Analogous Estimating: Definition, Process, and Use Cases

All over the world, project managers would unanimously agree that estimating is the most challenging part of project management. Estimating in the world of business and project management is the art of predicting the number, value, quantity, or extent of resources needed to complete a project.

As a project manager, the right estimating process is the key to accurate results. Most projects get shut down even before they see the light of day, while others stop midway owing to estimate errors.

With several available estimating techniques, choosing a suitable method becomes tricky for project managers, which is how analogous estimating saves the day. Here’s all you need to know about analogous estimates as a project manager.

Analogous Estimating Overview

Let’s say you’re working on a new project but had worked on a similar project a while back. You had done a lot of research on the past project and prepared the quotes, invoices, resource allocation sheet, as well as the project scope.

Instead of doing a lot of guesswork, you then decide to use the previous project’s data to build your estimate for the current project. As a result, you could easily approximate the cost, project resources, and project duration for the new project.

Project managers use analogous estimating techniques to predict the cost and duration of new projects where there are similarities with past ones. In the example above, you used the data from the previous project to create variables that helped with the estimation. This technique is known as analogous estimating and involves analyzing all previous project data and building an analogy for the current project.

Analogous estimation is used to predict:

• Absolute value
• Ratio estimates
• Three-point estimates
• A range

When to Use Analogous Estimating?

Since analogous estimates work with previous data, analogous estimating techniques can only be applied where you have sufficient data from a similar past project. If you don’t have sufficient data points or haven’t done any projects that can serve as a reference point, you should avoid using this estimating technique. Here are scenarios where analogous estimating fits in perfectly:

1. Initial Stages

   You can employ analogous estimation when conducting a project feasibility study, even before you determine the required resources or complete scope of the project. Analogous estimation helps you decide whether future projects will be profitable before you decide to bid for them.

2. Insufficient Project Details

   You might use analogous estimation if you have insufficient or inconclusive data on a current project but need to determine whether a project is worthwhile.

3. Quick Estimate

   An analogous estimate might be the best option where you need a rough estimate if you’re bidding on a project. With a little research, it is possible to make close assumptions about the total cost and likely duration of a project.

4. Expert Insight

   Most project managers utilize their wealth of knowledge and experience from previous projects to make analogous estimates where there are similarities with previous projects.

5. Limited Estimation Prerequisites

   You should use analogous estimation if you have very little data or previous experience to make a conclusive cost or project requirement comparison but still need to create an estimate.

The Benefits of Using Analogous Estimation

Here are some of the benefits of using analogous estimating as a project manager:

• Analogous estimating can help you save a lot of money as it requires less time and fewer processes; it should be considered when on a limited budget.
• Analogous estimating saves time when you need a quick estimate. It also saves you a lot of effort while enabling you to make faster decisions on estimates.
• Analogous estimating can help validate your feasibility study throughout the project lifecycle as you may need to stick to the estimates you have made during the project lifecycle.
• You can also use analogous estimating when you have fewer data points from past projects but need to draft quick estimates.

Challenges of Analogous Estimation

• Analogous estimation functions on the premise that variables such as labor costs and resources remain constant. With economic factors like inflation, estimates could be quite inaccurate.
• Analogous estimating is not as accurate as other estimating techniques and should be avoided for large or complex projects.
• Analogous estimation is better for determining cost estimates at the early stages of a project and should only be used where there is limited data about a project.

The 5-step Analogous Estimating Process

If you plan to use analogous estimating for your next project, here is the step-by-step process you should follow.

1. Assimilate Similar Projects

   You or your team may have drafted an estimate for a similar project in the past so ensure you pour over your project database to find references to them. If you find any useful data on any similar historical project, you could use that to estimate the timeline and cost for any given project.

2. Collect Data

   The next step is to collate all the data you’ve found relating to a past project, including costs, resources, and timeline. You could also do some online research on similar projects and aggregate your findings before you move ahead with the estimation process.

3. Compare Variables

   While the two projects could be similar, they may differ on many levels. Ensure you identify the comparable variables for both projects before proceeding with your estimation.

4. Estimate Type

   By now, you should have an idea of which analogous estimating process works best for your project case. A single-point estimate is preferred for simple projects, while you should use an estimated range when there are variabilities in the project.

   A ratio estimate is preferred when you need to establish how two variables relate to each other. A three-point estimate helps you better understand the risks of any project by generating three different estimates: an optimistic estimate, a pessimistic estimate, and a realistic estimate.

5. Determine the Values

   Once you have arrived at the most suitable approach, apply it to determine a project’s risk, project cost, and profitability margin.

What is an Example of Analogous Estimating?

There are many scenarios where you can use analogous estimating on a current project. It is important to note that technique can also be applied in cases where you have little or no experience on a similar past project.

Say you were working on a current project to build 10 houses in a community. If you are working in an agency, you can always ask people who have worked on similar past projects for data. They will provide you with estimates of the overall project, as well as the project scope and requirements. You can use this data to create accurate estimates while choosing the variables that fit your needs.

While working on a project estimation, you can use clients’ historical information to learn more about their preferences while drafting an estimate. Analogous estimation techniques can also be employed when the project requirements or scope is unclear.

Create Lightning-Fast Estimates and Invoices With InvoiceOwl

InvoiceOwl is a better way to create and send quick estimates and invoices to your clients.
Start Your FREE Trial

Conclusion

The analogous estimating technique is a top-down approach that works best in project validation, project scope optimization, and project scope building. This project estimation method is helpful for contractors and handypersons asked to bid on a project they might have little experience with. It helps build an analogy using the variables from past projects to help you create an estimate for current projects.

If you send out lots of estimates, invest in a reliable estimate software like InvoiceOwl that helps you create and send accurate estimates and invoices in just a few clicks. With an intuitive user interface and simple workflows, InvoiceOwl makes it easy for anyone without accounting experience to manage their business finances efficiently.

Want to see how easy it is to create and send estimates and invoices? START Your FREE Trial today.