Parametric estimating is one of the most accurate techniques for determining a project’s duration and cost. Luckily, parametric estimating is fairly easy to implement. First, you define the specifications of each unit of the deliverable. Next you research published information, if available, about how many hours of work are required for each unit and the cost. For example, the units could be linear feet of wall surface to paint or customer interviews about their satisfaction with your company’s service. You can use these rates for estimating the duration and cost for the individual tasks/deliverables and the entire project. Project Estimating Main Page
Parametric Estimating – Use Published Rates
Parametric estimating requires published rates. Let’s say you need to estimate the cost of building a high-rise office building. You might consult an estimating publication and find that the cost of building a six-story, pre-stressed concrete building with a luxurious finish for the offices, plus many other specifications, would be $175 per square foot. You would select the appropriate rate and multiply it by the number of square feet of your building. That would give you the estimated cost.
You could also use parametric estimating if published rates were available to estimate the hours of work required to paint one of the offices. You would look up the specifications for an office with 12-foot ceilings. You might paint it with a latex paint after first putting down a primer. You would look up the rate in a published estimating book and find that each linear foot of wall in this office would require .25 hours of labor. If you had 2,000 linear feet, you would estimate the work at 500 hours (2,000 x .25 = 500). Parametric estimating is successful for often-repeated tasks, like building a six-story office building or painting office walls. Because these tasks are common and frequent, there is a lot of data available. It is worthwhile for industry sources to compile and publish parametric estimating data.
When compared to other estimating techniques, parametric estimates are more credible to executives than estimating techniques based on people’s judgments. Because the parametric rates come from sources published by large reputable organizations, the rates are seen as very reliable. The other half of the equation, the number of units you will produce, is also credible. You base the units on a planned count that you can compare to the actual count as you execute the project. The combination of these two features make parametric estimating seem to be rock solid.
Here’s another example. Let’s say you have 400 customer surveys to conduct and you will ask 35 yes/no questions during the interview. You find a published source that says the rate for a 30-40 yes/no question survey is 15 minutes per survey. Using this rate, you calculate the total work: 15 minutes x 400 = 600 minutes or 10 hours of work.
While parametric rates are readily available in the commercial and residential construction industries, that is not true everywhere. Parametric estimating is less successful with tasks that don’t produce tangible outputs. You can count the number of square feet in a building or the number of customer interviews you’re going to conduct. They are tangible. It’s much less accurate when you try to develop parametric rates for judgmental tasks with intangible outputs. For example, there may be rates for writing and editing pages for a financial report but these rates are much less accurate. Parametric rates are not available for projects in manufacturing, information systems, healthcare, marketing, human resource management and general operations. That’s because these projects are too varied to establish reliable rates.
Parametric Estimating – Do It Yourself
There is an option for projects where published parametric rates are not available. That option is to develop your own parametric rates. This is particularly important for tasks that are part of many of your projects. You have the database you need if your organization is doing a good job of archiving your projects’ planned and actual hours of work and costs. You can identify tasks that appear frequently in your organization’s projects. What you are looking for are deliverables where the amount of work for each unit is relatively consistent. Writing computer code is not consistent because each line of code may require vastly different amounts of thought and creativity. But it may be possible to develop your own parametric rates for deliverables with tangible outputs. Customer service reps answering the top ten questions your customers ask has a relatively consistent amount of work per question. The unit cost of generating employee W-2 forms in your payroll system is usually consistent in terms of the sources of information each W-2 accesses. Writing a software manual where the units you count are the number of screen displays is another example.
Obviously, these homegrown parametric estimating databases are not going to cover all of the tasks in your projects. But they will cover some which saves you time and gives the estimates greater credibility. Remember that the key to developing those estimates is having historical data from completed projects. You must archive the information about how many hours of work various activities took and how many units they produced in those hours. When you use these homegrown parametric rates, you can significantly improve the accuracy and credibility of your cost and duration estimates with a relatively small time investment.
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