Analogous Estimation: A Comprehensive Overview

Accurate Estimation is crucial to successful planning and execution in Project Management. This is where Analogous Estimation steps in. This technique is often referred to as top-down Estimation and is a strong technique that leverages historical data and expert judgment to forecast project costs and timelines.

Thus, Project Management professionals must learn about this technique to plan the tasks accurately during the project. So, wait no more and read this blog. In this blog, you will learn about Analogous Estimation, its methods, best practices, and real-world applications. Let's delve in!

Table of Contents 

1) What is Analogous Estimation? 

2) Advantages and disadvantages of Analogous Estimation

3) Difference between Parametric and Analogous Estimation

4) How does Analogous Estimation work?

5) Analogous Estimation categories

6) Uses of Analogous Estimation

7) Examples of Analogous Estimation

8) Conclusion

What is Analogous Estimation? 

Analogous Estimation is a technique for estimating parameters of Project Management like cost, duration and resource requirements of a project. It uses the actual values of actual projects completed in the past that somehow resemble the abstracted project of estimations.

This technique is a good example of logic when knowledge about the current campaign is limited, which makes it hard to generate certain estimates through more detailed methods. Thus, Analogous Estimation approach can become a beacon of hope in these cases as it employs the insights and background of the project team members or experts who are aware of the similarities between the new project and the comparable projects on the list. 

These estimation formulas are undertaken at the beginning of Project Planning, where a rough assessment or appraisal is usually needed to determine the project's size, cost or duration (estimate). It is executed more shortly and cheaply than many other estimation methods, including parametric or bottom-up processes, but its accuracy is not so high.

The accuracy of your analogy or estimate can increase when the past projects you are familiar with are the same as or very similar to the new project you want to compare with. Moreover, when there is reliability from data you get from the past projects you compared to, only then can you implement this technique.

Professionals can use this for instances like when a Project Manager has managed a marketing campaign with a similar scope and targeted market; the cost and duration of the campaign management can provide a basis for calculating the price and timeframe of another campaign. This approach strengthens it in fields where projects share the same general characteristics, such as the Construction, Software Development, and Event Planning sectors.
 

Advantages and disadvantages of Analogous Estimation

Now that you are familiar with What is Analogous Estimation, it is the time to understand its advantages and disadvantages. Let's have a look at them in detail:

Advantages of Analogous Estimation

The following are the benefits of performing Analogous Estimation:

a) Efficiency and resource conservation: Analogous Estimating techniques in Project Management are efficient regarding time and resource utilisation. They don't require extensive data collection or analysis.

b) Suitable for limited data: This method is well-suited for situations with minimal available data and historical records. It is particularly useful for projects in their early stages.

c) Strategic planning and big-picture analysis: Analogous Estimates are valuable for high-level assessments and strategic planning. They offer sufficient accuracy for evaluating the project landscape, making them useful for early stakeholder communication and Program Management.  

d) Gradual refinement: Analogous Estimates provide an initial estimation with limited data, which can be subsequently improved as the project progresses.

e) Feasibility screening: This technique aids project teams in assessing project feasibility, viability, and potential return on investment, contributing to informed decision-making.  

Disadvantages of Analogous Estimation

The following are some disadvantages of using this technique:

a) Lack of precision: Analogous Estimates are generally less precise and are prone to inaccuracies.

b) Reliance on assumptions: These estimates rely on the assumption that past data or the experience of estimators will be applicable to the current project. If this assumption is incorrect, the estimate may prove unreliable.

c) Top-down influence: Sometimes, top-down projections can be influenced by outside factors, such as political considerations or pressure, rather than project-specific attributes or subject matter expertise.

d) Limitations on decision-making: Due to their high-level nature and potential for errors, Analogous Estimates may have limitations when used for detailed decision-making, project planning, and control.

e) Inadequate for unique projects: When historical data is unavailable, or the organisation has not executed similar projects, Analogous Estimating may be inadequate and impractical.

Difference between Parametric and Analogous Estimation 

Analogous Estimating is a Project Estimation approach that leverages historical data from past projects to formulate a general estimate for a new project. This Estimation process considers various project attributes such as project duration, budget, costs, and scope, which are Analogous to those of similar previous projects. 

Analogous Estimates are typically easier to perform as they involve high-level evaluations and comparisons of the current project with prior identical projects. While this approach offers a reasonable starting point for project cost and duration estimates, it may not provide the precision required for highly detailed or complex projects. 

Conversely, Parametric Estimating employs unit prices associated with specific project activities to calculate costs and durations more precisely. To perform parametric estimation effectively, project managers must identify and define each unit specifically, considering factors like labour, materials, and other project elements. 

