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Which Tool Uses Statistical Relationships for Cost Estimating?
Discover parametric estimating’s use of statistical relationships between variables and historical data to forecast costs accurately in predictive project management, key for PMP exam success and budgeting.
Question
Which tool uses statistical relationships between variables to estimate costs?
A. Reserve analysis
B. Expert judgment
C. Parametric estimating
Answer
C. Parametric estimating
Explanation
Parametric estimating leverages statistical relationships between historical data and key project variables—such as cost per square foot in construction or lines of code in software development—to calculate activity costs or durations through mathematical models, offering scalable and repeatable predictions when sufficient data exists. In predictive project management’s Estimate Costs process, this technique multiplies unit rates by quantities (e.g., labor hours × hourly rate adjusted for complexity factors), providing more accuracy than analogous methods while requiring less detail than bottom-up estimating, and supports both deterministic single-point and probabilistic range outputs via regression analysis or algorithms. It contrasts with reserve analysis (adding buffers for uncertainty) and expert judgment (qualitative input), making it ideal for standardized projects where correlations like size or productivity metrics reliably forecast resource needs without custom breakdowns.