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The three-point estimation technique is based on statistical methods, and in particular, the normal distribution. Three point estimation is the preferred estimation technique for IS projects[What is "IS"??]. In three-point estimation we produce three figures for every estimate:
- a = the best case estimate
- m = the most likely estimate
- b = the worst-case estimate
These values are used to calculate an E value for the estimate and a standard deviation (SD) where:
- E = a + 4m + b / 6
- SD = (b − a)/6
E is a weighted average which takes into account both the most most optimistic and pessimistic estimates provided and SD measures the variability or uncertainty in the estimate.
To produce a project estimate the project manager:
- Decomposes the project into a list of estimable tasks, i.e. a Work Breakdown Structure
- Estimates each the E value and SD for each task.
- Calculates the E value for the total project work as E (Project Work) = Σ E (Task)
- Calculates the SD value for the total project work as SD (Project Work) = √Σ SD (Task) 2
We then use the E and SD values to convert the project estimates to Confidence Levels as follows:
- Confidence level in E value is approximately 50%
- Confidence level in E value + SD is approximately 70%
- Confidence level in E value + 2 × SD is approximately 95%
- Confidence level in E value + 3 × SD is approximately 99.5%
- IS use the 95% confidence level, i.e. E Value + 2 × SD, for all project and task estimates [What is "IS"???]