Parametric Estimates require a more rigorous and data-driven approach, making them suitable for projects with well-defined parameters and detailed information. This method offers greater cost and time estimation accuracy but often demands more time and resources due to the need for thorough calculations and statistical analysis.  

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How does Analogous Estimation work? 

It's crucial to recognise that the accuracy of Analogous Estimation is contingent upon the degree of resemblance between the two projects. If substantial disparities exist, the estimates may deviate from the actual outcomes. To execute Analogous Estimating effectively, consider the following steps:

a) Identify comparable projects: Begin by compiling a list of past projects that exhibit similarities in scope, size, complexity, or other relevant characteristics.

b) Gather relevant data: Collect data related to critical variables, such as project cost, duration, specific activities, and scope, for both historical and current projects.

c) Narrow down the selection: From the initial list, refine your options to create a shortlist of the most closely related projects based on shared attributes.

d) Determine Estimation needs: Evaluate the requirements of stakeholders and the expertise of estimators to decide which types of estimates are essential for the current project.

e) Calculate Estimates: Utilise the data from the Analogous project to calculate estimate values for the current project, considering the relevant variables and the scope of the endeavour.

Analogous Estimation is a valuable method in Project Management for providing preliminary estimates, aiding in resource allocation, and guiding decision-making early in the project's lifecycle. However, its effectiveness relies on selecting a comparable project and the accuracy of historical data used for estimation.

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Analogous Estimation categories 

Analogous Estimation, a valuable technique in Project Management, encompasses four crucial categories, each offering distinct methods for project estimation. These categories encompass the following: 

Absolute-value or Single Point Estimate

This category involves using a single fixed value from a past project with similar characteristics and directly applying it to the current project. For instance, if a previous project had a budget of $400,000, an Analogous Estimation would suggest using the same amount for the current project. 

Ratio Estimate 

Ratio Estimation entails comparing past data or knowledge to the current project. Estimators might, for example, predict that the current project will take 125% of the time required for the last project. It can also involve estimating specific components or elements of the overall project cost based on historical relationships, such as determining that user validation testing typically accounts for 25% of the total IT project cost. 

Estimated Range 

Range Estimation relies on parameter estimates to provide a range of project cost and duration values. It includes a most probable estimate representing the value most likely to occur.  Project Managers select the value that best aligns with the expected project outcome. This method is often associated with the three-point cost estimation process because it incorporates multiple variables.

Three-point Estimate

While often referred to as a range estimate, the Three-point Estimation technique involves deriving an estimate from three distinct values. These values include the most likely, most optimistic, and most pessimistic estimates. The final estimate is typically computed using the triangular or Program Evaluation and Review Technique (PERT) distribution. Project Managers incorporate this final estimate as the project's cost or duration. 

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Uses of Analogous Estimation 

Analogous Estimation is a powerful technique but is contingent on the availability of preliminary data from a past project resembling the current one. Here are scenarios where this estimation method is best applied: 

Use case 1: The project is still in its early phases 

Analogous Estimation is highly effective when limited data is available during the initial project stages. It assists in assessing project viability and making informed bid decisions. As the project progresses, you can seamlessly refine your estimates based on evolving information.

Use case 2: Quick calculation 

When you require a rapid, rough estimate for project bidding, Analogous Estimation proves invaluable. It enables the generation of reasonably accurate project cost and duration estimates with minimal effort.

Use case 3: Professionals' opinion 

Experienced Project Managers can draw on their expertise from previous projects to inform Analogous Estimates, mainly when project similarities exist.

Use case 4: Quick calculation 

Analogous Estimation remains reliable when speed is essential, such as in bid preparations. It allows for the swift generation of reasonably accurate project cost and duration estimates, requiring minimal research.

Examples of Analogous Estimation

Analogous Estimation, often utilised in Project Management, Software Development, and varying other planning stages of projects, involves assessing the period, cost, or magnitude of a task based on historical data of previously accomplished projects that are similar. Here are some examples across different fields:

Example 1: Construction projects

An organisation may create a 2,000-square-foot house in one place for construction operations. Additionally, it might build a similar home around the same size and specifications in another place. Hence, it can use the cost and time data from the previous project as a starting point for the future project.

Example 2: Software Development

For instance, an experienced software team that previously developed a CRM system for a small company can build and execute a similar system in the same way it did for the previous company, but it will add flexibility to the effort and time as it knows that some of the system's parts may suit the needs of one company but not of another.

Conclusion 

Analogous Estimation emerges as a valuable tool for early-stage assessments and high-level planning. Its simplicity and cost-effectiveness make it a good choice when historical data is scarce. However, understanding its limitations is crucial, as it provides a foundation for more precise estimations. This technique opens the door to informed project discussions, offering a starting point for project success.

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