Project estimates are prepared by factoring in the uncertainty for each of the individual line items. For each line item, there are two estimates (in "ideal person days"): a 50% value that represents the time for which we believe there is a 50-50 chance of completing the task; a 90% value that represents the time for which we have 90% confidence in completing the task. These estimates are determined using a team approach, where each member provides independent estimates without knowledge of the other members opinions, and then the team collectively agrees on the 2 final numbers. Estimates are typically made using the Fibonacci series to account for the naturally occurring increase in uncertainty as the task itself increases in size.
An adjustment factor to the "ideal person days" estimate will be established within the first few iterations of development. Since all the estimates represent a relative effort (e.g. something estimated at 4 person days should take twice as long as something estimated at 2 person days), the total project estimate can be quickly adjusted early in the project to calibrate against the velocity of a particular team. This is particularly important to note if the team includes non-Nevo developers whose velocity will be unknown at this point in time.
The difference between the 90% value and the 50% value is approximately two standard deviations on a normal bell curve. The "Most Likely" estimate is calculated as the sum of the 50% estimates plus two standard deviations (calculated as the square root of the sum of the squares of the differences between the 90% and 50% values). This method gives greater weight to items with a higher level of uncertainty, and by statistical theory should lead to approximately 95% confidence of completion, even though this estimate is lower than the sum of the 90% estimates.
For more information about this estimation methodology, see Chapter 17 of "Agile Estimating and Planning" by Mike Cohn