How 3-point estimating can improve project planning and resource allocation

Accurate estimating is the backbone of success when it comes to project management. Traditional methods of estimating often fall short, leading to unforeseen costs — a project manager’s worst nightmare. This is where 3-point estimating comes in handy.

Like a flat tire on a road trip, you can’t predict every risk in a project. 3-point estimating is your spare tire; it provides extra protection by offering a range of estimates, rather than relying on a single-point figure. 

In this article, we’ll explore the benefits of 3-point estimating, including how to calculate and use it effectively. So buckle up and let’s begin! 

What is 3-point estimating?

Three-point estimating is a method of estimating a task or project by considering three different estimates:

• The most optimistic estimate
• The most pessimistic estimate
• The most likely estimate

The optimistic estimate assumes that everything goes according to plan. The pessimistic estimate considers risks that could delay the project. The most likely estimate falls somewhere between the optimistic and pessimistic options and is based on the estimator’s best judgment.

Benefits of 3-point estimating

1. Improved planning and accuracy. By using multiple estimates, project managers gain an accurate understanding of potential outcomes, making it easier to manage budgets and resources. 

2. Better decision-making: With best and worst-case scenarios in mind, managers can visualize risks and opportunities, leading to informed decisions. 

3. Better expectation management: Stakeholders don’t like budget surprises. With 3-point estimating, various scenarios are presented, preparing them for the best and worst outcomes.

4. Historical data analysis: By using historical data to refine the optimistic, pessimistic, and most likely estimates, project managers can improve their estimations. This leads to increased accuracy and efficiency in project management over months and years.

Understand the formula 

Use the following formula to calculate the expected span of a task or project.

Expected duration = (optimistic estimate + 4 x most likely estimate + pessimistic estimate) ÷ 6

The most likely estimate has the most weight (4/6), while the optimistic and pessimistic estimates contribute 1/6 each.

Additionally, there are other 3-point estimating formulas to estimate a task or project’s duration, cost, or effort.

1. Triangular distribution is another standard formula that assumes possible outcomes. This formula takes the optimistic, pessimistic, and most likely durations and calculates the expected duration using the following formula:

(optimistic + pessimistic + most likely) / 3

2. Beta distribution is a more complex 3-point estimating formula commonly used in project risk analysis. This approach assumes that the possible outcomes follow a beta distribution, defined using the optimistic, pessimistic, and most likely durations. The formula for the expected duration is as follows:
   

(optimistic + 4 x most likely + pessimistic) / 6

Each approach has its strengths and weaknesses, and project managers should choose the most appropriate option for their project. 

The difference between 3-point estimating and triangular distribution

While 3-point estimating and triangular distribution are methods for estimating project timelines, the two have key differences.

3-point estimating uses three estimates to calculate the expected duration of a project, with the most likely estimate having the most weight. It’s a statistical approach that assumes a specific probability level for each estimate.

Triangular distribution is a probability distribution that assumes the estimates are evenly distributed around the most likely estimate. Here, the optimistic and pessimistic estimates are equidistant from the most likely estimate, and the resulting distribution takes a triangular shape. 

3-point estimating allows for a broader range of potential outcomes, while triangular distribution assumes that results are more evenly distributed around the most likely estimate. It’s useful when little information about a project’s potential outcomes is available.

What is PERT, and how does it relate to 3-point estimating?

Project Evaluation and Review Technique (PERT) provides a framework for visualizing the interdependencies between tasks and determining the critical path through the project. 

You can combine 3-point estimating with PERT to provide a more accurate estimation that considers the variability of the estimates.

A PERT chart created in Cacoo 

PERT estimates are based on the same three estimates used in 3-point estimating: optimistic, pessimistic, and most likely. However, PERT adds an additional step by considering the estimates’ variability and weighting them accordingly.

Here’s the formula for PERT estimates:

PERT estimate = (optimistic estimate + 4 x most likely estimate + pessimistic estimate) ÷ 6

This formula is identical to the one used in 3-point estimating. However, PERT then applies a statistical approach to weigh the most likely estimate, considering the variability of the estimates. This turns the 3-point estimate into a bell curve, which helps to account for the uncertainty and risk in a project, and provides a more accurate estimation of the expected duration.

To summarize, PERT and 3-point estimating are techniques that can improve the accuracy of project estimates. By combining the two approaches, project managers can better understand the project timeline and risks.

