Solution architects and the solution architecture function are ideally placed to create solution delivery estimates Solution architects have the knowledge and understanding of the solution constituent component and structure that is needed to create solution estimate: • Knowledge of solution options • Knowledge of solution component structure to define a solution breakdown structure • Knowledge of available components and the options for reuse • Knowledge of specific solution delivery constraints and standards that both control and restrain solution options Accurate solution delivery estimates are need to understand the likely cost/resources/time/options needed to implement a new solution within the context of a range of solutions and solution options. These estimates are a key input to investment management and making effective decisions on the portfolio of solutions to implement. They enable informed decision-making as part of IT investment management. An estimate is not a single value. It is a range of values depending on a number of conditional factors such level of knowledge, certainty, complexity and risk. The range will narrow as the level of knowledge and uncertainty decreases There is no easy or magic way to create solution estimates. You have to engage with the complexity of the solution and its components. The more effort that is expended the more accurate the results of the estimation process will be. But there is always a need to create estimates (reasonably) quickly so a balance is needed between effort and quality of results. The notes describe a structured solution estimation process and an associated template. They also describe the wider context of solution estimates in terms of IT investment and value management and control.

1. Solution Architecture and
Solution Estimation
Alan McSweeney
http://ie.linkedin.com/in/alanmcsweeney
https://www.amazon.com/dp/1797567616

2. Solution Architecture and Solution Estimation
• Solution architects are ideally placed to create solution
delivery estimates
• Solution architects have the knowledge and understanding
of the solution constituent component and structure that is
needed to create solution estimates
− Knowledge of solution options
− Knowledge of solution component structure to define a solution
breakdown structure
− Knowledge of available components and the options for reuse
− Knowledge of specific solution delivery constraints and standards
that both control and restrain solution options
• These notes describe a solution estimation approach that
can be used to create solution estimates
November 8, 2022 2

3. Why Create Estimates?
• Need to understand the likely cost/resources/time/options
needed to implement a new solution within the context of
a range of solutions and solution options
• Estimates are a key input to investment management and
making effective decisions on the portfolio of solutions to
implement
• Enables informed decision-making as part of IT investment
management
November 8, 2022 3

4. What Is Being Estimated?
• The likely cost of the solution
• The duration it will take to implement the solution
• The resources and skills required to realise the solution
• The benefits that will be derived from the successful
implementation and operation of the solution
• The recurring costs associated with its operation,
maintenance, support, administration and other ongoing
activities
• This is repeated for individual solution options and then
across the set of possible solutions be assessed for possible
implementation
November 8, 2022 4

5. Estimates And Investment Management
• Estimates allow
investments in new
solutions to be
prioritised
• Solution cost profile
over time is one
input to the
decision-making
process
November 8, 2022 5

6. Solution Estimation Effort
• There is no easy or magic way to create solution estimates
• You have to engage with the complexity of the solution
and its components
• The more effort that is expended the more accurate the
results of the estimation process will be
• But there is always a need to create estimates (reasonably)
quickly so a balance is needed between effort and quality
of results
November 8, 2022 6

7. Estimation Journey Types
November 8, 2022 7

8. Estimation Journey Types
• Initial Detailed and Accurate
Estimates
− Requires detailed and fixed
requirements and solution
specification
− Detailed solution Bill Of
Materials created from
specification
− BOM costed in detail
− Takes a long time and a lot of
resources
• Long well-defined unchanging
solution delivery journey
− Changes can be very expensive
• Delivery journey does not
start until large up-front
effort is expended
• Initial High-Level Estimates
Subsequently Refined and
Expanded
− Initial high-level solution
journey view and estimates
− Frequent course corrections
and changes of direction as
journey progresses and
understanding grows
− Greater uncertainty regarding
the initial course
− Journey starts sooner with less
up-front planning, design and
preparation
• Mirrors an agile solution
delivery process
November 8, 2022 8

9. Continuity From Solution Estimation To Solution
Delivery
• The solution breakdown structure created during the
estimation process will feed into the creation of the work
breakdown structure needed to create a solution delivery
plan
November 8, 2022 9

10. Not All Solution Concepts Become Delivered And
Deployed Solutions
November 8, 2022 10
Concept
• Many solution concepts are not progressed with
• Decisions are made to cancel/defer/merge solutions as factors such as business circumstances and
available resources and finance change
• Estimation process needs to be more accurate as solution assessment proceeds
Analysis
And
Business
Case
Initiate Plan Design Build
Deploy and
Operate

11. What Is Being Estimated?
• There are always many ways to implement a solution concept based
on many factors, such as:
− Degree of automated or manual operations and integration
− Acquire product or custom development
− Comprehensive or limited
− Scalability
− Performance and throughput
− Reliability
− Ease of maintenance
− Degree of automation
− Number of manual handoffs and interventions
− Degree of usability
• To meet business requirements such as:
− Expected life of the solution
− Available budget
− Need to meet business requirements quickly
− Range of functionality needed
November 8, 2022 11

