Based on a previous project that has been completed, a project manager decides the best way to estimate costs is through historical data. What kind of estimating is this?
According to the PMBOK® Guide, specifically the Estimate Costs and Estimate Activity Durations processes, project managers have several techniques at their disposal to predict the resources required for a project.
Why Choice D is correct: Analogous Estimating (also known as top-down estimating) uses the actual values (such as cost, budget, duration, or size) from a previous, similar project as the basis for estimating the same parameter for the current project.
Historical Data: It relies heavily on historical information and expert judgment.
Speed and Cost: It is generally less costly and time-consuming than other techniques, making it ideal for the early phases of a project when there is a limited amount of detailed information.
Accuracy: While faster, it is typically less accurate than bottom-up estimating and is most reliable when the previous projects are truly similar in nature and not just in appearance.
Analysis of other options:
A (Three-point): This technique improves accuracy by considering uncertainty and risk. It uses three estimates: Most Likely ($cM$), Optimistic ($cO$), and Pessimistic ($cP$). It does not rely solely on a single historical project ' s data.
B (Bottom-up): This involves estimating the cost of individual work packages or activities and then " rolling them up " to higher levels. It is the most accurate but also the most time-consuming and requires a fully decomposed WBS.
C (Parametric): This uses a statistical relationship between historical data and other variables (e.g., square footage in construction, lines of code in software) to calculate an estimate. For example, if it cost $100 per square foot in a previous project, and the current project is 1,000 square feet, the estimate is $100,000. It is a calculation-based method rather than just a direct comparison.
Key Concept:
The Project Management Institute (PMI) emphasizes that Analogous Estimating (Choice D) is a form of expert judgment. It is the go-to method when the project manager needs a quick " ballpark " figure based on organizational process assets (historical project files) before more granular data is available for a bottom-up approach.
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