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Best Practices for Developing and Managing Capital Program Costs

This is when PERT analysis comes into play. You can calculate the probability of your most likely time scenario playing out using standard deviation, a term for the amount of variation in data. A low standard deviation means the data points cluster around the average. In PERT, that average is represented by the expected time calculation mentioned earlier. The formula for calculating the standard deviation is (P-O) ÷ 6.

The larger your standard deviation, you can have less confidence in your estimate. If you are using a software tool, it will perform these calculations for you. If you are doing them by hand, this is a good explanation of how to calculate the exact probability of meeting your estimate based on the standard deviation. 

PERT PROS AND CONS

PERT has many fans, but even devoted users note that it has limitations. Let’s look at the pros and cons of using PERT.

Advantages:

  • Active engagement – PERT experts say that one of the technique’s greatest advantages is that it forces project managers to assess and quantify the time that activities in their projects are likely to take and also to ponder the uncertainties they face. PERT also provides more information to aid in analysis of project scenarios.
  • Strong forecasting potential – While no system is perfect, PERT is one of the best for estimating how long a project will take. This allows organizations to make other forecasts for sales, revenue, labor requirements and more. 
  • Improved coordination – The PERT chart brings together input from various departments and participants about project resources and processes. The chart makes clear the dependencies of different activities, which helps key players work together. It also serves as a communication hub because it updates in real-time as the project progresses. The diagram offers senior management a snapshot of where the project stands.
  • More realistic modeling – By making different time scenarios available and visible, PERT facilitates analysis and allows managers to model outcomes using different combinations of data. The result is often better decision making and fewer surprises.

Disadvantages:

  • Potential unreliability – Project managers hope to base their PERT time estimates on real world experience, but with a rapidly changing world, that information can become quickly outdated. More broadly, such data can be subjective and potentially unreliable. 
  • Weak on financial factors – PERT, with its focus on time, is sometimes faulted for not giving sufficient weight to cost, resources, labor, and capital needs. 
  • Intensive to maintain – With the amount of data collection and computation involved, PERT can be labor intensive and thus expensive to support. This is mitigated by the development of software tools, and some organizations choose to do PERT models for only the most high-risk activities in their projects.