Estimation of cost using Work breakdown structure (WBS), Delphi and 3 point

Project estimation are of two types. Cost / Effort estimation and project duration estimation. As discussed earlier, work breakdown structures provides us with the breakup of work and at the same time do not provide us with the sequence in which the work has to be performed. Hence work breakdown structures are good enough to perform cost estimation. In I.T projects, since the major contributor to cost is the manpower cost, the term cost and effort are used,and they point to the cost estimate. In other domains like civil, electrical, mechanical etc the project cost include manpower, material and equipment costs. Project estimation happens during pre-sales (early) stage and during detailed project planning. During the early stages of project we have to arrive at the cost estimates using the WBS, as task level details will not be available. Wide band delphi technique, along with the three point estimation technique is the most widely used techniques for early project estimation.

Three point estimate

For every work package, three estimates are derived at;

  • Optimistic (most aggressive) (O)
  • Pessimistic (most generous) (P)
  • Most likely (most probable)  (M)

Then a single point estimate is arrived at by using the formula (O+4M+P)/6

For example, If you are traveling from Point A to Point B and if;

Optimistic estimate is 1 hour

Pessimistic estimate is 3 hours

Most likely estimate is 2 hours

Then the single point estimate is (1+4×2+3)/6 = 12/6 = 2  hours

How the delphi technique is used in project estimation?

  • The work packages to be estimated are explained to a group of experts who have the domain knowledge
  • The experts derive the optimistic, pessimistic and most likely estimates without discussing among themselves
  • After the estimation, they explain their individual estimates to the rest of the estimation team
  • The estimation team converges into one set of optimistic, pessimistic and most likely values based on mutual consensus. Averages and voting are not allowed as the estimates from the minorities can be right.
  • From the agreed upon three point estimates, a single point estimate is arrived
  • These steps gets repeated for each and every work packages of the projects
  • The sum total of the estimates of all the individual work packages is the project’s estimate.

 

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