Three-point estimation

The Three Point Estimation technique is based on statistical methods, and in particular, the Normal distribution. Three Point Estimation is the preferred estimation technique for IS projects. In Three Point Estimation we produce three figures for every estimate:

a = the best case estimate

m = the most likely estimate

b = the worst case estimate

These values are used to calculate an E value for the estimate and a Standard Deviation (SD) where:

E = a + (4*m) + b / 6

SD = (b - a)/6

E is a weighted average which takes into account both the most most optimistic and pessimistic estimates provided and SD measures the variability or uncertainty in the estimate.

To produce a project estimate the Project Manager:

Decomposes the project into a list of estimable tasks, i.e. a Work Breakdown Structure Estimates each the E value and SD for each task. Calculates the E value for the total project work as E (Project Work) = Σ E (Task) Calculates the SD value for the total project work as SD (Project Work) = √Σ SD (Task) 2 We then use the E and SD values to convert the project estimates to Confidence Levels as follows:

Confidence Level in E value is approximately 50% Confidence Level in E value + SD is approximately 70% Confidence Level in E value + 2 * SD is approximately 95% Confidence Level in E value + 3 * SD is approximately 99.5% IS use the 95% Confidence Level, i.e. E Value + 2 *SD, for all project and task estimates