# 3 Parametric Estimating Examples in Project Management

The parametric estimating technique is used in project management to estimating the project’s cost and duration. This technique uses a statistical relationship between the variables and the historical data to estimate the cost and duration of either a project activity or the entire project.

The parametric estimating technique is usually used in the planning phase of the project management to determine the project schedule and budget.

Project management is about estimating the duration and cost from which decisions are made. At times, evaluating can be difficult due to assumptions on fluctuating factors such as changes in project scope or time-sensitive constraints. It is critical that estimating the project manager has an effective tool at hand.

A parameter is a variable of a model. Estimates are used to understand the parameters in a model. Parametric schedule or cost estimates can be applied to total projects or segments of the project in conjunction with other estimating methods.

A parameter estimation formula is an equation that takes estimates of the independent and dependent variables as inputs. The inputs include values for the independent variable and a set of cases. If a claim is used, the results are captured using a linear regression process, where one input value is held constant for each case. The inputs to the equation are rates.

Parametric costing or scheduling uses historical data and statistical relationships between the variables to calculate the project schedule or cost estimates. Parametric estimating is reliable but only in a particular environment. It is important in project management because it can give accurate information on how long the project will take or how much will it cost to complete.

## Parametric Estimating Formula Examples

A parametric estimating formula adds up the possibilities used to calculate a cost estimate. The procedure is used for each period for which estimates of costs are needed and can be changed to include different parameters, such as using another capital recovery factor in each period.

The formula for a linear relationship between the parameters and the cost or time is as follows, where E_parametric = parametric estimate, a_old = historic amount of time or cost, p_old = historical value of the parameter and p_curr = value of that parameter in the current project.

### Parametric Estimating Cost Example 1

The cost to paint the wall of area 1500 square feet was \$ 10,000, and in the current project, the wall area of 3000 square feet is to be painted. Therefore as per the formula a_old = \$10,000, p_old = 1500, p_curr = 2500 . Assuming that the cost of material is the same, the parametric cost estimate will be \$20,000

### Parametric Estimating Duration Example 2

It took 5 hours to build 2 wooden tables. The current project is to build 14 wooden tables. Therefore as per the formula a_old = 5 hours, p_old = 2 tables, p_curr = 14 tables . Assuming that the size of the tables is the same, the parametric duration estimate will be 35 hours

### Parameter Estimation Cost Example 3

The cost referred to here is nothing but the cost to predict the system state at a specific future time. In most cases, this is nothing but the expense of resources and time required to achieve this. If you consider the parameter estimation a cost that needs to be minimized, then the cost function would look like this: Cost = “parameter estimation” + “data loss”.

Where data loss is the probability that the valid parameter lies outside a given confidence level, the more likely it is to be outside of this confidence level, the higher this cost will be.

This cost function would look like this below:

Cost = ((1 – “confidence level”)”data loss”) + “parameter estimation”.

Suppose a model is being used to predict the amount of drug required to treat a patient and the data loss is 20% (this percentage value might not be correct since it could vary depending on the type of data and the detailed analysis). If we assume that our estimated calibration parametric cost estimating example has an uncertainty level of 1.2%, then our cost function would look like this:

Example :   Cost = .62((1-0.02)^4 + 2) + (1+1.2)^(4).

To minimize the cost, we need to maximize the likelihood of an observation given our estimate for our parameters. However, this is not possible because it is not possible for us to know what every observation value might be. Many assumptions are made throughout the parameter estimation process, and one crucial belief is that our estimates have no bias.

## Parametric vs Analogous Estimating

Analogous estimating is a form of parametric estimating used to determine a project’s time, cost, or scope. This estimation method uses similar or analogous projects to estimate your project’s requirements. These projects may include previous tasks performed by you at work and similar ones completed by others throughout the industry.

Analogous estimating type of estimation is often applied for construction and manufacturing projects due to its reliability in estimating their cost, scope, schedule, etc. Analogous estimating is done by gathering similar information about each prior project, such as the inputs and outputs of each project and any other pertinent elements that may affect the estimation.

This method is most effective when applied to one project at a time. This approach will allow the team to view the project holistically to develop a more realistic estimation. Analogous estimates are not always the most accurate based on the variables of each situation but are helpful when trying to estimate tasks that cannot be accurately measured and have not been repeated often enough to allow for metrics or parametric estimating.

### Differences

The differences between parametric and analogous estimating strategies are related to their outputs and inputs. Parametric estimates are based on the combination of numerical data and historical information, whereas the analogous estimating technique only uses an analogy to a similar project. A model is made with numerical data to estimate cost and duration in parametric estimating. This model type is specific to the materials needed per unit of output.

The model uses this input to calculate how many project activities can be done given the required materials are available in a given schedule. The parametric estimating technique is more time-consuming than the analogous estimating technique.

Both approaches have advantages and disadvantages in terms of parametric estimating, but they can be combined to provide the best overall estimate of a production process.

### Similarities

Both parametric and analogous estimating are necessary for a project to be considered complete. If a company doesn’t have a formal estimate of how much its project will cost, it should not be deemed to have finished the job. This makes sense because no one can know exactly how much something will cost without knowing the variables involved. There are two main advantages of the analogous estimating method.

The first is that it’s much less costly than parametric estimating while still giving an accurate estimate of how much a project will cost. The other advantage of this method is that it’s very flexible and can be applied to most projects. Therefore, everyone can use it even if they are unfamiliar with estimating software packages or parametric methods.

Parametric estimating considers the statistical relationship between variables; therefore, the results are accurate, and getting stakeholders’ approval is easier.

The Parametric estimating technique can be reused in similar projects.

The variables in the parametric estimating models can be adjusted to account for differences between the historical and current projects.

If the historical data available is unreliable, then the results obtained using the parametric estimating technique will be less accurate.

Since this technique involves building a model and obtaining historical records, it may be time-consuming, especially in complex projects.

Incorrect models can give a false sense of accuracy.

## FAQs

### What is the difference between the Analogous and Parametric Estimating techniques?

Parametric Estimating is the estimating technique in project management in which algorithms and statistical relationships between variables are used for estimation, whereas in analogous estimating analogy to a similar project is used for estimation. The analogous estimating technique is quick; however, the parametric estimating technique is more accurate and reliable than the analogous estimating technique.

### What is the use of the Parametric estimating technique in project management?

The parametric estimating technique is most commonly used in project management to estimating a project’s cost and duration.

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