Project Estimation Techniques and Make-or-Buy Decision Analysis: A Case Study in Cost Management
Overview
This case study examines two primary project estimation techniques—analogy estimation and three-point estimating—and their application in project management decisions. It analyzes the complexity of selecting appropriate estimation methods and applies cost analysis to a manufacturing scenario to determine whether parts should be manufactured in-house or purchased externally.
What this case study covers
- Comparison of analogy and three-point estimating techniques in project management
- Discussion of factors affecting estimation technique selection and project complexity
- Make-or-buy analysis for manufacturing parts with cost calculation and imperfection probability assessment
- Cost-benefit comparison between manufacturing and purchasing options
Preview
Case 1
Question 1
There were two main estimating techniques discussed in the case study:
- Analogy Estimate: This is a common technique used in various project activities. It usually utilizes past project experiences and uses the lessons on the current one.
- Three-point estimating technique: by using this technique, the flow of the project is described using three categories of assumptions. The first estimate is usually optimistic, the second one pessimistic estimate, and the final one is between the two estimates, the no-doubt estimate.
Question 2
It is very difficult for a project manager to decide on a particular estimate. This is because each project has different complexities due to the different factors and circumstances. All projects do not align with a similar technique that can be applied universally. There are different project sizes, which include large-scale, small-scale, or medium scale. The factors influencing these projects are unique and the manager must avoid making a mistake while deciding on the project estimate to be used. The best estimating techniques that can be used for projects include triangular distribution and analogy as explained in the foregoing case study. Therefore, the technique used must ensure that the project timelines are realistic.
Question 3
If I were the project manager, I would choose the analogy estimate technique. This is because the approach includes experiences from the past to influence the decisions of the current project. This implies that there will be minimal errors because many unnecessary mistakes or errors will never be repeated in projects with similar magnitudes, budgets, or costs.