three-Point Estimate?
Three-point estimating requires the projectmanager or the team to come up with three different estimates:
- optimistic estimate,
- pessimistic estimate, and
- most likely estimate.
These values are then transformed into a final estimate using the triangular or the PERT distribution. Read our detailed guide for more details.
What Is the Difference between Parametric and AnalogousEstimating?
Parametric estimating uses historical datain a different way than analogous estimating. It requires calculations andadjustments to account for the characteristics of the current project.
This is typically done using a statisticalapproach. It involves identifying parameters in historical data that correlatewith cost, duration or resource-related values of a project. Inserting theparameters of the current project will then lead to the estimates for thecurrent endeavor. The implementation of this technique varies greatly amongorganizations – it generally ranges from a simple ‘rule of three’ calculation to complex statistical models and algorithms.
Analogous estimating, on the other hand,does not usually involve an adjustment of data. It also does not requirestatistical evidence of assumed relationships. Instead, it relies more onexpert judgment.
Parametric Estimating | Definition, Examples, Uses
All in all, parametric estimating tends toproduce more accurate results thanks to its statistical and data-drivenapproach. Analogous estimating, on the other hand, requires fewer data and fewerresources and can therefore be used when only a little information is known.
How Do You Apply Analogous Estimating?
Analogous estimating usually involves thefollowing steps:
- Creating a list of similar projects (you can start with a longlist first and refine it later).
- Getting the historical cost, durations and/or resource requirements and additional details on the characteristics of past projects, e.g. scope, activities, complexity, environmental factors, etc.
- Refining the longlist by removing previous projects that are not deemed relevant anymore. The result is a shortlist of projects, that are similar to the current one.
- Deciding which type of estimates is needed, based on the stakeholders’ requirements, the availability of data and the confidence of the estimators. Refer to the first section of this article for the definitions of the different result types of analogous estimating.
- Select or calculate the estimate from the historical data.
Read this step-by-step instruction for more details and guidance.
How to Do Analogous Estimating – an Illustrated 5-Step Guide
Advantages and Disadvantages of Analogous Estimating
Like any other approach to estimating cost,schedule or resources, the analogous estimation technique comes with a numberof advantages and disadvantages.
Pros
- Analogous estimating typically does not require a lot of resources or time.
- This type of estimating can be performed with very limited available data.
- It is therefore ideal in the project initiation phase and for activities for which not much information and historical data are available.
- These estimates can be ideal for high-level assessments and strategic considerations, as the accuracy is often sufficient for working on the ‘big picture’. It can then be used in program management or for early stakeholder communications, for instance.
- An analogous estimate is often an initial estimate for a project or parts of a project at a time when not much information is available. It will then be refined over time (similar to the concept of progressive elaboration).
Cons
- Estimates tend to be rough andthey are often not very accurate.
- The underlying assumption isthat historical data or experience of the estimators would be applicable to thecurrent project. If it turns out that this assumption was incorrect, theestimate will be useless.
- In practice, top-down estimatescan sometimes be driven by political considerations or even pressure ratherthan based on the project-specific characteristics or the expertise of thesubject matter experts.
- The high level and thepotential inaccuracy of analogous estimates put certain limitations on theiruse for decision-making or project planning and controlling.
What Are the Typical Uses of Analogous Estimating inProject Management?
Analogous estimates are used by projectmanagers of almost all kinds of projects. Its application is often dependent onthe project’s phase and the availability of data rather than the subject matterof a project or activity.
Within the lifecycle of a project,analogous estimates are particularly common in the project selection orinitiation phases (source).However, the assumptions for the cost-benefit analysis of change processes orless significant parts of a project could also be estimated using this method.
This technique can also be applied to anylevel of granularity within the work breakdown structure. However, it isparticularly common to estimate entire projects or larger portions of a projectin an early planning stage.
You may consider applying the analogous estimationtechnique in cases where
- resources for estimating arelimited,
- not many details about theproject (and/or comparable projects) are known, or
- a rough estimate fits for thepurpose.
In practice, project managers tend to relyon analogous estimating mainly in situations where only limited resources orlittle input information are available. Producing rough results that are ‘goodenough’ for a phase or a part of a project is another typical use case.
Another example is program management (source: PMI Practice Standard forProject Estimating): For the high-level management of a portfolio of projects,rough estimates are often sufficient to produce data as a basis for strategicdecisions.
When projects have been running for sometime, such estimates are usually refined or replaced based on more accurate typesof estimates (e.g. bottom-up or parametric estimates).
