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206 COMPUTER-BASED APPROACHES TO RISK

computer analysis of risk. Therefore, ignoring my fear of the mighty sigma, we in-
clude discussion of these tools so that you will have a complete kit of methods
with which to address risk. We continue now with a look at a few simple, com-
puter-based methods of working with schedule risk.

The first three methods are based on what is often called the PERT method.
This concept relies on three time estimates per task, rather than a single estimate.
The latter two examples (both risk management programs) allow the user to ei-
ther specify discrete values for each of the three estimates, or to apply a defined
formula for the optimistic and pessimistic values. While calling this the PERT ap-
proach may not be technically correct, we will yield to this popular label for the
various three time estimate methodologies.

The Three Time Estimate (PERT) Approach

You won’t find the three time estimate approach to be in great demand. After all,
if we have such a terrible time arriving at a reasonable single time estimate, won’t
the PERT approach just give us a very precise error? This is certainly possible,
and we have to evaluate the justification for either estimating mode on a case ba-
sis. Let’s look at some of the advantages and disadvantages of each mode.

First of all, project managers seem to agree that the most common weakness of
project schedules is the task estimates. We have trouble estimating the duration
of tasks, as well as the effort required to execute the tasks. There are volumes of
writings on the problems of task estimating, and there would be considerably
more published on the subject, if anyone had any really good solutions for the
problem of estimating. Given the softness in our base estimates, what do we gain
from the triple estimate approach?

First, we are more likely to gain precision in the time estimates. When we ask a
performer to estimate the duration of the task, we often get a biased estimate. The
performer may be overly optimistic, assuming that everything will go well (Mur-
phy is on someone else’s job). Or the performer may be afraid to make a commit-
ment based on a best guess, so he adds a little time as a safety factor. So just what
does 10 days mean? Is it 10 days if everything goes well, but more likely to be 13
days? Or is it most likely to be 8 days, but we’ll add a couple of days as a cushion?
With the PERT approach, we can ask for three distinct time estimates. An opti-
mistic estimate is usually a duration that would be achievable about 10 percent of
the time.* Likewise the pessimistic estimate is usually a duration that would occur

*Note: Early PERT practices used 1% and 5% probability for the extremes. Modern prac-
tice has left these values up to the user. Other options are to select a standard deviation
formula and a distribution curve, rather than three distinct time extimates.