Uncertainty is a constant companion in project management.

To
overcome this uncertainty and make informed decisions, project
managers rely on the three-point estimating. This method considers three
estimates for each task: the best-case scenario, the worst-case scenario,
and the most likely case. By analyzing these estimates and assessing
their probabilities, project managers can better understand probabilities,
manage risks, and create a comprehensive project plan Three-point
estimates for the project managers are able to embrace uncertainty and
make data-driven decisions for project success.

Many successful businesses opt for the three-point estimating technique,

which proves highly advantageous in project management. This
technique enables project managers to make well-informed predictions
regarding project outcomes. You can learn these techniques using the
best Project Management training courses .

To learn more about what is three point estimating technique, including

its benefits and formulas, continue reading for a comprehensive
overview.

What Is the Three-Point Estimation in Project Management?

Three-point estimating is a project estimation technique used to assess the

likely outcomes or costs of anticipated. This approach enables project
managers to generate realistic estimates and derive an expected value
through a comprehensive evaluation, even with limited information.

This is a powerful approach that involves analyzing and incorporating

multiple estimates: optimistic (O), pessimistic (P), and most likely (M).
They are described below:

1. O - The "O" represents an optimistic estimate, also referred to as a best-case scenario

or best-case estimate. This estimate assumes that everything will progress smoothly,
with minimal obstacles or challenges.
2. P - The symbol "P" represents a pessimistic estimate, which is also referred to as a
worst-case scenario or worst-case estimate. This estimation assumes that everything
will go wrong, leading to a more negative outcome than initially anticipated.
 3. M - The "M" represents the most likely estimate, which falls between the optimistic
and pessimistic estimates. It represents a middle ground, acknowledging that some
aspects of the future event may go right while others may encounter difficulties.
The three-point estimate is derived through a formula that calculates the
average activity of the estimates. More information about this calculation
and formula will be discussed in the following sections.

While the three-point estimation technique aids in determining the most

realistic estimate, the process of calculating the probabilities of an event
can be arduous and mentally exhausting. Fortunately, the use of
invoicing and estimation software can alleviate this burden.

What is the Three-point Estimating Formula?

Project managers utilize three point estimating formulas to determine the

most likely estimate when multiple variables are involved. Two common
types of three point estimating formula are the triangular distribution and
the Beta distribution (PERT).

Triangular Distribution:

The triangular distribution provides a straightforward method to calculate

the average outcome. It involves taking the mean value of the
components in the three-point estimate.

For example, considering the previous example of daily work hours:

E = (14 + 10 + 12) / 3

E = 12

According to the triangular distribution formula, the ideal time range to

complete all tasks would be 12 hours.

Beta Distribution (PERT):

The Beta distribution, also known as Project Evaluation and Review
Technique (PERT), is a more intricate approach to three-point estimating
in project management calculation. It entails applying a weighted average
of the Optimistic, Pessimistic, and Most Likely estimates.

The PERT beta distribution involves multiplying the Most Likely estimate
by four, which is four times its original value, and then dividing the sum of
the three estimates by six.

For example:

E = (14 + 4(12) + 10) / 6

E = 12

After applying the PERT beta distribution formula to our fictional data, the
resulting estimate remains 12 hours.

Having explored the three-point estimation formulas, let's now delve into
the benefits and understand how three-point estimating can positively
impact your business and enhance project management.

How to Use Three Point Estimating in Project Management?

To use three-point estimating effectively in project management, follow

these steps:

1. Identify the Task: Begin by identifying the specific task or activity for
which you need to estimate the duration, effort, or cost.

2. Determine Three Estimates: Establish three estimates for the task

based on different scenarios: optimistic (O), pessimistic (P), and most
likely (M). The optimistic estimate represents the best-case scenario, the
pessimistic estimate represents the worst-case scenario, and the most
likely estimate represents a realistic expectation.
3. Apply the Chosen Formula: Select the appropriate three-point
estimating pmp formula based on your preference or the specific
requirements of your project. The two common formulas are the triangular
distribution and the Beta distribution (PERT). Apply the formula to
calculate the estimated value.

 Triangular Distribution: Use the 3-point estimate formula E = (O + M + P) / 3, where

E is the estimated value.
 Beta Distribution (PERT): Use the formula E = (O + 4M + P) / 6, where E is the
estimated value.
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4. Analyze the Results: Review the estimated value obtained from the
formula. It represents the most probable estimate for the task. Consider
this estimate along with the range between the optimistic and pessimistic
estimates to gain insights into the potential variability or risks associated
with the task.

