Helena Liu explains two ways to estimate project timelines using three data points: optimistic, most likely, and pessimistic. The triangular method averages all three equally; the beta (PERT) method weights the most likely estimate four times heavier using the formula (O + 4M + P) / 6. The beta method appears more often on the PMP exam and works best when you have comparable past projects to draw from.
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Hello and welcome everyone. In this video, we are going to talk about how you can calculate the 3-point estimation. There's 2 formulas involved: the triangular distribution and the beta distribution. Now before we dive into the formulas, let's talk about what is 3-point estimation. So in order to help project managers better predict the cost or time required for a specific work package in your project or the project overall, sometimes it will be more accurate to come up with 3 points of estimation and then take an average of them rather than just come up with 1 point of estimation. So the premise of the 3-point estimation is that you will come up with 3 points: an optimistic estimate, the most likely estimate, and the pessimistic estimate. Now this technique can be used to help you estimate how much a specific activity on your project will cost or how much time a specific activity activity on your project will cost, and it could also help you estimate how much the project overall will cost or how much time is required to complete the project overall. So this estimation technique is used for both cost and schedule. So now let's get into the first type of 3-point estimation, which is called the triangular distribution. So in triangular distribution, you will simply just take the average of the 3 points— the optimistic, the most likely, and the pessimistic. So the formula here is that you would just add up these 3 values and divide by 3. So this is just a simple average. Now once we get into the beta distribution— beta distribution is also called PERT— and in beta distribution, this is when you're taking a weighted average, and there will be more weight on the most likely estimate. So again, we have our 3 points: the optimistic estimate, the most likely estimate, and the pessimistic estimate, and this time though we'll put a lot more weight on the most likely estimate. So the formula here is optimistic plus 4 times the most likely plus the pessimistic estimate divided by 6. Now for your PMP exam, you will most likely be asked to calculate the beta distribution. This method is more popular, so unless the exam question states that you have to use a triad triangular distribution, assume that you are using the beta distribution. Now let's do a comparison between the 2 different types of, of calculations. So beta distribution is most helpful in cases where we have a lot of historical data and information about similar projects. So if we do have information about similar projects, we are better able to calculate the most scenario. So this would mean that it would make more sense to put more weight on the most likely scenario. But if you're doing the project for the first time, you don't really have any historical data, so there's nothing to say that having a weighted average where the most likely scenario will get more weight will be more accurate. So in this case, it would make more sense to just use a triangular distribution. So if you have more historical data about past projects, makes more sense to use beta distribution. If you're doing the project for the first time, it makes more sense to use the triangular distribution. Now let's take a look at a sample question that you may run into on your PMP exam. Let me read this out to you. ABC Corp is planning on building a new CRM system. They've been storing their customer records on paper for the past decade, causing many errors and delays to their customers. You are the project manager for the project, and based on your past experiences, you believe Hopefully the project will take 10 weeks to complete. Optimistically, it could take as little as 6 weeks, and if errors and issues do occur, the worst-case scenario is that the project might take 20 weeks to complete. So what is the duration estimate for this project? Is it A, 10 weeks, B, 12 weeks, C, 11 weeks, or D, none of the above? So please take a moment to pause this video if you need to and calculate The answer, and we'll take it up in just a second. Okay, I hope you got your answer already, and if you said C, you are correct. And the reason that it is C is because you will add— in this case, you will do the PERT estimation because there's 2 giveaways. One, the question doesn't say that you have to use a triangular distribution, and 2, it said that based on your past experiences, you believe the project would take 10 weeks to complete. So this tells you that there has been similar projects done in the past before. So this also hints to you that beta distribution will be more appropriate in this case. So you would do 6, which is the optimistic scenario, plus 4 times the most likely, which is 10, plus 20, which is the pessimistic scenario, and then divide by 6. So this gives you 66 divided by 6, which equals to 11 weeks. So your, your duration estimate for this project will be 11 weeks. And if you like this video and you want to learn more about how you can get your PMP certification, please be sure to check out our 1.5-hour free training on how you can get your PMP certification in the next 6 weeks. There will be a link in the description box, or you can just simply go to www.exampm.com/free. Thank you so much for joining me today, and I can't wait to see you in a future lecture.
