Three Point Estimation Technique

The PERT Three Point Estimate technique is a type of three point estimate. The only difference is that it applies weighting so that the most-likely estimate is weighted 4 times more than the other two estimates (optimistic and pessimistic). This formula is most valuable in estimating time or cost of activities for projects that are especially unique, such as in research and development where there are many unknowns. For projects that are similar to previous projects and there is good historical data and expert experience, the formula is less useful because you could use other techniques like analogous estimating (based on previous experience and projects).

Before we start, I just want to throw in a bit of statistical background information so that if you are interested in really understanding the statistical approach behind this, you have a starting point for further research. Okay, so here it is:  What we are doing here is applying the estimates across a normal distribution curve to understand the confidence level of an estimate based on the normal probability distribution. A normal distribution curve exhibits the following characteristics: 68.3% of the total possible values is contained within +/- 1 standard deviation from the mean. 95.4% of the total possible values is contained within +/- 2 standard deviations from the mean. 99.7% of the total possible values is contained within +/- 3 standard deviations from the mean. In other words, 99.7% of the total possible values are within a span of 6 standard deviations (within +/- 3 standard deviations from the mean). Six Sigma covers this topic in much greater detail. Also, for more information, look for resources on the normal distribution curve and see the reference section of this post. Get the PERT Three Point Estimation Tool here: https://pmdocuments.com/product/pert-estimating-tool/

Now back to the PERT estimation technique. You will need to calculate the estimate, and the standard deviation of the estimates first.

Pert Estimate

E = (o + 4m + p) / 6

where E is Estimate; o = optimistic estimate; p = pessimistic estimate; m = most likely estimate

Standard Deviation

SD = (p − o)/6

where SD is Standard Deviation; p = pessimistic estimate; o = optimistic estimate

To produce a PERT three point estimate:

1. Decompose the project into a list of estimable tasks, i.e. identify tasks for each Work Breakdown Structure (WBS) work package
2. Estimate the E value and SD for each task.
3. Calculate the E value for the total project work as E (Project Work) = Σ E (Task)
4. Calculate the SD value for the total project work as SD (Project Work) = √Σ SD (Task) 2

The E and SD values are then used to convert the project estimates to confidence levels as follows:

1. Confidence level in E value +/- SD is approximately 68%
2. Confidence level in E value +/- 1.645 × SD is approximately 90%
3. Confidence level in E value +/- 2 × SD is approximately 95%
4. Confidence level in E value +/- 3 × SD is approximately 99.7%
5. Information Systems typically use the 95% confidence level, i.e. E Value + 1.645 × SD, for all project and task estimates.[2]

PERT Three Point Estimate Example:

For Activity A:

• o = 4 hours
• p = 16 hours
• m = 8 hours

Using the estimates above for Activity A, calculate the Estimate:

1. E = (4 + 4(8) + 16) / 6
2. E = 52 / 6
3. E = 6.5 hours

Using the estimates above for Activity A, calculate the Standard Deviation:

1. SD = (16 – 4) / 6
2. SD = 12 / 6
3. SD = 2 hours

PERT Three Point Estimate Results for Activity A:

1. 4.5h – 8.5h hours: Confidence level in E value +/- SD is approximately 68.2%
2. 5.3h – 7.7h: Confidence level in E value +/- 1.645 × SD is approximately 90%
3. 2.5h – 10.5h: Confidence level in E value +/- 2 × SD is approximately 95%
4. .5h – 12.5h: Confidence level in E value +/- 3 × SD is approximately 99.7%
5. Information Systems typically use the 90% confidence level, i.e. E Value + 1.645 × SD, for all project and task estimates.

PERT Three Point Estimation Tools

PMDocuments.com has developed an Excel-based tool.

• PERT Three Point Estimation Tool
  • https://pmdocuments.com/product/pert-estimating-tool/

PERT Three Point Estimation References:

• Standard Deviation
  • (http://en.wikipedia.org/wiki/Standard_deviation)
• Three Point Estimation
  • (http://en.wikipedia.org/wiki/Three-point_estimation
• Advanced Pert Estimation
  • (http://tynerblain.com/blog/2009/06/18/advanced-pert-estimation/)
• The normal distribution curve
  • (http://www.six-sigma-material.com/Normal-Distribution.html)