PART 2 IN PARAMETRIC ESTIMATING

REPORTED BY:
KENNETH GUTIERREZ
 Advantages and Disadvantages of Parametric Estmate

Advantages

• The parametric estimation technique can be very accurate when it comes to estimating cost and
time.

• It is therefore easier to get stakeholders’ support and approval of budgets determined this way.

• Once the model is established, it can be reused for other similar project and the quality of data
becomes better with every additional project.

• Manual adjustments to the calculated results to account for differences between historic and the
current project can help address weaknesses of a model or underlying data, e.g. if qualitative and
environmental factors are not fully fed into the model.
 Advantages and Disadvantages of Parametric Estmate

Disadvantages

• Parametric estimating can be time-consuming and costly. Obtaining the historic

data and building a model requires some efforts and resources.

• The required availability of historic data and the expected scalability are
further constraints for the use of this technique.

• It can often only be used for some parts of a project while others need to be
estimated with different techniques.
 Advantages and Disadvantages of Parametric Estmate

Disadvantages

• Relying on the data may not be appropriate if certain factors differ between the current
and previous projects.

• The quality of the historic data may also be an area of concern in some cases. The
saying ‘garbage in, garbage out’ applies to parametric estimating in the same way it is
true for any other use of data.

• Parametric estimating has the inherent risk of providing a false sense of accuracy if
models are inaccurate or data from other projects prove not to apply to the current
project.
 Examples Determining the Construction Cost using
a Parametric Estimate
A project team in a construction company is asked to
estimate the construction cost for a new office building. The
company has completed several similar projects over the last
couple of years. It uses an in-house database to granularly
track the activity durations and costs of previous projects.

For similar types of buildings, the average construction

cost amounted to $200 per square foot in the past (= cost per
parameter unit).The new building is supposed to have a total
area of 3,000 square feet (= parameter value in the new
project).
The calculation of the order of magnitude of the construction cost, using a
parametric estimate (deterministic) determined with the rule of three, is as follows:
Estimated construction cost = $200 x 3,000 sq ft = $6,000,000.

• Example 2

The company calculates the cost of moving office items using variable cost and
base cost. This is based on the distance as well as the employees involved in
shifting the office items. In addition, there are unique complexities that the
company includes in the moving process such as relocating the air conditioning
system.
 Calculation for moving estimate
Price Quotation for an office move
Example 3

• Assume that you are a board member of a construction company that will
handover a real estate development project with the following
components;
a. Engineering & Design
b. Construction
c. Sales and Marketing
• For Engineering, you will create a team with ten professionals. They are
experienced in design and quality management. Hiring one professional
will cost 250,000 USD in the course of the project. For sales and
marketing, you will hire two sales assistants costing 150,000 USD and
there will be 2000 flyers printed up at a cost of $2 each.

• The project comprises ten five-story house building with 2,200 square
meters each. According to historical data gathered from your similar past
projects, the cost of building a five-story house with a luxurious finish
would be $500 per square meter. However, all the past projects have been
completed three years ago. So, you need to increase the estimated unit cost
by %10 considering markups.
Parametric Estimating will be as follows;

Decpline Cost Item Quantity Unit Cost Total Cost

Engineering & Hiring 10 $250,000 $2,500,000
Design Professionals
Sales & Hiring sales 2 $150,000 $300,000
Marketing assistant

Printing & 2,000 $2 $3000

Distributing
Flyers
Construction Ten Five- Story 22,000 $500 11,000,000
House Building

Estimated Total Cost = $13,803,000

 Parametric Estimating Softwares

• Constructive cost model

– is defined in terms of three defferent models:
a. Basic Model
b. Intermediate model
c. Detailed model
• Costimator
– This is another cost estimating software designed to model costs in
the manufacturing industry. The application comes with industry
validated time standards and cost models. These features help the
software to support estimation of costs for lots of manufacturing
processes.
• Conclusion
Parametric estimating is considered as one of the best approaches for the
duration, resource requirements, and cost if sufficient historical information is
available. A high level of accuracy is achieved if there is a proven correlation
existing between the estimated values and the parameters.
Parametric estimating can be deployed both in a simple and a complex
statistical model. However, the complexity of the evaluation depends mostly
on the different factors including quality, availability, and accuracy of historic
information not forgetting the available resources for estimating.
References:
• https://www.projectpractical.com/parametric-estimating-
pmp/
• https://www.planisware.com/glossary/parametric-estimation
• https://www.slideshare.net/Baskarkncet/cocomo-model-
128537381
• https://project-management.info/parametric-estimating/#15-
example-2-estimating-implementation-cost-of-an-it-system
THANK YOU