A Comprehensive Guide To Analogous Estimating

Analogous estimating is a crucial technique for project managers to forecast effort and cost using metrics from similar past projects. This in-depth guide covers everything you need to know to become a pro at leveraging analogous estimating.

We’ll discuss what it is, when to use it, its advantages and disadvantages, real-world examples, and tips for improving accuracy. Let’s dive in!

What is Analogous Estimating and How Does This Estimating Technique Work?

Analogous estimating, also known as top-down estimating, is a method for estimating the duration and cost of a project based on data from a previous, similar project. The estimate for the new initiative is derived from the actual time, budget, and resources used for the old one.

This technique rests on the assumption that the proposed project is comparable enough to the historical project to benefit from leveraging its metrics. Since it relies on existing data points, analogous estimating can be done early in the planning process with limited specifics available.

Here are the basic steps to develop an analogous estimate:

• Identify one or more completed projects from the past that are very similar in size, complexity, objectives, and scope to the current proposed project

• Obtain the actual cost data, schedule, and resource utilization results from the historical project(s)

• Analyze the previous completed project(s) and note key attributes like budget, technologies used, team size, and duration

• Make appropriate adjustments to account for any differences between the completed project(s) and the proposed project

• Use the historical data points and your adjustments to create the initial time, cost and resource estimate for the new project

The accuracy of an analogous estimate is heavily dependent on the level of similarity between the old and new projects. The more the projects align in terms of effort, goals, technologies, and scope, the more precise the resulting estimate will be. Later in this guide we’ll explore techniques for improving estimate accuracy.

When Should You Use Analogous Estimating Technique for Project Estimation?

Analogous estimating is an excellent choice when you need to come up with a preliminary estimate but lack detailed project requirements. Here are common situations where it works well:

• Early project scoping when needs are not fully defined

• Testing project feasibility by forecasting cost, timeline, and resources required 

• Determining if the project should move forward based on early estimates

• Developing a rough order of magnitude estimate for budgeting 

• Creating a high-level project estimate to secure initial funding

• Initial project planning when few specifics are available

• Validating estimates derived from other techniques like bottom-up

• Top-down estimation to quickly gauge project effort and viability

As a project moves forward and more details emerge from requirements gathering, design, and planning, other more precise estimating techniques become better options. Analogous estimating is most valuable for rapid, early estimates using limited project detail.

What are the Advantages of Using Analogous Estimating Technique?

Leveraging analogous estimating for project forecasts provides several benefits:

• Fast and easy - Since it relies on previous actual metrics, analogous estimating can be performed quickly with minimal effort compared to detailed techniques.

• Requires minimal project detail - Very limited specifics about the new project are needed to generate an initial estimate.

• Useful with high uncertainty - When project scope and requirements are unclear, analogous provides a reasonable estimate based on historical projects.

• Leverages actual data points - By using metrics from completed efforts rather than guesstimates, the forecasts have a stronger foundation.

• Accounts for typical human bias - Because it utilizes real data, analogous better handles typical cognitive biases that affect estimates.

• Provides an accuracy check - Comparing analogous estimates with bottom-up and parametric estimates helps validate their precision.

• Leverages familiarity - Team members familiar with the historical projects can provide useful insight into nuances not contained in the data.

• Incorporates past unknowns - The completed project metrics inherently account for unexpected events that impacted effort and cost.

In the early planning stages, analogous estimating delivers reasonably accurate ballpark timelines and budgets quickly and easily. These advantages make it a very useful technique for project managers.

What are the Disadvantages of Analogous Estimating to Consider?

While analogous estimating has many benefits, there are also several downsides to keep in mind:

• Less accurate than detailed methods – Analogous estimates will be less precise than detailed, bottom-up estimating leveraging comprehensive project specifics.

• Heavily dependent on project similarities – The accuracy is fully dependent on how comparable the historical project(s) are to the proposed project. Even small differences in tools, team, scope or objectives can greatly impact effort and cost.

• Does not account for innovations – By its top-down nature, analogous estimating does not handle innovations, custom work, or differentiators that make the new project unique from past efforts.

• Risk of propagating past mistakes – Basing estimates on flawed historical data bakes in those errors, resulting in repeating past miscalculations.

