Heuristic Estimating

5 minutes 5 Questions

Heuristic estimation technique is predominantly rooted in the past experience, historical data, and expert knowledge of the project team and key stakeholders. It’s a rule-of-thumb method that provides an approximation. For example, a development team may have a rule that they can develop 5 features…

Heuristic Estimating

Definition:
Heuristic estimating, also referred to as rule of thumb, is a decision-making process in finance mainly based on learned patterns or techniques. It's a simplification technique basically used to quickly perform estimation when the complete data is uncertain or complicated.

Importance:
Heuristic estimating is essential because it decreases the complexity of decision making, enhances estimation accuracy and accelerates the decision making process, particularly in financial markets. It uses intuitive judgement based on experience, learning, and understanding of financial patterns.

How it works:
Heuristic estimating typically works by deriving estimates through previously experienced patterns. Investors and finance professionals might use for example an average 10% annual estimate return for an investment based on previous patterns. This method, though not always entirely accurate, can give a quick approximation.

Exam Tips: Answering Questions on Heuristic Estimating

When asked about heuristics, first define what it is.
Explain importance of heuristic estimation, particularly in finance.
Answer how heuristic estimation works and give an example of it.
Stay clear and concise, avoid unnecessary details.

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CAPM - Heuristic Estimating Example Questions

Test your knowledge of Heuristic Estimating

Question 1

In a project with limited historical data, which of the following best describes the purpose of heuristic estimating?

To calculate precise estimates using complex mathematical models and algorithms To rely solely on past project data for creating accurate time and cost projections To generate estimates by averaging the input from all team members regardless of expertise To provide rough estimates based on expert judgment and rules of thumb

Correct Answer: To provide rough estimates based on expert judgment and rules of thumb

The best answer is: 'To provide rough estimates based on expert judgment and rules of thumb.'

Heuristic estimating is particularly useful in projects with limited historical data. It relies on expert judgment, past experiences, and rules of thumb to create quick, approximate estimates. This method is valuable when precise data is unavailable or when time constraints prevent detailed analysis.

Key points supporting this answer:
1. It acknowledges the use of expert judgment, which is crucial when historical data is limited.
2. It mentions 'rules of thumb,' which are practical guidelines often used in heuristic estimating.
3. It accurately describes the purpose as providing 'rough estimates,' which aligns with the nature of heuristic estimating.

The other options are incorrect because:

- Calculating precise estimates using complex mathematical models is not possible with limited historical data and goes against the purpose of heuristic estimating.
- Relying solely on past project data is not feasible when historical data is limited, which is the scenario presented in the question.
- Generating estimates by averaging input from all team members regardless of expertise does not align with the concept of heuristic estimating, which values expert judgment over indiscriminate averaging.

Question 2

As the project manager, you're trying to estimate task completion time using a heuristic method, which of the following can be a suitable guideline?

The 50/50 rule which states that half of the value is in half of the work. The 80/20 rule which states that 80% of the value is in 20% of the work. The 100/0 rule which states that all of the value is in none of the work. The 0/100 rule which states that none of the value is in all of the work.

Correct Answer: The 80/20 rule which states that 80% of the value is in 20% of the work.

The best suitable guideline for estimating task completion time using a heuristic method in project management is the 80/20 rule. This rule, also known as the Pareto Principle, states that 80% of the value is in 20% of the work. It implies that a significant portion of the output or results are determined by a small number of inputs or tasks. The other options are incorrect because they don't portray real-world situations. The 50/50 rule doesn't provide any strategic advantage or insightful guideline for task prioritization or time estimation. The 100/0 and 0/100 rules are practically unrealistic in a project management context, stating that all or none of the value comes from the work respectively, contradicting the very principles of effective project management.

Question 3

As a Project Manager, you are implementing Heuristic Estimation technique to your project. A task has been estimated to take 5 days to complete. New circumstances seem this estimation too optimistic. Based on experience, such tasks usually take twice the time. What is a potential revised estimation?

15 days 10 days 7 days 8 days

Correct Answer: 10 days

The question states that based on experience, such tasks usually take twice the time. So if the original estimation was 5 days, and such tasks usually take twice the time, the potential revised estimation would be 5 days times 2 which equals 10 days. This makes option '10 days' correct, and the options '7 days', '8 days' and '15 days' incorrect, since they don't align with the provided information.

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