5. Communicate and Document: Share the estimated value, along with the
corresponding optimistic and pessimistic estimates, with relevant
stakeholders. Document the estimates in your project management
documentation, such as the project schedule or cost estimation.

6. Monitor and Refine: As the project progresses, monitor the actual

performance and compare it to the estimated values. This feedback loop
helps you refine and improve your estimation techniques over time,
increasing the accuracy of future estimates.

By using the three-point estimating method in project management, you

can account for uncertainties, variability, and risks associated with
different tasks, enabling more informed decision-making and better
project planning.

What are the Benefits of Using Three-point Estimating?

Using three-point estimating in project management offers several
benefits:

1. Improved Accuracy: Three-point estimating considers multiple

scenarios, including best-case, worst-case, and most likely outcomes.
This approach provides a more comprehensive view of the potential
range of results and increases the accuracy of estimates compared to
relying on a single value.

2. Risk Assessment: By considering both optimistic and pessimistic

estimates, three-point estimating helps project managers assess and
manage risks more effectively. It highlights potential risks and
uncertainties, allowing proactive risk mitigation strategies to be
implemented.

3. Enhanced Decision-making: The range of estimates provided by three-

point estimating gives project managers valuable information for decision-
making. It allows for a more nuanced understanding of the potential
outcomes and helps in making informed choices regarding resource
allocation, project scheduling, and risk management strategies.

4. Stakeholder Communication: Three-point estimating provides a

transparent and comprehensive approach to estimation. Sharing
optimistic, pessimistic, and most likely estimates with stakeholders
promotes transparency and fosters understanding of the potential
variability in project outcomes.

5. More Realistic Planning: Three-point estimating encourages project

managers to consider the uncertainties and risks associated with tasks or
activities. This leads to more realistic planning, setting achievable project
goals and milestones based on a balanced understanding of best-case,
worst-case, and most likely scenarios.

6. Continuous Improvement: By comparing the estimated values with

actual performance, project managers can identify areas of improvement
and refine their estimation techniques over time. This feedback loop
contributes to continuous improvement in estimating accuracy and
enhances overall project management processes.

Hence, three-point estimating improves accuracy, facilitates risk

assessment and decision-making, enhances stakeholder communication,
enables realistic planning, and supports continuous improvement in
project management. It is a valuable technique for mitigating
uncertainties and increasing the chances of project success. Join Prince2
Foundation and Practitioner online course today to learn everything about
Project Management.

Examples of Three Point Estimating

Suppose you need to reach the airport, and the route you typically take is
prone to heavy traffic. In this scenario, your optimistic estimate for the
travel time could be 20 minutes, reflecting the best-case scenario.
Conversely, your pessimistic estimate, considering potential traffic
congestion, could be 60 minutes. A more realistic estimate, representing
the most likely outcome, would be 40 minutes.

Let’s learn how do you calculate a 3-point estimate?

To derive a reliable estimate using the three-point estimate formula, you

would calculate (20 + [4 * 40] + 60) / [6]. This three-point estimation
technique example calculation results in an estimate of 40 minutes,
taking into account the three different estimates. By considering all three
estimates, the resulting estimate is more realistic.

In this example, the standard deviation can be calculated as (60 - 20) / [6],
which equals 6.7 minutes.

Let’s take another three-point estimating example!

Suppose you are the owner of a construction business and currently work
for 12 hours each day. As you are taking on more contracts, you plan to
expand your operations. Your optimistic estimate (O) is that you will be
able to work for 14 hours daily to handle the increased workload and
complete more project tasks.

However, you are aware that unforeseen circumstances can arise, and
you may not always be able to work uninterrupted for 14 hours. There
could be urgent errands to attend to or unexpected guests to entertain. In
such situations, your pessimistic estimate (P) is that you might only be
able to work for 10 hours, considering it as a worst-case scenario and a
negative outcome.

Additionally, you anticipate that some days will be a combination of both,

with a balance between smooth progress and potential disruptions. In this
most likely estimate (M), you plan to work for the standard 12 hours,
representing a typical day where things go as planned.

To accurately predict your actual work time, you can utilize any of the
available three-point estimate formulas.