## Beta Distribution

Mike is the project manager in the construction of one stage for a concert. He has no experience managing this type of project, so he asked other experience project managers to prepare an estimate of cost to build the stage. Phil estimated 100,000 $, which you believe is an optimistic estimate. Mark estimated 140,000 $ which you consider is the most realistic assessment. On the other hand, Nick estimated 185,000 $, you consider his assessment pessimistic. Based on beta distribution, what would be a more accurate estimate of the cost?

A. 163,333 $

B. 141,666 $

C. 140,833 $

D. Beta distribution can only be used in schedule estimates.

PMP Solution 43

The accuracy of single-point cost estimates may be improved by considering estimation uncertainty and risk and using three estimates to define an approximate range for an activity’s cost.

Most likely (cM). The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses.

Optimistic (cO). The cost based on analysis of the best-case scenario for the activity.

Pessimistic (cP). The cost based on analysis of the worst-case scenario for the activity.

The formula for Beta distribution. cE = (cO + 4cM + cP) / 6. Therefore, cE=(100,000+(4×140,000)+185,000)/6 = 140,833 $. Therefore, correct answer is C.

[PMBOK 6th edition, Page 245] [Project Cost Management]

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