Effort estimation is a critical factor that separates projects that succeed vs. struggle. This informative and easy-to-read article covers the basics of effort estimation, and includes a look at the Program Evaluation and Review Technique (PERT).
Planning a project is not an easy task; it is a project by itself. In most cases, there are no short cuts, but there are best practices and online project management software solutions that can help you plan a successful project.
A critical phase in any project planning is the effort estimation phase. Many projects start off on the wrong foot because people tend to underestimate the effort involved in delivering the work. As project managers, we need to make sure that the team understands a few things:
- What customers need
- How much it will cost to produce what the customers want
People tend to be too optimistic.
The tendency to hold a confident belief that one’s own project will proceed as planned, even while knowing that the vast majority of similar projects have run late, has been termed the planning fallacy (Kahneman & Tversky, 1979). In most cases, project plans and effort estimations are based on optimistic assumptions, thus resulting in wrong estimates and overdue schedules. For instance, people may not take into account unexpected events or urgent high priority work, and they may fail to allow for the full complexity of the job.
Accurate effort estimation is a key element in project success.
With the planning fallacy concept in mind, project managers should adopt a more objective view when estimating efforts in a project. One simple method of providing a more objective and realistic effort estimation is the Program Evaluation and Review Technique (PERT), an estimating technique that is based on a calculated weighted average of three numbers.
(P) – The most pessimistic case when everything goes wrong
(O) – The most optimistic case where everything goes right
(M) – The most likely case given normal problems and opportunities
The resulting PERT estimate is a “weighted average,” where the most likely case has more weight than the pessimistic and optimistic cases.
The weighted average is calculated as (O + 4M + P)/6. You’ll notice that the final PERT estimate is moved slightly toward either the optimistic or pessimistic value – depending on which one is furthest from the most likely.
Effort estimation should be constantly monitored and optimized.
After a project ends, the project manager can go back to the three different estimations and identify if the effort estimations were too optimistic or too pessimistic versus the actual effort. The variance of the actual effort from the PERT weighted average provides the project managers with a measurable metric. The metric can be used overtime to optimize the project manager’s effort estimation skills by constantly monitoring the variance metric, aiming for reducing the average plan versus actual variance across all projects in the portfolio.
KPIs for effort estimation.
After working with PERT for a while, additional metrics can be used to further optimize the effort estimation skills. The project manager can calculate the standard deviation of the effort estimation by dividing the difference between the optimistic case and the worst case, and dividing the difference by 6 (O + P6). The work packages where the standard deviation is higher than the average standard deviation should trigger a warning to the project managers, showing there is a high level of uncertainty for the specific work package. The larger the standard deviation, the less confidence you have in your effort estimate. If the standard deviation is small, you can be more confident in your estimate, since the optimistic and pessimistic estimates are closer.
Remember the PERT formula and use it to make estimates when you have a high level of uncertainty.
Constantly improve your project management skills.
Although a project is by definition a one-time effort, improving your project management skills is a long-term process. Remind yourself to constantly improve your project management skills and keep looking for tools like time management software or best practices that will help you improve your skills and processes.