What is Parametric Estimating?

In this video, you will learn about parametric estimating. This is an important tool that you need in your tool belt as a project manager. And if you haven't done so already, make sure you hit the subscribe button as well as the notification bell. So parametric estimating is an estimation technique. In this estimation technique, you will use a unit rate and you will multiply this by the unit of measure. So it's a pretty easy calculation to compute. So here are some examples, and let's suppose that the house cost $1,000 per square foot to build, and if our house is 3,000 square foot, that means that the cost of the house will be $300,000. Another example here is let's suppose that the fee of the consultant is $500 per day, and if we use 5 days of this consultant's time, we know that we have to pay 5 times $500, which is $2,500 for the consultant. So parametric estimating is generally considered pretty accurate if you have a reliable measurement for the unit rate. Now let's talk more about the unit rate. So in order to obtain the unit rate or the parametric value, we can look at 3 different sources. We can look at previous internal projects, so we can look at the actual cost from projects that the organization has done previously. This is particularly useful because it takes into consideration the organization's internal processes and efficiency levels. We can also look at previous external projects as well if this information is available. However, we don't know all of the details that went into this project, so sometimes they are making assumptions that we don't know about. And the last source that we can look for parametric value is industry publications. This is really great if there's reliable industry information and you know that your project tends to be around the average for those projects anyways. So for example, if the construction equipment rates are published in an industry trade organization, you know that your cost should come close to that. So when you're estimating using parametric estimating, another thing you need to consider is economies of scale. So if you're producing larger numbers, you could take advantage of economies of scale, which could bring down your cost and make sure that you want to make adjustments for the number of units that you are producing. Now parametric estimation is usually used at the task level. You don't use parametric estimation to determine your overall project cost or duration. So you use it to estimate an individual cost or duration because for an individual activity you can easily determine its scope, so this will make it easier to determine the unit of measure. When you have an overall big large projects, there's just too many moving parts involved and it's hard to come up with the unit of measure and how much that unit of measure will cost. Now, there are 2 other techniques that are also used to determine the activity cost or duration, and these are analogous estimation. So analogous estimation will use similar historical projects to determine the activity cost or duration, and the other technique is called 3-point estimation. In 3-point estimation, estimation, you will come up with 3 points of estimation for the activity cost or duration. You will come up with an optimistic point, the most likely point, as well as the pessimistic point, and you would take an average of those 3 numbers in order to come up with an estimation for the activity cost or duration. Now, like I mentioned earlier, you don't use parametric estimation in order to obtain the overall project cost or duration, what you need to do on the project level is to sum up all of the activity duration or cost that you have obtained from parametric estimation and sum it up and roll it up and roll it up until you get the project budget or the project schedule. Now, if you want to learn more tips like this about project management, make sure you sign up for our free course at www.exampm.com/free. In this training, I will teach you how you can obtain your PMP or Project Management Professional certification in the next 6 weeks or less. I'll share a lot of great tips and tricks with you there, and I can't wait to see you in this training. See you soon.