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 a mathematical model. From this, a range of estimates can be generated. The strength of the parametric estimating technique is that it both recognizes and quantifies the inherent uncertainty in any estimate.

Guide to Parametric Estimating

What is Parametric Estimating?
Parametric estimating is a forecasting technique which uses statistical methods to predict cost and duration based on historical data and project parameters.

Why is it important?
Parametric Estimating allows for accurate and reliable forecasts, which lead to effective project planning and management. It also helps identify key cost drivers and areas of risk in the project.

How does it work?
Parametric Estimating involves the following steps:
1. Identify a parameter that accurately predicts the cost or duration
2. Collect historical data for the parameter
3. Determine a statistical relationship between the parameter and cost or duration and create a mathematical model
4. Use the model and the estimated value of the parameter to forecast the cost or duration.

How to answer questions on Parametric Estimating in an exam:
1. Understand the parametric estimating process and principles.
2. Use real-life examples to demonstrate your understanding
3. Show how the method can be applied to specific project scenarios.

Exam Tips: Answering Questions on Parametric Estimating:
1. Make sure you understand the concept and technique of Parametric Estimating
2. Familiarize yourself with different types of project parameters and how they can affect cost and duration
3. Practice using different statistical methods for determining relationships
4. Prepare to explain why Parametric Estimating is effective and important in project management.
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PSM I - Parametric Estimating Example Questions

Test your knowledge of Parametric Estimating

Question 1

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 2

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 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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