Risk Management Technique – 3-Point Estimate

The 3-point Estimate is a mathematical technique for constructing an estimated distribution of probabilities reflecting the outcome of future events, based on limited information. In the project management area, it is one of the most effective techniques used to develop estimates. Dick Billows indicates its three advantages:

  1. Increased accuracy over one-point estimates
  2. Better commitment from the project team members because the estimate considers the risk in the assignment
  3. Useful information on the risks of each task.

In 3-Point Estimate, three figures are produced initially for every distribution that is required, based on prior experience or best-guesses:

  • O = the best-case (most optimistic) estimate
  • M/BG = the most likely (best guess) estimate
  • P = the worst-case (most pessimistic) estimate

More precisely, in project risk management, O stands for the amount of work the task might take if the positive risks team members identified do occur. M presents the average amount of work the task might take if the team member performed it 100 times. And P is the amount of work the task might take if the negative factors they identified do occur.

There are two commonly used equations of 3-Point Estimate: triangular distribution and double-triangular (or Beta) distribution. Compared with triangular distribution, the Beta distribution considers more weight on the most likely estimate. In most real-world cases, the Beta distribution has been proven to be more accurate than the triangular distribution. Moreover, the Beta distribution also is called PRET which stands for Program Evaluation and Review Technique. There are the equations of the distributions as follows.

1. Triangular distribution:

E = (o + m + p ) / 3

2. Double-triangular (or Beta, PRET) distribution:

E = (o + 4m + p) / 6
SD = (p − o) / 6

where E for both equations represents Estimate; SD is the standard deviation which measures the level of certainty of the Beta distribution.


References

  1. 3-Points Estimating
  2. Three-point estimation
  3. How To Do 3 Point Estimating

Projects vs. BAU(Business as Usual)

I believe understanding the definition of a project and how to identify it is vitally important before learning project management. The purpose of distinguishing projects and BAU properly is to better manage and control the work in different contexts. More precisely, it could provide a basis for selecting concepts and techniques of management accordingly, and ensure applying them appropriately during executions. For instance, there are limited application contexts for different management methods and frameworks. As mentioned in chapter 1 of PRINCE2 Agile guide[1]: PRINCE2 and PRINCE2 Agile are only suitable for use on projects, whereas agile can be used for projects and routine ongoing work as well”.


PRINCE2 (PRojects IN Controlled Environments): a structured project management method and practitioner certification programme.

PRINCE2 Agile: the world’s most complete agile project management solution, combining the flexibility and responsibility of agile with the governance of PRINCE2.

Definitions

There are no unique definitions of these two practices respectively I could found. In my view, it may be due to the specific environments in the distinct industries which the professionals considered when defined them. However, the interpretations of each of them are comparable in a manner.

BAU

BAU work would typically be repeatable routine tasks that can be carried out by people with the appropriate technical skills without needing to be managed by a project manager“[1].

the normal execution of standard functional operations within an organization – forms a possible contrast to projects or programmes which might introduce change“[2].

The two definitions indicate BAU is a ‘normal’ ‘routine’ work happening almost every business day. Like the common understanding of daily business work, it is executed basically in a fixed process environment which has the major characteristics of repetition, continuity and low risk.

Projects

A project is a temporary situation where a team is assembled to address a specific problem, opportunity or change that is sufficiently difficult that it cannot be handled as BAU. It may even be a collection of BAU items handled collectively“[1].

It’s a temporary endeavor undertaken to create a unique product, service or result“[3].

Compared with BAU, both definitions of projects emphasis ‘temporary’, which means the work of a project is not kind of permanent as BAU. In other words, a project should have its own corresponding and unique lifespan. Moreover, the aim of a project is to generate a ‘thing’ which does not exist in this world before including a concrete manner like a building, or a detailed solution for solving a prescribed requirement. Therefore, the processes of creating unknowns are more comparatively risk and each of them cannot be completely repeated.

