A Guide to Analogous Estimating Technique (With Example)

By Indeed Editorial Team

Published June 19, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When working on assignments, project managers typically estimate the cost and time the team requires. To do this, they often use data from similar projects to predict the metrics of the new project. Understanding the different estimating techniques can help you to successfully manage the team and build projects that achieve a company's goals.

In this article, we define the analogous estimating approach, explore its classification, discover the differences between analogous and parametric estimating, provide a guide on how to apply the method, explain when to use it and what advantages it holds, and provide examples to help guide your calculations.

What is an analogous estimating technique?

An analogous estimating technique, also called a top-down estimation method, is a measurement technique project managers use to determine the resources and time they require to complete a project. Here, the project manager analyzes previous projects, studies the accompanying variables, and uses that information to forecast the length and cost of the new project. This technique is information-dependent, and you may require a lot of data to help you create accurate forecasts. This estimation approach is often easy to understand and perform and is especially helpful when you have very few details about your current project.

Classification of the analogous estimating technique

The analogous estimation technique can fit into four broad categories. These include:

  • Absolute value or single point estimate: This estimate contains one absolute value. For example, if a previous project cost the company $45,000, and the project manager estimates the new company project requires a similar budget, the single point estimate can be $45,000.

  • Ratio estimate: The ratio estimate allows you to compare data over time and understand how different types of information relate to each other. For example, you can compare the profitability, stock turnover, product returns, and employee tracks to determine how much time and resources the new project requires.

  • Three-point estimate: The three-point estimation technique allows project managers to create accurate estimates that genuinely reflect the scope of the project. By generating three distinct estimates, you can take a well-rounded risk assessment approach to determine the quality of your project.

  • Estimate range: Unlike the single-point estimate technique, the estimate range process involves creating a range of values that can help guide the execution of the project. When applying the estimate range technique, project managers often use the most likely estimate as a part of the analysis.

Read more: The 5 Phases of the Project Management Life Cycle

What is the difference between parametric estimating and analogous estimating?

Parametric estimation is a statistical approach to managing the cost and duration of a new project. Here, the project manager establishes the relationship between variables and uses a formula to provide a per-unit cost. You can obtain historical data from similar projects from other companies in the same industry, past projects within the organization, or industry publications. Although the parametric method is expensive and time-consuming, it can often provide an accurate representation of the project's requirements.

In contrast, analogous estimation doesn't require formulas or detailed data. Here, you depend more on expert analysis than on the statistical relationship between variables. Although it may be less accurate than the parametric method, you can use the analogous estimation technique at the initial stage of the assignment when you may not have access to a lot of information.

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How to apply the analogous testing technique

Here are some steps you can take when applying an analogous estimation technique:

  1. Make a list: You can create a list of projects with similar characteristics. It can be a long list that you redefine during the later course of the project planning stage.

  2. Collate relevant data: You can obtain historical data regarding the cost, timeline, resources, human power, and environmental factors that were a part of past projects. Understanding the characteristics of successful projects can help you reduce errors when planning a new project.

  3. Redefine the initial list: After obtaining historical data on previous projects, you can refine the initial project list to reflect the new information. After the edit, you get a list of projects similar to the new one.

  4. Determine project estimates: After curating a new list, you can determine how much time and resources the new project requires. Resources may include stakeholder buy-in, human resources and management, financial investment, and external partnerships.

  5. Perform the analysis: You can calculate the project estimate from the amount of historical data you can access. With this estimate, you can determine the amount of risk that might affect the project and proactively work to prevent it.

Read more: What Is a Project Management Plan? With Tips and Examples

When do you apply analogous estimating?

When preparing for a project, here are a few scenarios where you can apply the analogous estimate technique:

  • At the initial stages of the project: Analogous estimation can be an effective way to put an initial value on a project and its parts. You can use analogous estimation at this stage of the project to determine if the project is viable or whether to make a bid for that project.

  • When the company has limited estimation resources: As a project manager, you're typically responsible for overseeing the project and operating within a specific budget range. You might use the analogous estimation technique if you have little to no past data available for similar projects to make an exact comparison.

  • In the absence of detailed data: If you have few details or no access to the current project's information, you can use analogous estimation to analyze its cost and duration. As the project progresses, you can refine your estimates.

  • When you require only a rough estimate: When bidding on a project, the company may only require a basic estimate of its cost and duration. An analogous estimation might be the most efficient approach to obtain the information necessary to make the pitch.

  • When you require expert judgement: You may not require access to historical data to make a decision. A project manager might use comparison if they have the experience and knowledge to make an analogous estimation based on their involvement in similar previous projects.

Read more: What Are Principles of Project Management (With Skills)

Advantages of the analogous estimation technique

Here are some advantages of using the analogous estimate technique:

  • Saves time: This estimation method can help the company's executives save valuable time. With this technique, they can quickly provide a basic estimate using the least amount of parameters and resources.

  • Minimizes expenses: The analogous technique requires little documentation and processing. Project managers can direct any surplus resources to build the new project.

  • Makes quick modifications: You can use the analogous estimate technique to determine risk at the beginning of the project. This flexibility allows you to implement changes during the project planning process quickly.

  • Conserves resources: In contrast to the parametric estimating technique, you require minimal resources to perform an analogous estimate. This technique is instrumental when you may not have a lot of data at the beginning of the project.

Read more: Why Project Management Is Important (And Tips for Success)

Examples of analogous testing techniques

Analyzing practical examples of this estimation approach may help guide you when implementing it. You can consider the following:

Example for an advertising department

Here's an example to help you understand the concept better:

Jane is now the new project manager for the advertising department of Best Adz Inc. As a part of her new role, she is responsible for estimating the duration and cost of a new client's project. While she has no experience with this type of project in her previous roles, the company has a record of similar past campaigns. Jane uses analogous estimation to assess the project's requirements according to past data. She adjusts some variables to account for differences between projects and uses the resulting data in her presentation.

Example for commercial campaigns

Here's a second example you can consider:

Greg's advertising agency is bidding on two different commercial campaigns. One is a digital campaign for a new company, and the other is for a freelance website. Both clients require Greg to make a presentation on the project's feasibility. The agency has a record of a successful digital advert campaign for a new company. Greg uses the data for the new company to create an analogous estimate for the freelance website for which he did not have access to relevant past data.

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