Three Point Estimation: PERT Technique Guide

Ever crystal-balled when estimating the timeline of a project, just to have everything fall apart within a few weeks? We have all seen this happen once or twice. An estimate may look precise, but it is mostly a guess cloaked with a false sense of certainty. For this reason, I started using three-point estimation, specifically the PERT technique.

Three-point estimation is an averaging technique where three values are used: the optimistic scenario (when everything goes smoothly), the most pessimistic scenario (the worst case), and the most likely scenario (the average case). Using three-point estimation, you are taking a calculated guess based on the probability of multiple values. It is accepted in project management that uncertainty is the only certain thing, and addressing it directly is the best move. If this is part of your PMP certification training, you are going to have to know this a lot. It is extremely important in project schedules and cost calculations.

Three-point estimation is based on having three different triads and estimating each element individually. Instead of just picking a number, you estimate the maximum (best case), the minimum (worst case), and the most probable scenario (the average case).

Consider estimating how long it takes to drive to work. On an ideal day, with no traffic and all green lights, perhaps it takes around 20 minutes. Typically, you allocate 30 minutes to complete this journey. However, in the unfortunate event of an accident or road closure, the commute can take 50 minutes. The three-point estimation technique is able to capture all of these varying scenarios in detail.

This technique was developed in the 1950s and is originally attributed to the US Navy while developing the Polaris submarine. It was used in the estimation of complex work with a number of moving parts, dependencies, and uncertainties.

Optimistic Estimate (O): Best Case Scenario

Optimistic estimates are the best-case and shortest possible (duration and cost) scenarios where everything happens without impediment. Here, we have no delays, no obstacles, and resources are abundantly available. In my experience, this is rare - nevertheless, it establishes your lower boundary.

When I ask teams to provide optimistic estimates, I ensure I make it clear that this is not meant to be an idealistic way of operating. It is not ideal if resources are stretched to include overtime, the idea stakeholder resources in the structure or underpinning.

Most Likely Estimate (M): Realistic Scenario

Most Likely estimates are based on and centered around the average of predominant, historic, and available data. It is, therefore, a representation of the normal state of the system, along with the forecast of potential delays, and even variations or diversions from the defined workflow and operational order.

This estimate will reflect typical interruptions, typical availability of resources, typical delays in problem-solving, etc. This is a realistic estimate, not an ideal one.

Pessimistic Estimate (P): Worst Case Scenario

The pessimistic estimate considers what could go wrong. This includes equipment breakdowns, unavailable resources, changes in scope, or other unknown problems. This is not reframing a problem in a catastrophist way; it is thinking reasonably about what is worst.

I have learned to ask teams: 'What could go wrong that is within the possible universe of events?' This rhetorical question is designed to anchor pessimistic estimates, while still describing a range of risks to the project.

PERT is an acronym for Program Evaluation and Review Technique, and it is the most widely applied three-point estimate method in project management, because it uses statistical weighting to arrive at a more accurate estimate.

The PERT formula is given as follows:

E = (O + 4M + P) / 6

It describes the expected value (your estimate) as a function of the optimistic estimate (O), most likely estimate (M), and pessimistic estimate (P).

The most likely case is weighted 4 times. This is because PERT employs a beta distribution, which means that the most likely outcome is believed to have the highest actual occurrence. In a normal distribution, the most likely case is 68% of the occurrence.

Let's assume I am estimating a software module development:

• Optimistic (O) = 5 days
• Most Likely (M) = 8 days
• Pessimistic (P) = 15 days

Calculation: E = (5 + 4(8) + 15) / 6 E = (5 + 32 + 15) / 6 E = 52 / 6 = 8.67 days

My expected duration is around 8.7 days. This balances out the uncertainty by considering the more realistic scenario.
 

In addition to the expected value, the PERT method also allows one to calculate the standard deviation to quantify uncertainty:

SD = (P - O) / 6

In my example: SD = (15 - 5) / 6 = 1.67 days

This describes what I estimate to have moderate variability. A higher standard deviation indicates more uncertainty and risk. While preparing for the Techademy PMP certification course, one needs to grasp the expected value and standard deviation formulas and the PERT method to succeed in the exam.

Although PERT offers more detail, the triangular distribution can sometimes be more convenient because it involves fewer steps:

E = (O + M + P) / 3

This values each estimate equally. For the same example:

E = (5 + 8 + 15) / 3 = 28 / 3 = 9.33 days

How much do you pay attention to detail? Triangular gave 9.33 days while PERT gave 8.67 days. This means, on average, triangular gives a higher estimate because it doesn't count the most likely scenario more on average.
 

When I put this approach into practice, I begin by making sure I have a comprehensive WBS (work breakdown structure). Next, I do a group estimate, which I find gives the best guesses because everyone gets their say.

After that, in my experience, I find PERT is best for estimating things on the critical path or instances where time becomes money. Then, make claims transparent by writing out your expected values along with the calculations and any assumptions you needed to make.

The standard deviation of the high-risk or high uncertainty tasks is going to inform you of the activities that require high importance control or where you may need to add a high likelihood risk to the project management plan.

It's all about improved accuracy. Estimating a single point is always going to detract from the accuracy of a given estimation. I have seen accuracy jump to 30 or 40 percent in estimation when the proper use of this method is adopted by my teams.

Embedded within the estimation of three points is enhanced risk management. The wider the gap between optimism and pessimism points, the greater the risk there is. The larger gaps in tasks are going to require more control, more risk planning, and more monitoring.

Tasker, more than most in this role, is going to foster better communication with the stakeholders. Usually, when I show my stakeholders my range of estimation, with the expected value, they understand that uncertainty is always at play. This level of communication improves the expectations and creates stakeholders with a positive perception.

Because all three point estimates are measurable, direct comparison creates the opportunity for continuous improvement. Over time, you establish a baseline of optimism and a baseline of pessimism to adjust your team's estimates.

Optimism bias is a common problem most teams run into. When it comes to estimating the duration and the cost, people are always going to be underestimating the values. The best way to combat the problem of optimism bias is to use historical data and underestimation penalties, combined with providing an honest critique.

New initiatives and innovative work suffer from insufficient historical data. The solution is to research analogous initiatives within your industry, seek out the advice of seasoned colleagues, and deploy decision tree analysis along with standard PMP techniques to organize your thoughts concerning the associated risks.

When job completion deadlines are imminent, teams frequently feel the need to compress their estimates. I have found that an initial time investment of 30 minutes on a thorough three-point estimation almost always prevents time delays, even on the scale of days, to the overall project timeline. The initial time investment is almost always justifiable.

If the PMP exam is in your near future, the three-point estimation technique is a topic that you will need to become proficient in, as you will likely come across exam questions that pertain to this topic. Some questions that will pertain to this topic will require you to do some basic calculations. PERT will likely come up in the scenario, as it is a popular estimation technique.

There are a few fundamental formulas that you will have to memorize to do well on the exam. These formulas are as follows:

• PERT: E = (O + 4M + P) / 6
• Standard Deviation: SD = (P - O) / 6
• Variance: V = SD²

Thorough practice is the only way to have these formulas at your disposal. Being that the exam is timed, it is to your advantage to be quick and accurate on the exam. Build your exam prep around the calculations that will be required, and practice will make perfect.

Once you master three-point estimation, your project planning will be transformed. It will help you to embrace uncertainty, and you will now have the means to deal with it in a structured way. Use PERT for your next project, and you will see a huge improvement in your estimation accuracy.