# About the Parametric Estimating PMP Exam Tool

Parametric estimating is a practical quantitative approach to various PMP exam-related processes, such as estimating costs. This project management tool helps determine a project’s expected time or cost requirements based on historical or market data.

Learn more from your Project Management Academy experts about parametric estimating and what you need to know for the PMP exam.

## PMP® Exam Formula Cheat Sheet

Learn how to successfully use project management formulas after reading this cheat sheet.

## Parametric Estimating PMP Exam definition

Parametric estimating is a simple statistics-based tool used to produce estimates for a project’s cost, duration, and effort. It can be used early on in high-level project planning. There are two types of parametric estimating results:

• Deterministic estimates: a single number denoting the expected resources needed for a project or activity. This estimate is calculated based on parametric scaling and sometimes manually adjusted to account for differences between the current project and past data.
• Probabilistic estimates: a range of estimates based on the probability of different costs and durations. This estimate is often presented as a probability density curve with three benchmarks, similar to triangular or PERT distributions:
• The most likely estimate (highest probability)
• Optimistic estimate (best-case scenario)
• Least likely estimate (pessimistic scenario)

For probabilistic parametric estimating, the optimistic and pessimistic estimates are determined based on a target probability and, if applicable, a multiplier to the estimates’ standard deviations.

Varying approaches to parametric estimating produce estimates in different levels of detail. Let’s take a look at some ways to calculate these estimates.

## Parametric Estimating Formula PMP

Parametric estimating requires PMP credential holders to model the project using a set of predefined algorithms. This requires historical data from past projects or public resources. As an active PMP credential holder or PMP exam candidate, you can perform parametric estimating using simple formulas or more complex statistical models.

For smaller projects, you can use straightforward formulas such as the rule-of-three formula:

In this formula, E_parametric = parametric estimate, a_old = historic amount of cost or time,

p_old = historic value of the parameter, and p_curr = value of that parameter in your current project. This formula assumes a linear relationship between the parameters and the cost or time.

For example, if you know your printer can print 5 pages (p_old) per minute (a_old) and you need to print 20 pages (p_curr), your parametric estimate would be 4 minutes:

Larger or more complicated projects may require more complex statistical models or algorithms that treat your various parameters as independent variables. They may also involve significant testing or comprehensive regression analysis. This is to make your estimates as accurate as possible, since inaccurate estimates may impact these projects more heavily.

## Parametric estimating PMP Exam essentials

#### Difference between parametric estimating and analogous estimating

Parametric estimating and analogous estimating both use historical data to calculate estimates. Both also start by breaking down the project into tasks or deliverables. After this step, the processes for parametric versus analogous estimating are different.

In parametric estimating, project managers must match each project component parameter with the appropriate equations to calculate the estimates. These equations may come from established algorithms or past project models but should be scaled to fit the circumstances of the current project.

For example, say a past construction project cost about \$200,000 (a_old) for a total area of 1,000 square feet (p_old). If your current construction project is for a total area of 1,500 square feet (p_curr), and other variables such as the cost of materials are roughly the same, then the parametric estimate for the project is \$300,000:

In analogous estimating, PMP credential holders must match project components to similar or analogous components from previous projects. Analogous estimating is most helpful when you have limited information about your current project. It is a “top-down” estimate using both historical data and expert judgment.

For example, say you previously spent 4 hours moving a client’s belongings from one apartment to another. If your current project involves moving another client’s belongings from a similar apartment to another, your analogous estimate would be 4 hours.

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#### Accuracy of parametric PMP exam estimates: benefits & challenges

Since no two projects are the same, analogous estimates are considerably less accurate than parametric estimates. However, parametric estimating is still thought to be less accurate than bottom-up or three-point estimating.

Parametric estimating adjusts for differences between historical projects and your current project. The more carefully you scale your calculations with historical data, the more accurate your model will be. This model can be reused for other similar projects, and the quality of your data will improve with every project.

However, obtaining the historical data and building your model can be time-consuming and costly. Moreover, if the data is not available or can’t be scaled, this reduces the reliability of your results. You may only be able to use parametric estimating with some parts of your project and should always take your estimates with a grain of salt.

#### Sources to obtain parametric PMP exam values

Each step of calculating a parametric estimate requires some information gathering:

1. Put together a Work Breakdown Structure (WBS). Collect information from stakeholders to determine the project statement, desired deliverables, and all the tasks and steps from project kickoff to completion.
2. Determine project components that can be estimated parametrically. Necessary details for this step include how accurate your estimate should be, how closely your parameters correlate, and how much data is available to collect.
3. Research data on the cost or time requirements of similar projects. This data can be historical or market data from previous internal or external projects, internal resources or databases, and publicly available data such as industry publications or statistics.
4. Test for correlation between historical and current parameters. Ensure the historical data you have collected can be scaled to match current project components. Select the parameters that correlate for use in the model.
5. Develop a model or perform back-testing. Use your historical data and selected parameters to develop and test your model.
6. Perform parametric estimating. Use your model to calculate deterministic or probabilistic estimates for your project and its components.

## Sample Questions

Test your PMP exam knowledge! Check out these sample questions for a taste of what the PMP exam may ask you regarding this topic. Answers are at the bottom of the page.

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Answers

1. C. Parametric estimating is when you use a statistical relationship (such as cost per unit) to calculate the cost or duration. Choice A describes three-point estimates (PERT), choice B describes Analogous estimating, and choice D describes bottom-up estimating.
2. C. This type of estimating looks to historical figures for comparable endeavors as a basis for estimating the project as a whole. In doing so, it often sacrifices accuracy for expedience. Bottom-up estimating, which is time-consuming but much more accurate, assigns estimates on a very granular level, and then aggregates the individual items to form an estimate. Similar estimates are not a PMBOK term.

## Summary

Parametric estimating helps project managers and PMP credential holders calculate an estimate based on known or historical data scaled to parameters in your current project. It is based on an observed or statistically proven correlation between the chosen parameter and a cost or time value.

If you have sufficient historical data and can show the correlation between your selected parameters and the estimated values, parametric estimating can be an accurate and helpful project management tool.

Feeling more confident about your knowledge of parametric estimating for the PMP Exam? That’s why we’re here! If you have any further questions for the Project Management Academy team, feel free to reach out at any time or register for our online training and in-person courses.

Author profile
##### Erin Aldridge, PMP, PMI-ACP, & CSPO
Director of Product Development at