Analogous estimating is a top-down estimation technique for estimating the cost, resources and durations of projects (according to PMBOK®, 6th edition, ch. 6.4.2, 7.2.2, 9.2.2). While it is less accurate than other methods, it can be used to produce an order of magnitude or an initial estimate. Therefore, it is a common technique during the selection or initiation of projects.
In this article, we will give an overview of this technique, its definition, typical uses as well as examples of analogous estimating in project management.
- What Is Analogous Estimating?
- What Is the Difference between Parametric and Analogous Estimating?
- How Do You Apply Analogous Estimating?
- Advantages and Disadvantages of Analogous Estimating
- What Are the Typical Uses of Analogous Estimating in Project Management?
- Example of Analogous Estimating in Projects
What Is Analogous Estimating?
Analogous estimating is an estimation technique is also referred to as top-down estimating. It involves leveraging the estimators’ experience or historical data from previous projects by adopting observed cost, duration or resource needs to a current project or portions of a project. Analogous estimating does not require data manipulation or statistical adjustments.
This technique is useful if you need to produce estimates without having plenty of information available. This may be the case during project selection or initiation phases, when overseeing a bunch of projects at the portfolio-level (source: PMI Practice Standard for Project Estimating), or in the early stages of a project. Estimations can relate to a whole project or parts of a project, such as work packages or activities.
The PMI project management framework lists analogous estimating under the techniques of the processes estimate costs, estimate activity durations and estimate activity resources (PMBOK®, 6th edition, ch. 6.4.2, 7.2.2, 9.2.2).
Analogous estimating is typically used to get 4 types of estimates:
- a single-point or absolute value estimate,
- a ratio estimate,
- an estimate range, and
- a three-point estimate (often defined as a subcategory of range estimates).
What Is an Absolute or One-Point Estimate?
This term refers to an estimation result that consists of a single absolute value. For instance, if the cost of a previous project used to be $100,000 and it is estimated that a new, similar project requires a similar budget, the analogous estimate would be $100,000, an absolute value.
What Is a Ratio Estimate?
A ratio estimate describes the relative application of historical data or experience to a current project. One form is estimating by applying a factor to observed historical values. Estimators might expect, for instance, that the current project will require 125% of the time of the previous project.
Another use is the estimation of a breakdown or parts of the full project cost. Based on historical data, a company may conclude that the expenses for user acceptance tests typically amount to 25% of the total cost of an IT project, for instance.
This approach assumes a linear relationship between different aspects of a project. It is not dissimilar from a basic implementation of a parametric estimation. Yet it tends to be rather expert judgment-based and lack the statistical evidence.
What Is an Estimate Range?
A range estimate comprises of a range of possible values, rather than a single number. It is however often accompanied by a most likely estimate. A common form of range estimates is the three-point estimation (which is sometimes referred to as a type of estimate on its own).
What Is a Three-Point Estimate?
Three-point estimating requires the project manager or the team to come up with three different estimates:
- optimistic estimate,
- pessimistic estimate, and
- most likely estimate.
What Is the Difference between Parametric and Analogous Estimating?
Parametric estimating uses historical data in a different way than analogous estimating. It requires calculations and adjustments to account for the characteristics of the current project.
This is typically done using a statistical approach. It involves identifying parameters in historical data that correlate with cost, duration or resource-related values of a project. Inserting the parameters of the current project will then lead to the estimates for the current endeavor. The implementation of this technique varies greatly among organizations – it generally ranges from a simple ‘rule of three’ calculation to complex statistical models and algorithms.
Analogous estimating, on the other hand, does not usually involve an adjustment of data. It also does not require statistical evidence of assumed relationships. Instead, it relies more on expert judgment.
All in all, parametric estimating tends to produce more accurate results thanks to its statistical and data-driven approach. Analogous estimating, on the other hand, requires fewer data and fewer resources and can therefore be used when only a little information is known.
How Do You Apply Analogous Estimating?
Analogous estimating usually involves the following steps:
- Creating a list of similar projects (you can start with a longlist first and refine it later).
- Getting the historical cost, durations and/or resource requirements and additional details on the characteristics of past projects, e.g. scope, activities, complexity, environmental factors, etc.
- Refining the longlist by removing previous projects that are not deemed relevant anymore. The result is a shortlist of projects, that are similar to the current one.
- Deciding which type of estimates is needed, based on the stakeholders’ requirements, the availability of data and the confidence of the estimators. Refer to the first section of this article for the definitions of the different result types of analogous estimating.
- Select or calculate the estimate from the historical data.
Read this step-by-step instruction for more details and guidance.
Advantages and Disadvantages of Analogous Estimating
Like any other approach to estimating cost, schedule or resources, the analogous estimation technique comes with a number of advantages and disadvantages.
- Analogous estimating typically does not require a lot of resources or time.
- This type of estimating can be performed with very limited available data.
- It is therefore ideal in the project initiation phase and for activities for which not much information and historical data are available.
- These estimates can be ideal for high-level assessments and strategic considerations, as the accuracy is often sufficient for working on the ‘big picture’. It can then be used in program management or for early stakeholder communications, for instance.
- An analogous estimate is often an initial estimate for a project or parts of a project at a time when not much information is available. It will then be refined over time (similar to the concept of progressive elaboration).
- Estimates tend to be rough and they are often not very accurate.