• Finding suitable historical data can be difficult – The technique only works if sufficiently similar, representative completed projects with reliable metrics can be found. This data must be accessible.

• Less reliable for large complex projects – The more intricate the project, the harder it is to find appropriate historical project matches to base estimates on.

• Dependent on estimator judgment and adjustments – The accuracy depends on the estimator’s ability to thoroughly compare projects and make appropriate adjustments.

While easier to perform than detailed estimating techniques, analogous sacrifices precision. The project manager must determine if that tradeoff is acceptable for a given situation and project stage.

Real World Examples of Using Analogous Estimating in Project Management

To better understand how analogous estimating is applied, let’s walk through some examples.

Software Development Project

A company needs to develop a new 150-page website. They base estimates on a previous site project:

• The old project completed 125 pages with a team of 7 developers over 15 weeks 

• The new website is 20% larger in scope

• Adjusting for 150 pages instead of 125, the estimate is 18 weeks

• Keeping the team size the same, the total estimate is 18 weeks at the same cost

Construction Project 

A 6000 square foot new office building is compared to a similar 4000 square foot build:

• The comparable historical project took 14 months and cost $1.5 million with a 5 person construction team

• With 50% more space, the estimate is 21 months and $2.25 million for the same team size

• However, the old project encountered permit delays which added 3 months

• Therefore the final estimate is 24 months and $2.25 million

Business Analysis Effort

A current project with 50 complex requirements is benchmarked against a past project with 25 simpler requirements: 

• The old project took 2 analysts 8 weeks to complete

• The new project has double the requirements but they are more complex

• Doubling the duration and adding 2 more analysts to handle complexity results in an estimate of 4 analysts for 16 weeks

These examples demonstrate how metrics from one or more previous projects are used as the basis for an estimate. The estimates are adjusted to account for differences in scope, complexity, tools, and other parameters.

Tips for Improving the Accuracy of Analogous Estimating

While faster, analogous estimates sacrifice precision. Here are tips for improving accuracy:

• Leverage multiple historical projects – Base estimates on data from several comparable efforts instead of a single data point.

• Select projects with the highest similarity – Seek out those with the greatest overlap in technologies, tools, objectives, scope, and team makeup. 

• Thoroughly quantify differences – Carefully analyze all areas where the proposed project diverges from historical ones and make appropriate adjustments.

• Verify actual data - Confirm historical figures through project documents and tools rather than potentially faulty estimates or memory.

• Speak with historical team members – Get insights from people who worked on the old projects to discover nuances.

• Account for improvements since historical project(s) – Factor in process, tooling, technology enhancements, and team skills.

• Consider inflation - Account for inflation if the historical project(s) occurred years in the past. 

• Avoid arbitrary adjustments – Don’t adjust estimates by random percentages. Make changes based on quantified differences between projects.

• Leverage estimators familiar with the projects – Have team members who have worked on the historical and current projects collaborate on the estimate.

• Regularly compare estimate techniques – Check analogous estimates against bottom-up, parametric, and three-point techniques to validate accuracy.

• Document assumptions, comparisons, and adjustments – Note estimate details to improve future analogous estimating efforts.

Following these tips will result in more accurate and reliable analogous estimates. The key is maximizing project commonalities while still accounting for differences.

Key Takeaways and Summary of Analogous Estimating

Let’s recap the key points:

• Analogous estimation leverages completed, similar historical projects to forecast cost, time, and resources for a proposed project.

• It is best utilized early in the planning process when detailed project specifications are unavailable.

• Advantages include speed, minimal data requirements, and leveraging actual metrics from past efforts.

• Disadvantages include lower precision and high reliance on project commonalities.

• Seek out past projects with significant overlap and thoroughly quantify differences.

• Make careful adjustments from historical data points to estimate the proposed effort.

• Use completed project metrics to validate estimates from other techniques like bottom-up.

• Combine analogous estimating with other methods like three-point to balance out limitations.

In summary, analogous estimating provides rapid preliminary estimates by leveraging historical project data points. While sacrificing some accuracy, it is an extremely valuable technique for project managers when applied properly. Use it in combination with other estimating approaches to maximize precision.

With an understanding of this estimation method and tips for improving accuracy, you can now confidently develop reasonable estimates based on completed analogues. Add analogous estimating skills to your PM toolkit today!