PERT vs. triangular distribution

The main differences between the two distributions are as follows:

1. Shape: The triangular distribution assumes that all values within the estimated range are equally likely to occur. It has a triangular shape with a peak at the most likely estimate. The PERT distribution assumes values closer to the most likely estimate are more likely to occur than values farther away. It has a more bell-shaped curve with a higher peak at the most likely estimate.

2. Spread: The triangular distribution has a broader spread of values than the PERT distribution. This means the range of values that could occur is wider with the triangular distribution. The PERT distribution has a narrower range of values.

3. Use: Use triangular distribution when there is little historical data, or the range of values is based on expert judgment or guesswork. Use PERT distribution when there is more historical data and more certainty about the range of values.

4. Calculation: Work out the mean of the triangular distribution by adding the three points of the estimate (optimistic, most likely, and pessimistic) and dividing by three. The mean of the PERT distribution is calculated as follows: (optimistic + 4*most likely + pessimistic)/6.

Choosing between triangular and PERT distributions depends on available historical data, certainty about estimates, and personal preference.

3-point estimating in action

Let’s consider an example of a software development project building a new eCommerce website. 

To estimate the project’s duration, the project manager might use 3-point estimation.

First, the project manager would divide the project into smaller tasks using a work breakdown structure (WBS). Let’s take the example of developing a website and assume the WBS includes: designing the website layout, developing backend functionality, testing performance, and deploying the website to production.

Next, the project manager would use a 3-point estimation to estimate the duration of each task. For example, the project manager might estimate the following when developing backend functionality:

Optimistic estimate: 6 weeks

Most likely estimate: 8 weeks

Pessimistic estimate: 12 weeks

Using these three estimates, the project manager can calculate the expected duration of the task using PERT analysis. This would involve taking the sum of the optimistic (O), pessimistic (P), and four times the most likely (M) estimate, and dividing by six:

Expected duration (TE) = (O + 4M + P) / 6

TE = (6 + 4*8 + 12) / 6

TE = 9.33 weeks

Once the project manager has estimated the duration of each task using 3-point estimation, they can create a PERT chart that visualizes the sequence of tasks and their estimated durations. The PERT chart can help the project manager identify the critical path — the longest sequence of essential tasks — as well as bottlenecks, and dependencies between tasks, which inform timeline and resource allocation.

Estimating challenges and how to overcome them

While 3-point estimating can be a powerful tool for project managers, there are some challenges. Here are some common roadblocks and strategies for overcoming them.

1. Over-optimism: Project managers may be overly optimistic when estimating the duration of a task, which can skew the final estimation and lead to missed deadlines. To overcome this, use historical data and expert judgment to calibrate realistic estimations.

2. Inaccurate assumptions: 3-point estimation relies on accurate assumptions about the potential outcomes of a project. If the assumptions are incorrect, the estimation will be inaccurate. To overcome this, gather as much data as possible before making estimations and continually update figures as new information becomes available.

3. Inconsistent estimates: Different project managers or team members may use different criteria to estimate the optimistic, pessimistic, and most likely durations of a task, leading to inconsistent estimates across the board. Be sure to establish clear guidelines for estimating.

4. Limited data availability: In some cases, project managers may have limited data available to inform their estimations, making it difficult to accurately estimate the duration of a task or project. Instead, refine your estimations using expert judgment, industry benchmarks, and analogous estimating (i.e., data from similar projects).

5. Changing project scope: As the project progresses, the scope may change, impacting the estimated duration of tasks. You should regularly review and update your estimations as the project evolves and communicate any changes to stakeholders and team members asap. 

Project management tools make 3-point estimating easy

Project management software can be beneficial when using 3-point estimation. These tools give project managers a structured approach to planning, tracking, and managing and valuable insights into each task’s progress and the whole project.

Here are some ways project management tools help:

1. WBS charts: Project management tools often come with a WBS feature, which makes it easy to group the project into more manageable tasks. This makes it easier to estimate the duration of each task accurately.

2. PERT Charts: PERT charts are a visual representation of the project plan that shows the sequence of tasks and their estimated durations. Many project management tools have built-in PERT chart features that let you create and update with the click of a button.

3. Collaboration: Many tools offer collaborative features, allowing team members to communicate and work together more effectively. This can be particularly handy when using 3-point estimation, as team members can share their estimations and discuss scenarios in real-time. 

4. Analytics: Project management tools often provide analytics and reporting features that allow project managers to track progress, identify potential bottlenecks, and make data-driven decisions. PMs can use analytics to compare their estimations to actual project data and refine their estimation processes over time.