What would you do if you needed to estimate the cost and timeline of a project but didn’t have any stats or figures to help you?
Chances are you’d do the obvious thing - find a similar past project and base your estimate on how long that project took and how much it cost.
That, in a nutshell, is analogous estimating. It’s a fancy-sounding name for a very simple concept. The goal of this blog is to equip you with the tools you need to apply analogous estimating in the best possible way.
We’ll start by elaborating on the definition of analogous estimating.
What is analogous estimating in project management?
Analogous cost estimating is a project management technique that analyzes data from past projects to make educated estimates for future projects. Data like time taken to complete the project, ROI, and success rate can all be used to determine how big a budget is and how much time a future project will need. Of course, no two projects are exactly alike, and adjustments will have to be made depending on differences in complexity, size, and other factors.
Analogous estimating is also referred to as ‘top-down estimating’ since it begins at the highest level, looking at overall project characteristics and using total metrics from past projects instead of breaking them down into detailed components.
When is analogous estimating used?
Analogous estimating is used when there is very little or no information upon which to base a future project’s estimate. It’s also sometimes used when a company is unsure whether or not they should take on a project. They use analogous estimating to analyze whether the project is feasible without wasting time. If a decision needs to be made quickly, analogous estimating may also be used, as other estimating methods typically take longer. Another consideration is the stakeholders you are dealing with. If they want to be briefed quickly and generally about a project’s cost and duration estimates, an analogous estimate will work well.
Analogous vs parametric estimating
Parametric estimating begins in the same way as analogous estimating, by collecting historical data from similar past projects. However, while analogous estimating is an educated guess, parametric estimating uses statistics to calculate project costs, duration, and resource requirements. While analogous estimating is considered a top-down approach, parametric estimating is considered bottom-up since it is built on many individual calculations rather than overall generalizations.
Another difference between parametric and analogous estimating is that parametric estimating uses this specific formula:
Parametric estimate = (historic amount of time or cost/historical value of the parameter) x value of that parameter in your current project.
What are the advantages of analogous estimating?
How do you know when to use analogous estimating and when to use a different estimating method?
Understanding the advantages and disadvantages of analogous estimating will help you make the right decision for your project.
We’ll start with the advantages:
- Works with incomplete data: The most obvious advantage of analogous estimating is that it’s the only method you can use if you don’t have enough information to use any of the other estimating methods. Its versatility means you can use it even when your only source of information is from past projects.
- Time-saving: Analogous estimating is a lot faster than bottom-up estimating techniques like parametric estimating.
- Money saving: One of the main reasons projects are estimated in the first place is to decide whether the project is worth pursuing. If that’s the case, using analogous estimating can save you from wasting time and money on estimating a project that won’t actually come to fruition. This is because, as we mentioned, analogous estimating is the quickest and least involved method of estimating.
- More flexible: Analogous estimating is more flexible than other types of estimating, like parametric estimating, in that you don’t need as much data to make an estimate. It’s also better suited to unique or complex projects that are hard to estimate with methods that use cut-and-dry statistics.
- Simple to explain to stakeholders: Not everyone is well-versed in the world of statistics and pie charts. Some stakeholders prefer a simple approach that they can understand without having to absorb lots of numbers.
What are the disadvantages of analogous estimating?
Now, here are the challenges:
- Less accurate: The obvious disadvantage of analogous estimating is that without calculated statistics, you’ll come out with a less accurate estimate. There are many reasons why a company could need a more accurate estimating method. For example, if you were weighing several projects against each other, you would need a more spot-on method to make a sound decision.
- Less detailed: Because analogous estimating uses a generalistic approach, the results will be less detailed than other methods. This can be problematic, for example, if stakeholders want exact figures or if you want to present detailed project information to your project team.
- History is not reliable: Being that analogous estimating relies solely on historical data, it is subjective to the reliability of that data. In using analogous estimating, you take the chance that the data you are basing your estimate on is faulty. Even if the data itself is correct, inflation and other variables could render it inaccurate.
How to use analogous estimating
1. Identify 10-15 previous projects or tasks that are similar in scope, complexity, and/or characteristics to the one being estimated. Then, narrow your list down to the one or two most similar projects.
2. Analyze the cost, duration, and other relevant metrics of the analogous projects.
3. Adjust the analogous metrics based on differences between the previous and current projects.
Consider factors like:
- Differences in project size or scale
- Changes in labor rates, material costs, or other input costs
- Technological advancements that improve productivity
- Unique requirements or constraints of the current project
Analogous estimating example
Now, let’s look at some real-life examples of analogous estimating.
Joe, the construction manager, is trying to estimate the cost and duration of building a new 3-story office building.
He finds a historical project to make an analogous estimate. The details of the historical, analogous project are as follows:
- The previous 3-story office building was completed 2 years ago
- Similar size: 50,000 square feet
- Final cost: $12.5 million
- Duration: 14 months
- Location: Same city
- Basic specifications matched
He then picked out the differences in the current project’s details, which were as follows:
- 52,000 square feet (4% larger)
- Different neighborhood but the same city
- More complex HVAC requirements
- Similar design style
Applying the analogous estimation formula, Joe came to the following conclusions:
- Base cost: $12.5 million
- Size adjustment: +4% ($500,000)
- HVAC complexity: +8% ($1 million)
- Inflation adjustment (2 years): +6% ($750,000)
- Final estimate: $14.75 million
- Duration estimate: 15 months (accounting for HVAC complexity)
Here’s another example:
Sally is trying to estimate the effort and cost of developing a new mobile banking app.
Here’s how she uses analogous estimating to come to a conclusion:
1. Historical Project:- Previous mobile investment app completed last year
- 8 core features including user authentication, account management
- Development cost: $380,000
- Timeline: 6 months
- Team size: 5 developers, 1 designer, 1 project manager
- The banking app requires 2 additional security features
- Needs integration with more third-party services
- Similar user interface complexity
- The same development team is available
- Stricter regulatory requirements
- Base cost: $380,000
- Additional security features: +15% ($57,000)
- Extra integrations: +20% ($76,000)
- Regulatory compliance: +10% ($38,000)
- Final estimate: $551,000
- Timeline estimate: 8 months (accounting for additional complexity)
- Team size: Same, but adding 1 security specialist
In these examples, Joe and Sally considered project teams, technology, and complexity and made a relatively reliable estimate based on similar past projects.
How can Workamajig help you with analogous estimating?
Although analogous estimating is a simple method, realistically, it can take a lot of time and effort to find relevant historical projects and make accurate comparisons.
As such, I’d like to introduce you to Workmajig, a one-of-its-kind project management software that can help you make analogous estimates super quickly and accurately.
How exactly can Workamajig help?
Project templates and Historical data
Workamajig stores complete project histories for future reference, making it easy to compare to current projects. Our advanced software also creates reusable templates, which makes it easy to identify and compare variables from past and current projects.
Financial management features
Workamajig’s robust finance tools track everything from resource costs to budget performance, to vendor pricing. Having all this data in one place, captured on easy-to-read reports makes comparing finances from past to current projects a snap.
Reporting and Analytics
Workamajig can generate comparative analysis reports and reports showing historical performance trends, saving the time it would take to dig up past records and make your own comparative calculations.
Find out why Workamajig is the lifeblood of thousands of agencies