Read on for an example of how the differenttypes of analogous estimating can be used in practice.
Example of Analogous Estimating in Projects
In this example, the different types of theanalogous estimation technique are applied to the following situation:
An IT vendor is asked by a prospectivecustomer to estimate the implementation cost of off-the-shelf software. Thevendor has done similar types of jobs a couple of times before and stored the keyindicators of past projects in a dedicated database. The database shows thefollowing data for a long list of comparable projects:
| Historical project data | Cost (in $1,000) | Duration (in days) |
| Project A | 100 | 40 |
| Project B | 200 | 70 |
| Project C | 80 | 50 |
| Project D | 160 | 50 |
| Project E | 120 | 60 |
In order to determine an analogousestimate, the estimators compare the characteristics of the upcoming projectwith those of the 6 previous projects for which they obtained the historicalcost and duration values.
One-Point Estimate
The team applies some expert judgment andconcludes that the characteristics of the current project are similar toProject E. There is actually an overlap in terms of scope, complexity andavailability of resources. Subsequently, they are using the observed cost andduration of that project as their analogous estimate (E):
E_cost = $120,000
E_duration = 60 days
Range of Estimates and three-point estimate
If the estimators are not able to find anexact match in their historical data, they tend to prefer estimating a rangeinstead of a single value.
In this case, they exclude project C as theyconsider it an outlier in terms of scope (narrower than the current scope) and cost(low). Their estimates are:
E_cost_min = $100,000
E_cost_max = $200,000
E_duration_min = 40 days
E_duration_min = 70 days
The estimators communicate this range.However, as this range is quite broad, the stakeholders ask the estimators tocome up with a ‘most likely’ estimate. The team then uses the above-mentionedone-point estimate (based on identical considerations) as the ‘most likely’estimate:
E_cost_mostlikely = $120,000
E_duration_mostlikely = 60
For a three-point estimate that can befurther processed in a triangular or PERT distribution, the team uses theminimum and maximum estimates as the optimistic and pessimistic points,respectively.
Ratio Estimate
The estimators could also determine a ratioestimate. For instance, if they expected the current project to incur 30%higher cost and take 20% more time than Project A, their estimates would be:
E_cost = $100,000 x 1.3 = $130,000
E_duration = 40 days x 1.2 = 48 days
For some projects, a breakdown intodifferent parts of a project may be required. According to the team’sexperience, project efforts and time are usually distributed as follows:
- Project management: 10%
- Installation: 10%
- Customization: 50%
- Documentation: 10%
- Testing and quality assurance: 20%
Applied to their previous estimate, theirnumbers are as follows:
| Typical share | Cost estimate | Time estimate | |
| Total estimate | – | 120 | 48 |
| Project management | 10% | 12 | 4.8 |
| Installation | 10% | 12 | 4.8 |
| Customization | 50% | 60 | 24 |
| Documentation | 10% | 12 | 4.8 |
| Testing and quality assurance | 20% | 24 | 9.6 |
Uses of these Analogous Estimates
Depending on the confidence of theestimators, these estimates may or may not be deemed good enough to quote aprice for their customer’s project.
In any case, the team will probably share therange (cost of 100 to 200 and a duration of 40 to 70 days) as an order ofmagnitude. At the same time, they might want to request further details fromtheir prospective client, such as a list of requirements or areas that need tobe customized. This feedback can then be used to produce more accurateestimates.
For their internal communication, e.g. withtheir account management team, the estimators may want to use the ‘most likely’or the ratio estimates. These numbers can help obtain a decision of whether thevendor is willing and able to pursue this opportunity. They may also rely onthe breakdown (ratio estimate) to check the availability of resources, e.g.whether the customizing experts required for this project would be availablefor 24 days.
If analogous estimating is used in internalprojects of an organization, the ratio estimate can also be useful to calculateresource requirements in the early stages of a project and to determine towhich extent departments or entities are affected by a project.
In any case, these analogous estimates arestill quite rough, so an organization will likely want to replace them withmore accurate figures over the course of a project.
Conclusion
Although the analogous or top-down estimation technique is often rough and high-level, it is very relevant in practice. Where not much information is available (yet) or an order of magnitude is needed rather than a definitive estimate, analogous estimating can be the method of choice.
Nevertheless, if you need more accurate numbers, you should consider using other estimation techniques. You will find an overview of the different methods in this article on cost estimation and this article on duration estimation.
