Unveiling the Three-Point Estimating Technique

What is a Three-Point Estimating Technique?

Considering the different aspects of any project comprises the three-point estimating technique. It is used in management and information systems applications. Three-point estimation technique helps construct an approximate probability distribution representing the outcome of future events.

• Optimistic estimate: It is the estimate that involves the case of smooth reaching to the goal. It represents the scenario where everything goes perfectly. This leads to the lesser time taken to reach the goal and hence is exhibited by the green light in the figure which is closest to the goal. It is the ‘best case’ projection and an ideal situation that has rare chances in practical appearance. 
• Pessimistic estimate: It is the estimate that involves the roughest case of reaching the goal. It represents the situation of immense challenges requiring the highest cost of completion. It is the ‘worst-case’ scenario with numerous setbacks owing to unforeseen challenges, obstacles and delays. It is represented by a red light, which is farthest from the goal. 
• Realistic estimate: It is the practical approach to the goal where challenges and favors are estimated in balance, which generally happens in real life. It involves progress based on expectation. It is the real-life scenario represented by yellow light that is neither far nor near to the goal. 

Three-Point Estimating Formula

The 3-point estimate formula is used to weigh the estimates of optimistic, realistic and pessimistic scenarios:

Three-point estimating = O+4R+P6 

Where O denotes the optimistic estimate, R denotes the realistic estimate, and P is the pessimistic estimate.

The 3 point estimate formula has each estimate with different weightage. Optimistic and pessimistic estimates hold one weightage, while realistic estimates have four. The significance of the heavy weightage of the realistic estimate is seen in getting a realistic approach toward the scenario, considering both best and worst cases without unrealistic assumptions.  

How to Use Three-point Estimating?

A project manager is expected to carry out three-point estimating for the project. The stepwise approach to three-point estimating is 

Step 1: Task Analysis 

Assess the task in question and associated resources. Analyze them to identify the positive and negative possibilities. Consider all the possible challenges for the least resistant completion of the project. 

Step 2: Identify the Estimate

Enlist all three scenarios. 

• Optimistic estimate: Design the roadmap with the shortest time to reach the goal without any issues. It would encompass efficient and timely completion of the tasks. 
• Pessimistic estimate: Design the roadmap with maximum hindrances making it hardest to complete the project. It would include failure in each task, making it the most time-consuming approach. Estimate the time in such a scenario. 
• Realistic estimate: Take the average of the previous two estimates, which helps to determine the actual time required to complete the project. 

Step 3: Calculate a Three-point Estimate 

The project managers are required to calculate the final estimate and then the standard deviation. 

Use the formula O+4R+P6 to estimate the value, such as the number of days,currency, efforts in terms of people and time. 

Extend the calculation to determine standard deviation using the formula: P-O6, where P is pessimistic and O is an optimistic estimate. 

Head on to find the mean optimistic time by the formula: Mean - standard deviation

Further, calculate mean pessimistic time by the formula: Mean+standard deviation

Post all the possible calculations, it is important to analyze and take a practical approach. Identify the percentage accuracy for a better idea. The project managers are responsible for taking rational decisions by balancing the optimistic and pessimistic approaches rather than relying on the extreme values in these scenarios. Use the result for decision-making while logically conveying the decisions to stakeholders and communicating them with team members. Ensure regular review and update to incorporate timely updates and to get efficient results. 

Example of a Three-Point Estimate

Let us consider the example where a company is expected to produce a carton of lip colors with 40 different shades. The estimate is required to predict the manufacturing cost. 

Product: Carton of 40 different shades of lip color

Optimistic estimate (O): INR 16000

Assuming favorable conditions for production and sourcing of materials. 

Pessimistic estimate (P): INR 20000

Assuming increased material costs, unexpected delays and other possible challenges

Realistic estimate (R): INR 17500

Assuming balanced assessment of manufacturing costs that includes labor charges, overhead and materials cost 

Three-point estimate:

Formula = O+4R+P6 

Formula = 16000+(417500)+200006 

Formula = 16000+70000+200006 

Formula = 1060006 

Formula = INR 17,666.67

Inference: The project manager gets the estimate of INR 17,666.67 for the manufacturing cost of a carton of 40 different shades of lip color. The estimate is based on optimistic, pessimistic and realistic scenarios. 

Advantages of Three-Point Estimating 

The estimates are of significance in business, individual decisions and concerning projects. Here are the served benefits: 

• Better estimates on time and expenditure or any other unit for which the three-point estimate technique is being performed
• Reduces the risk of failure by identifying the possible solutions and handling them beforehand. It also aids in prioritizing challenging tasks based on required time. Standard deviation also contributes to estimating the involved risks.
• Efficient planning owing to assumptions and expectations tends to benefit the project at some other level. 
• The decision-making is rational and informed based on the known components like resource allocation, scheduling and project priorities
• Considering the best and worst case scenarios allows keeping realistic expectations rather than superficial ones based on mere assumptions

Estimating Challenges and How to Overcome Them

Some of the challenges posed by three-point estimation and methods to overcome them are: 

Uncertainty, Over-optimism and Underestimation

• Challenge: Lack of accuracy 
• Overcome: Incorporate usage of all the three-estimates and rely practically while taking the comprehensive view 

Complex Dependencies

• Challenge: Difficulty in handling complex projects
• Overcome: Use WBS or Work Breakdown structure to break down the complex projects into smaller components. Perform three-point estimation individually for the components for better accuracy

Changing Requirements

• Challenge: Impacts the initial estimates
• Overcome: Regularly review and update the estimate based on changes

Time Pressure

• Challenge: Tight timelines can lead to rushed estimates
• Overcome: Include more time in different scenarios while balancing speed with accuracy 

Limited Expertise

• Challenge: Effect on accuracy due to lack of expertise
• Overcome: Ensure participation of experts to guide through the optimistic and pessimistic estimates

Lack of Historical Data

• Challenge: Effects the accuracy and assumptions 
• Overcome: Use the available data for a realistic estimate and put the unknowns and variables in optimistic and pessimistic estimates

Conclusion

The three-point estimating technique is a valuable technique in project management while also serving benefits in personal lives. It offers a comprehensive and transparent approach to considering the possibilities and uncertainties, thus estimating the final result. There are multiple other tools and techniques in project management, crucial for efficient functionality and showcasing skills. Considering the same, here is the Post Graduate Program in Project Management delivered by Simplilearn in collaboration with UMass Amherst.

FAQs

1. What is an example of 3 point estimating?

Let us consider a personal life example of three-point estimating that you use it to plan a weekend trip. The optimistic estimate is 2 days, the pessimistic estimate is 4 days, and the realistic estimate is 3 days. 

Estimate = O+4R+P6 

Estimate = 2+(43)+46 

Estimate = 186 

Estimate = 3 days 

Hence, the 3-point estimate suggests the weekend trip will take around 3 days. 

2. What is the three-point estimating PERT?

PERT, or Program Evaluation and Review Technique, is a specific technique using three-point estimation. It emphasizes the result of the three-point estimation technique, which is the expected value to schedule and plan the project. 

3. What are the components of three-point estimating?

The components of three-point estimating are optimistic estimation, pessimistic estimation and realistic estimation.