- The underlying assumption is that historical data or experience of the estimators would be applicable to the current project. If it turns out that this assumption was incorrect, the estimate will be useless.
- In practice, top-down estimates can sometimes be driven by political considerations or even pressure rather than based on the project-specific characteristics or the expertise of the subject matter experts.
- The high level and the potential inaccuracy of analogous estimates put certain limitations on their use for decision-making or project planning and controlling.
What Are the Typical Uses of Analogous Estimating in Project Management?
Analogous estimates are used by project managers of almost all kinds of projects. Its application is often dependent on the project’s phase and the availability of data rather than the subject matter of a project or activity.
Within the lifecycle of a project, analogous estimates are particularly common in the project selection or initiation phases (source). However, the assumptions for the cost-benefit analysis of change processes or less significant parts of a project could also be estimated using this method.
This technique can also be applied to any level of granularity within the work breakdown structure. However, it is particularly common to estimate entire projects or larger portions of a project in an early planning stage.
You may consider applying the analogous estimation technique in cases where
- resources for estimating are limited,
- not many details about the project (and/or comparable projects) are known, or
- a rough estimate fits for the purpose.
In practice, project managers tend to rely on analogous estimating mainly in situations where only limited resources or little input information are available. Producing rough results that are ‘good enough’ for a phase or a part of a project is another typical use case.
Another example is program management (source: PMI Practice Standard for Project Estimating): For the high-level management of a portfolio of projects, rough estimates are often sufficient to produce data as a basis for strategic decisions.
When projects have been running for some time, such estimates are usually refined or replaced based on more accurate types of estimates (e.g. bottom-up or parametric estimates).
Read on for an example of how the different types of analogous estimating can be used in practice.
Example of Analogous Estimating in Projects
In this example, the different types of the analogous estimation technique are applied to the following situation:
An IT vendor is asked by a prospective customer to estimate the implementation cost of off-the-shelf software. The vendor has done similar types of jobs a couple of times before and stored the key indicators of past projects in a dedicated database. The database shows the following data for a long list of comparable projects:
|Historical project data||Cost (in $1,000)||Duration (in days)|
In order to determine an analogous estimate, the estimators compare the characteristics of the upcoming project with those of the 6 previous projects for which they obtained the historical cost and duration values.
The team applies some expert judgment and concludes that the characteristics of the current project are similar to Project E. There is actually an overlap in terms of scope, complexity and availability of resources. Subsequently, they are using the observed cost and duration of that project as their analogous estimate (E):
E_cost = $120,000
E_duration = 60 days
Range of Estimates and three-point estimate
If the estimators are not able to find an exact match in their historical data, they tend to prefer estimating a range instead of a single value.
In this case, they exclude project C as they consider it an outlier in terms of scope (narrower than the current scope) and cost (low). Their estimates are:
E_cost_min = $100,000
E_cost_max = $200,000
E_duration_min = 40 days
E_duration_min = 70 days
The estimators communicate this range. However, as this range is quite broad, the stakeholders ask the estimators to come up with a ‘most likely’ estimate. The team then uses the above-mentioned one-point estimate (based on identical considerations) as the ‘most likely’ estimate:
E_cost_mostlikely = $120,000
E_duration_mostlikely = 60
For a three-point estimate that can be further processed in a triangular or PERT distribution, the team uses the minimum and maximum estimates as the optimistic and pessimistic points, respectively.
The estimators could also determine a ratio estimate. For instance, if they expected the current project to incur 30% higher cost and take 20% more time than Project A, their estimates would be:
E_cost = $100,000 x 1.3 = $130,000
E_duration = 40 days x 1.2 = 48 days
For some projects, a breakdown into different parts of a project may be required. According to the team’s experience, project efforts and time are usually distributed as follows:
- Project management: 10%
- Installation: 10%
- Customization: 50%
- Documentation: 10%
- Testing and quality assurance: 20%
Applied to their previous estimate, their numbers are as follows:
|Typical share||Cost estimate||Time estimate|
|Testing and quality assurance||20%||24||9.6|
Uses of these Analogous Estimates
Depending on the confidence of the estimators, these estimates may or may not be deemed good enough to quote a price for their customer’s project.
In any case, the team will probably share the range (cost of 100 to 200 and a duration of 40 to 70 days) as an order of magnitude. At the same time, they might want to request further details from their prospective client, such as a list of requirements or areas that need to be customized. This feedback can then be used to produce more accurate estimates.
For their internal communication, e.g. with their account management team, the estimators may want to use the ‘most likely’ or the ratio estimates. These numbers can help obtain a decision of whether the vendor is willing and able to pursue this opportunity. They may also rely on the breakdown (ratio estimate) to check the availability of resources, e.g. whether the customizing experts required for this project would be available for 24 days.
If analogous estimating is used in internal projects of an organization, the ratio estimate can also be useful to calculate resource requirements in the early stages of a project and to determine to which extent departments or entities are affected by a project.
In any case, these analogous estimates are still quite rough, so an organization will likely want to replace them with more accurate figures over the course of a project.
Although the analogous or top-down estimation technique is often rough and high-level, it is very relevant in practice. Where not much information is available (yet) or an order of magnitude is needed rather than a definitive estimate, analogous estimating can be the method of choice.
Nevertheless, if you need more accurate numbers, you should consider using other estimation techniques. You will find an overview of the different methods in this article on cost estimation and this article on duration estimation.