Differences

Project

BAU

PRINCE2 Agile guide[1]
  • Temporary
  • Team is created
  • Difficult
  • A degree of uncertainty
  • Ongoing
  • Stable team
  • Routine
  • A degree of certainty
Strategic Project Organising[2]
  • One-off processes / unique
  • Determinate lifecycle
  • Temporary organisation
  • Dynamic staffing
  • Dynamic supply chain
  • Owner/client engages in the process
  • Commercial management
  • Enables change
  • Repetitive processes
  • Indeterminate lifecycle
  • Stable organisation
  • Stable staffing
  • Stable supply chain
  • Process buffered from customer
  • Supply chain management
  • Keeps the business running
Knowledge Train[3]
  • One off/Unique
  • Delivering ‘things’
  • Project manager reporting
  • Start/end time
  • Bring about change
  • More risky
  • Day-to-Day/Repetitive
  • Operational
  • Line manager reporting
  • Ongoing
  • Benefits from change
  • Less risky

The content above lists the differences between projects and BAU from three different and representative sources orderly. According to these, projects and BAU are summarised and re-compared from six new themes, as shown in the following table.

ThemesProjectsBAU
Organisation temporarystable
Costcapitalisedoperational
Timelimitedongoing
Changeenabledidentified
Riskhigh/managedlow/mitigated
Outputcreativerepetitive

The themes consist of:

  1. Organisation. The term ‘organisation’ indicates the execution team, external supply chain and other stakeholders. BAU has a stable supply and demand relationship and its producing process and structure should be fixed enough to achieve routine operation. Regards to projects, as an event responding to satisfy specific needs, the entire organizational structure and interest relationship would be established after the requirements generating. Moreover, this organisation will be disbanded after the value are achieved;
  2. Cost. Projects may generally be capitalized, while typically BAU may not be, due to the fact that the ongoing BAU work is depended on operating expenditures. It means that there are various accounting procedures for projects and other activities.
  3. Time. BAU work has an ongoing lifecycle without a predetermined end date. By contrast, A project is an event that achieves a prescribed purpose within a limited period of time. Hence, determinate time is a crucial characteristic of projects.
  4. Change. Projects and BAU respond differently to change. BAU teams operate existing business processes on a day-to-day basis. And the teams could realise changes and the impact on work as soon as they are implemented. As for a project, as mentioned above, is an event aiming at innovation. Project teams are working to incorporate all of the changes required.
  5. Risk. BAU teams attempt to identify and reduce all the operational risks. They seek to remove uncertainties for more stable and repeatable operation processes. Projects own a risk factor because of their nature of uniqueness and uncertainty. The business is only taking a leap into the unknown by undertaking a project because it implements change and creates something that wasn’t there before. Therefore, in order to reach goals and achieve the best outcomes, the project team sought to reduce the impact of risks by managing them.
  6. Output. This point is not mentioned in the comparison above. However, I believe that output is another major aspect of evaluating an event. It is determined by the goal of the event and the process performed. Projects are one-off event, not repeatable implementing to produce a new ‘thing’ or solution for solving a specific problem, opportunity or change. The output of a project is much more creative than BAU work obviously.

Examples

When I took the first lecture of the course ‘Strategy project Organising’, I was very impressive about that the lecturer asked us introducing some examples of projects and BAU work respectively. I remember a classmate who said at the time that producing a car was a project. But I pointed out that this is not while developing cars is. Now let’s re-evaluate the correctness of my answer based on the six themes summarised above.

For automobile production, it is certain that this is a day-to-day ongoing event in an automobile factory. The supply chain, assembly procedures, and acceptance criteria for each car have been clarified before production commences. This means that the budgets, resources, and output are controlled and stable and its process is repetitive. But for the research and development of new energy vehicles, for example, the reason for the start of this event is to meet the two requirements including people’s living and energy conservation and environmental protection. This is to solve a problem that has just emerged in modern society. Obviously, the traditional automobile manufacturing teams do not have the capability of researching and developing new energy engines and other technologies. Therefore, it is necessary to recruit experts from related fields to form a new research and development team. On the other hand, in order to maximise the benefits of automobile manufacturers, the research and development team needs to use controllable resources to produce feasible and unique solutions within a limited time.

The reason my classmate thought it was a project to produce a car maybe because he draws an analogy between it and building a house. What makes it different is that building a house is not a job that can be done on a unified assembly line with completely identical materials. Due to geographical conditions, construction conditions and other objective factors, the building process is non-repeatable, and the final output is unique.


  1. AXELOS(2018), ‘PRINCE2 Agile Guide’;
  2. R. Paul., Guide to project management : getting it right and achieving lasting benefit (2nd ed.);
  3. PMI, ‘What is Project Management?’;
  4. UoM(2018), ‘Strategy Project Organising’;
  5. Knowledge Train(2013), ‘The difference between projects and business as usual’;