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Parametric Estimating

5 minutes 5 Questions

Parametric estimating is a technique that uses statistical modelling to develop a cost estimate. It uses a set of parameters - factors that are likely to impact the estimate, such as the size of the product, the complexity of the work, the skills of the team and so forth - and uses these to develop…

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PSM I - Parametric Estimating Example Questions

Test your knowledge of Parametric Estimating

Question 1

You are tasked to estimate the cost of an ad campaign using parametric estimating. Your company charges $350 for each ad your team creates, with 40 ads required. Also, you add a 20% contingency for unexpected expenses. What is the best cost estimate for the project?

Correct Answer: $16800

Initially, you have to calculate the base cost estimate. This can be done by multiplying the cost of each ad, which is $350, by the number of ads required, which is 40. So, 350 * 40 equals to $14000. However, this is only the direct cost of the advertising campaign. You also need to consider a 20% contingency for unexpected expenses. You calculate this by multiplying the base cost ($14000) by 20/100 which equals to $2800. Finally, you add the base cost and the contingency to get the total cost estimate, so 14000 + 2800 equals to $16800. The other options are either forgetting to include the contingency (14000) or incorrect calculations like underestimating the contingency (15000) or overestimating the contingency (20000).

Question 2

You are managing an event that involves catering for 200 attendees. Based on history, food and drinks cost about $75 per person. If there is a 10% contingency budget for unexpected costs, what is the best estimate using parametric estimating?

Correct Answer: $16500

Let's calculate step by step. The question mentions that the cost per person for food and drinks is $75 and there are 200 attendees. So, the total cost for food and drinks would be $75 * 200 = $15000. However, there is also a 10% contingency budget for unexpected costs. Therefore, we need to add this 10% contingency to the total cost which will be 10% of $15000 = $1500. So, the best estimate using parametric estimating would be $15000 + $1500 = $16500. The other answers, $15500, $14500, and $14000, are incorrect because they do not take into account the both cost per person and the contingency.

Question 3

In a manufacturing project, you need to estimate the cost of producing 1000 units of a product. Historical data shows that the first 500 units cost $10 each to produce, while subsequent units cost $8 each due to economies of scale. What is the best estimate using parametric estimating?

Correct Answer: $9,000

The best estimate using parametric estimating for producing 1000 units is $9,000. Calculation: 1. First 500 units at $10 each: 500 * $10 = $5,000 2. Remaining 500 units at $8 each: 500 * $8 = $4,000 3. Total cost: $5,000 + $4,000 = $9,000 This answer correctly applies the parametric estimating technique by using the given historical data and scaling factors. The other options are incorrect: $10,000 assumes all units cost $10 each, which doesn't account for the economies of scale. $8,000 incorrectly applies the lower cost to all units, not considering the higher cost for the first 500. $9,500 with a 5% contingency is not based on the given information and introduces an arbitrary factor not mentioned in the question.

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