PMP Terminologies

PMP Terminologies
When the Project Manager is in the Planning process group,
most of his/her time will go in thinking
in the line of estimating the resources, time
required to complete the project and the cost that is going to incur and
of course other than this, risk planning, procurement planning etc… The
estimation can be done using different techniques like analogous, parametric,
three point estimation, expert judgement, etc. Let’s consider the difference
between Analogous estimation and Parametric Estimation.
Analogous estimation Vs Parametric
Estimation
Analogy means similar or equivalent. Analogous estimation is
done based on the time or cost taken by similar projects which were done during
earlier days. So this is based on the historical or the experience of the team
who have done similar projects in the past. One of the disadvantages of this
technique is estimation may not be accurate.
For example: For the cost of development of an online
booking application took about 1 month and you are going to develop the similar
application for another client, then we can take 1 month as the estimation to
develop it.


















Parametric estimation is done on the per unit basis and uses
the relation between variables to arrive at the cost or the duration. This
estimation is more accurate compared to the analogous estimation. But the measurement must be scalable in order
to achieve the accuracy.
For example: It takes 1 day to produce 10 pieces of work.
Then to produce 100 pieces how many days it takes? Simple, 10 days.

Parametric

Above, we discussed
about types of estimation. Now what is estimation? Estimation is the likelihood
of the duration or the cost in terms of quantitative numbers to complete the
project. But can we achieve the project with estimation? The answer is may not
be. So this ambiguity leads to adding the buffer which we call it as reserves
to the estimate and approve the same. This final figure becomes budget.
Estimate Vs Budget
Estimate is an approximate figure to arrive at the duration,
cost, effort, resources to complete the project.

Budget is approved estimate after the addition of reserve.

For example: After the estimation if the cost is coming to
about $1M, then will add about 5% considering the reserve. So the budget will
become $1.05M.
Just now we spoke about reserve. Now in PMP there are two types
of reserves one is the Contingency reserve and the other is Management reserve.
Let’s see the difference between them.
Contingency reserve vs Management reserve
Contingency reserve is the amount of duration or the cost
added based on the unknown but potential identified risk. And this will be
added usually by the Project Manager after the estimation and becomes Cost or
time baseline.
Management Reserve is the amount of duration or the cost
added based on the unknown risk and which are not visible. This will be added
by the Sponsor or the PMO office. To use this reserve by the Project Manager it
calls for approval from sponsor/PMO.
Contingency reserve is called “known unknown” and Management
reserve is called “unknown unknown”.
The technique of using the Management Reserve and
Contingency reserve is called the Reserve
Analysis.