The Power of PERT in Cost Estimating




You’re a digital marketing agency tasked with helping your client choose a technology vendor to create a new application. In front of you are a number of proposals each filled with competing approaches to the solution and a range of time and cost estimates

Which do you choose?

How much confidence do you feel in the vendors’ respective commitments?

One of the biggest challenges facing agencies and brands alike is finding faith in proposals for technology solutions they barely understand. Complicating matters is the often confusing way that vendors arrive at their estimates – if the vendors have a difficult time explaining the process and pricing, how is an agency or brand to feel?

While most contracts are written with various legal provisions to protect buyers, agencies, and vendors alike, the reality is that nobody wants to go down a road where only the lawyers win. What everyone wants is an estimate they can depend on.

And while technology vendors and their customers would prefer an estimation technique based on purely objective principles, the truth is that these are highly subjective matters filled with uncertainties. The greater the complexity of the project, the degree of customization involved, or the number of players involved, the greater the number of variables and chances of errors in estimation.

One place where there is no mystery is in the results of poor estimating: Delays in product or service rollout, solution errors, cost overruns, unhappy clients, and equally miserable marketing agencies that can’t start doing what they do best – marketing.

All of which begs the question: is there a highly reliable, universally applicable solution for estimating a project’s timing, costs, etc., that both vendor and agency alike can understand – and trust? The answer, in an acronym: PERT.

A three-point estimation technique formally known as Project Evaluation and Review Techniques, PERT was developed in response to a growing recognition that project estimates too often are created using highly optimistic or ‘perfect day’ scenarios. This approach is understandable given that the estimate is based on a vendor humming on all cylinders, there are no unexpected surprises, and therefore time and cost estimates are ideal and therefore more likely to be selected by the contracting agency.

The challenge with this approach should be obvious, since it is akin to an Olympic sprinter estimating he can predict the exact outcome of his next race based on the assumption the wind will be at his back, he’ll come off the gun at the exact right moment, his muscles will be in perfect condition, and his competition will rapidly fade. What it doesn’t account for is the nagging hamstring injury, a stiff headwind, a high-altitude race course, a cat that blunders onto the track, and an errant trip that sends him flailing onto the track.

You get the idea.

By contrast, PERT attempts to take a holistic approach to estimating that tasks all of a project’s team members with estimating their most optimistic (O), pessimistic (P), and best guess (BG) estimates into a single equation where the best guess is weighted four times more likely than its two counterparts.

So, for example, a BG estimate might be the average estimated amount of work the project is likely to take if the team performed it 100 times. P is calculated assuming a variety of negative factors might come into play and O, of course, is when every possible positive outcome occurs.

PERT works best with technology vendors who have considerable experience working across a wide range of projects, since they are likely to have a large body of examples from which their estimations can depend.

The power of PERT lies not just in the formula – E = (O + 4BG + P) / 6 – but in the inclusion of estimates by team members who otherwise would be tasked with starting with a single, far more arbitrary number, and manipulating it. That projection may yo-yo up and down depending on who is working with it.

PERT, on the other hand, takes all of the pertinent data and arrives at a single number. Using PERT, for example, the team may come up with the following estimates:

O = 4 hours

P = 16 hours

BG = 8 hours

Our formula, E = (4 + 4(8) + 16) / 6, would result in an estimate of 8.7 hours.

Again, PERT is best used with unique or complex projects where future variables and contingencies are more difficult to anticipate or where a team is entering new territory. In cases where a team has significant experience performing the same kind of word, a technique using analogous estimating practices would likely be more accurate.