Three-point estimation

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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 Information Systems Information Systems (IS) projects. 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"???]

See also

• Five-number summary
• Seven-number summary
• Triangular distribution