Calculating how long a project may take and what kind of investment may be required is one of the most fundamental tasks of any project manager. In some instances, parametric estimating can be an effective project planning technique.

What is parametric estimating?

Parametric estimating is a statistics-based method used to calculate the cost, duration, and resources necessary to complete a project, a portion of a project, or a task.

Valued for its accuracy and reliability, it is particularly popular for project planning in the life sciences and construction and engineering.

Parametric estimation: how it works

The person in charge of the estimates will model (or describe) the project using a set of algorithms. These algorithms come from two primary sources: historical data (derived from analysis of past projects) and parametric rates (published by specialized organizations).

Parametric estimating allows project managers to produce estimates with varying levels of detail. There are two types:

  • Deterministic estimates: These are based on parametric scaling. This kind of estimate is a single number showing the resources needed for your project—usually time or cost.
  • Probabilistic estimates: This shows a range of possible outcomes, based on a probability density curve with three benchmarks: pessimistic (worst–case scenario), most likely (the cost or time estimate with the highest probability), and optimistic (best–case scenario).

Parametric estimating formula

Project managers can calculate simple parametric estimates using this formula:

E_parametric = A_old / P_old x P_curr

  • E_parametic is the parametric estimate
  • A_old is the actual result from a historical project
  • P_old is the parameter value from a historical project
  • P_curr is the parameter value from the current project

To give an example, say it took 50 hours to paint a house that has 1,000 square feet of walls. The current project has 1,500 square feet of walls. The total effort for this task will be:

E_parametric = (50 / 1,000) x 1,500

This works out at 75 hours.

For another example involving a wind farm project, check out our presentation,  Parametric Estimation in a Nutshell. We also discuss how to score parametric estimation and how to start building a parametric estimating model.

Of course, most projects will be far more complex and extensive than the house painting and wind farm project examples. Parametric estimating, particularly for large projects, often involves developing sophisticated models for estimating costs and durations. These models can require frequent backtesting against your actuals to determine their accuracy.

When to use parametric estimating

Parametric estimating is particularly useful in the early stages of projects and works best for tasks that have tangible deliverables and are often repeated, with little variability. A smaller degree of variability makes it easier to identify an equation to model the task.

To work properly, you need to be able to quantify your parameters into units, such as time or currency. Parametric estimation also relies on the availability of historical data from past projects.

To understand parametric estimating, it may be helpful to compare it to another popular method: analogous estimating.

Parametric estimating vs. analogous estimating

Both parametric and analogous estimating use historical data to construct the estimates, but the process they each use to perform the calculations are different.

Parametric estimating creates estimates of a project’s cost or duration by analyzing statistical relationships between historical data and variables. Analogous estimating, on the other hand, calculates these estimates by comparing a historical project to the current project—it simply takes values from previous projects with a similar scope. This explains its root word, “analogy.”

Parametric is equation-based and algorithmic. It is considered more reliable but requires detailed historical data. It’s preferred in instances where high levels of accuracy are required. Analogous estimating is useful where such information is limited—for example, in the early stages of a project. It is more top-down and typically less accurate.

The two can be used in conjunction when historical or public data is not available for a specific task.

Benefits of parametric estimating

Parametric estimating is a powerful analytical technique: it produces accurate estimates and gives project managers high levels of confidence and clarity about whether a project is worth going ahead with. It lends credibility to any estimates, which helps with stakeholder buy-in.

  • Evidence-based: Parametric estimation uses actual historical data or industry standards—it is quantitative, based on experience, and takes into account a large number of factors. It gives project managers accurate cost and time values.
  • Standardized: Parametric estimation has a centralized, standard definition of how to produce estimates—algorithms are used across projects. The calculation method will be the same, meaning they are easily repeatable with the same level of quality.
  • Adjustable: Parametric estimation requires low levels of effort to keep estimates up to date. If generated through an advanced PPM solution, new sets of estimates can be created almost immediately.

Downsides to parametric estimating can include the time and effort required upfront to build the algorithm—it demands a detailed analysis of all elements that contribute towards a forecast and all possible combinations, so as to make the right equations available.

What’s more, parametric estimating is only as good as the data used to power it. Availability and quality of data can impact your estimates. Equations for activities can only be determined if there is a sufficient base of experience for that activity, and equations will need to change if market conditions change.

Planisware’s solutions are trusted by global organizations to bring clarity, certainty, and accuracy to project planning. Take a look at some success stories from our clients across construction and engineering, government, life sciences, and more.

To see exactly how Planisware’s industry-leading features can transform how you plan your projects, request a demo today.