Tabel of the content

• What Is The Analogy Estimate? How Can It Benefit You?
• Parametric and Analogous Estimation Make the Difference
• Analogous Estimating - How To Apply It In Your Business
• Analogous Estimating: Pros and Cons
• Analogous Estimation Technique in Project Management
• Analogous Estimates: Uses
• Wrapping Up

When estimating the time, money, and resources needed for a project, analogous estimating is a method that works from the top down. Even though it's not as precise as other approaches, it can still be utilised to get a ballpark figure or a first guess. That's why it's a typical method when deciding which initiatives to start or end.

In this post, we'll summarise this method, explain its meaning, and discuss how it's usually used in project management.

What Is The Analogy Estimate? How Can It Benefit You?

Top-down or analogous estimating is a type of estimation method. Estimators can benefit from this technique by applying learned cost, duration, or resource requirements to new projects or phases of existing ones. When making an estimate using the method of analogy, no statistical changes or data manipulations are needed.

If you need to make estimates but don't have a tonne of data, this method can help. This could be true when you select and start a project, manage portfolios or initiate a new project. Cost estimates may be made for the entire project or smaller components like individual work packages or individual activities.

There are typically four different kinds of estimations obtained using analogous estimates: an absolute value estimate or a one-point estimate, an estimated range, a three-point estimate and a ratio estimate.

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Parametric and Analogous Estimation Make the Difference

In contrast to analogous estimating, parametric estimating makes a different kind of use of past data. Calculations and tweaks are needed to fit the specifics of this project.

It is common practice to employ a statistical method for this. Usually, it's a process that analyses past data for factors that can help to predict future values of a project's budget, timeline, or resources. Once the relevant characteristics for the current project are entered, cost estimations can be calculated. Various businesses use various methods to elaborate statistical algorithms and models when implementing this strategy.

But data correction is rarely necessary when using analogous estimating. Assumed associations also do not need to be supported by statistics. On the contrary, it places a premium on the input of knowledgeable specialists.

Overall, parametric estimating is more likely to give precise results because it is based on statistics and data. On the contrary, analogous estimating needs less information and fewer resources, so it can be used when only a small amount of data is known.

Analogous Estimating - How To Apply It In Your Business

For analogous estimating, the following steps are usually taken:

• Create all projects that are similar to the current project scope, including the previous ones. Start with an extensive list first and enhance it in the future.
• Get the costs, times, and/or resources needed for past projects and more information about their scope, complexity, activities, environmental factors, and others.
• Filtering the extensive list by deleting earlier initiatives which you find irrelevant. After this, you have a list of projects, like the current ones.
• The decision of what kind of estimates are required, taking into account the needs of various stakeholders, the accessibility of relevant data, and the expertise of the individuals who estimate.
• Choose or compute the approximation based on past results.

Analogous Estimating: Pros and Cons

The benefits and drawbacks of the analogous estimating method are similar to those of other costs, time, and resource estimation methods.

Advantages

• Most of the time, analogous estimating doesn't take much time or resources.
• This method of estimation requires only a small amount of known information.
• It works well at the beginning of a project and for activities without much information or historical data.
• The level of accuracy may be adequate for working on the bigger picture when using these estimations, making them a good fit for overall evaluations and strategic planning. After that, you may use it for whatever you like, communicating with stakeholders early on.
• This is usually the first estimate for any project or part of a project when there is not enough known. Then, it will get better over time.

Disadvantages

• Estimates are usually very rough and not very precise
• The basic idea is that the estimators can use their past knowledge or experience on the present project. If this assumption turns out to be wrong, the estimate won't be useful.
• In real life, estimates from the top can occasionally be based more on politics or even burden than on the specifics of the project or the knowledge of the experts in the field.
• Similar estimates can be hard to use for making decisions or controlling and planning projects because they are often high-level and may not be accurate.

Analogous Estimation Technique in Project Management

Project managers use analogous estimates for almost any kind of project. Its use often depends on the stage of a project and the available data, not on what the activity or project is about.

During a project's lifecycle, analogous estimates are most common during the project selection and start-up phases.

This method can also be used for any level of detail in a work halt structure. But it is common to guess whole projects or bigger parts of a project at the beginning of the planning process.

Analogous Estimates: Uses

Estimates may or may not be sufficient to provide a price for their customer's project, depending on the estimators' confidence level in their accuracy.

Estimators may utilise the "most likely" or ratio estimates when communicating internally, such as with the account management team. The seller can use these figures to determine whether or not they want to pursue this offer. They might use the breakdown (ratio estimate) to see if the necessary customisation expertise is available for the project's deadline is nearby.

Suppose a company uses analogous estimates for internal projects. In that case, use a ratio estimate to establish which departments or entities will be most affected by the project and assess resource needs early.

In any case, the analogous estimates still do not provide a precise conclusive answer. So, it makes sense if organisations implement a better method later for accurate figures during a project.

Wrapping Up

Analogy estimation can make estimating a project easier for estimators if they first use top-down or parametric estimating for the phases, deliverables, and requirements that are not new. Understanding relationships between similar phases, deliverables, and requirements will aid in estimating new work. This can help an estimator avoid missing costs and schedule overruns within a project.

However, one may consider additional estimating methods if you require more precise numbers. Candidates interested in Project Management can enrol in the PMP Certification Course by visiting the StarAgile website.