Methodologies in the PMBOK

Question 1

Bottom-up approach

Answer 1

Among the companies in the industry, this method is considered as the best technique and is consequently the methodology most often applied.

However, this is also the most time consuming approach. Therefore, it can be more useful to use less time consuming method in the early stages. Even though they are likely to be less accurate.

Question 2

Top-down or analogous method

Answer 2

Often the first technique we apply at the very start of the project. It is a relatively fast technique that does not require too much data. On the downside, it is not considered to be particularly accurate. Furthermore, it only gives an estimate for the cost of the entire project.

Question 3

Expert judgment, group decision-making techniques and three-point estimation

Answer 3

Are often used in conjunction with top-down and bottom-up estimating.

Expert judgment: rely on their experience and intution when having absence of any reliable data. BUT, on an individual level, even the best experts suffers from cognitive biases. Cognitive biases such as overoptimism, overconfidence and planning fallacy.

Group decision-making techniques: to overcome an individual’s cognitive biases.

Three-point estimation: used to adjust expert judgment / adjust intutions for cognitive biases such as overoptimism, overconfidence and planning fallacy. Two ways: weighed average based on triangular or PERT.

Question 4

Parametric

Answer 4

Probably the best tecnique that does not work. Usually involves doing empirical modelling, such as running a regression model.

Can eliminate the issue of cognitive biases, which many of the other techniques suffers from, the primary issue is that due to the uniqueness of projects data availability tends to become an issue.

According to PMBOK: Parametric estimating uses a statistical relationship between relevant historical data and other variables (e.g. square footage in construction) to calculate a cost estimate for project work. This technique can produce higher levels of accuracy depending upon the sophistication and underlying data built into the model. Parametric cost estimates can be applied to a total project or to segments of a project, in conjunction with other estimating models.

According to Sindre: this is the “best” method. Best in sense of having the most theoretically sound foundation. Interestingly, it is probably the least used method. Most companies he has personally come across are quite hostile to the idea of using parametric cost estimation.

Question 5

Project management software

Answer 5

Is not a cost estimation technique in it of itself, but merely the implemention of other techniques with software and programs. Quite a few different project management software exist and many companies develop their own programs.

Question 6

Reserve

Answer 6

Is not a tecnique for finding the baseline (our best guess for what the cost will be), which is the purpose of the other techniques. Instead, reserve approach is concerned with adding additional slack into the baseline in order to account for unforeseen events which will result in cost overruns.