12. Range Of Solution Option Factors
November 8, 2022 12
Dimensions of Solution
Options
Functional
Suitability
Functional
Completeness
Functional
Correctness
Functional
Appropriateness
Enhancement
and Future
Development
Performance
Efficiency
Time Behaviour
Resource
Utilisation
Capacity
Performance
and Throughput
Scalability
Compatibility
Co-existence
Interoperability
Usability
Appropriateness
and
Recognisability
Learnability
Operability
User Error
Protection
User Interface
Aesthetics
Accessibility
Efficiency and
Automation
Reliability
Maturity
Availability
Fault Tolerance
Recoverability
Security
Confidentiality
Integrity
Non-repudiation
Accountability
Authenticity
Maintainability
Modularity
Reusability
Analysability
Modifiability
Testability
Portability
Adaptability
Installability
Replaceability
Data
Data Model
Reporting
Analysis
Data Facilities
Integration
Manual vs.
Automated
Product vs
Custom
Product and
Platform
Options
Custom
Development

13. Range Of Solution Option Factors
• There are many factors to be considered when determining a
solution design
• Each of these factors gives rise to solution options that have
impacts on the cost, time, and resources required to deliver the
solution, the requirements it fulfils and its long-term operation
• In particular, solution options can impact on recurring costs due
to decisions to omit solution components that contribute to
reduced operating resources and associated costs
• Need to tune the solution dial appropriately
November 8, 2022 13
Minimum
Solution
Maximum
Solution

14. Distilling The Solution Option Factors In Whole
Solution Options
November 8, 2022 14
Functional
Completeness
Functional
Correctness
Functional
Appropriateness
Enhancement
and Future
Development
Time Behaviour
Resource
Utilisation
Capacity
Performance
and Throughput
Scalability
Co-existence
Interoperability
Appropriateness
and
Recognisability
Learnability
Operability
User Error
Protection
User Interface
Aesthetics
Accessibility
Efficiency and
Automation
Maturity
Availability
Fault Tolerance
Recoverability
Confidentiality Integrity
Non-repudiation
Accountability
Authenticity
Modularity
Reusability
Analysability
Modifiability
Testability
Adaptability
Installability
Replaceability
Data Model
Reporting
Analysis
Data Facilities
Manual vs.
Automated
Product and
Platform
Options
Custom
Development

15. Range Of Solution Option Factors
• There are many factors that give rise to potentially many
solution options
• One of the roles of the solution architect is to narrow the
solution factors into a small set of realistic, achievable,
cost-effective solution options that will deliver on some or
all of the business requirements
November 8, 2022 15

16. Lots Of Reasons For Poor Quality Estimates
November 8, 2022 16

17. Strategic Misrepresentation
• This is the deliberate, systematic distortion or
misstatement of facts such as costs, time, complexity or
risk in order to get a solution delivery project approved
initiated
− Subsequent solution scope changes are not really changes due to
new functionality requirements being uncovered but knowable
requirements and needs that were previously deliberately ignored
• Do not underestimate the contribution of strategic
misrepresentation to solution scope, budget, functionality
and timeline problems
• Strategic misrepresentation can have a significant impact
on solution estimates
• It is more common that might be believed
November 8, 2022 17

18. November 8, 2022 18
IT Investment Issues
• IT is a key enabler of organisational strategy
• Many organisations do not know exactly how much is spent on IT
• Many organisations cannot accurately characterise IT assets
• In many organisations, IT accounts for 50% or more of capital
expenditure
• IT architecture is perceived as not providing the adaptability that is
needed
• IT is seen as a friction point for change and not enough of an enabler
• Organisations must implement processes for managing IT investment
both for the value they deliver as well as their cost
• There has been significant waste of IT investments and unused IT
systems due to lack of investment validation
− Over 80% of projects do not come close to their original goals of lifecycle costs
− More expensive to implement and/or operate than initially stated

19. November 8, 2022 19
Questions on IT Investments
• Is your organisation’s IT portfolio a manifestation of your
organisation’s mission and strategy?
• Can you identify which IT projects are interdependent with adjacent
people and process initiatives?
• Do you have a rigorous IT investment selection process that is devoid
of emotion and politics?
• Do you account for multiple risk categories - technical, business,
project, customer - when evaluating investment proposals?
• Is IT operating expense in line with organisation growth?
• Can you identify which IT investments contribute to true competitive
advantage or mission achievement?
• Do IT investment decision making methods mesh with the decision
making framework of organisation?

20. November 8, 2022 20
IT Value Management is a Key Topic for IT
71%
62%
52%
45%
40%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
CEO/CFO Demanding Better Ways To
Demonstrate Value
Find It Difficult To Calculate ROI
Executives Skeptical Of ROI From IT
Metrics Do Not Adequately Capture Business
Value
Do Not Measure Business Value From IT
Investments
• Results of managing IT for business value
− Budget flexibility coupled with strategic IT alignment leads to 50% greater IT
payoffs
− Improving management practices alongside IT investment drives 20% higher IT
yields

21. November 8, 2022 21
IT Investment Core Requirements
• Determine the scale, scope, and sources of funding for IT
• Assign financial resources to competing activities within
the IT portfolio
• Establish a balance between capital expenditure (new
projects) and operating expenditure (running systems
delivered by past projects)
• Optimise the total cost of ownership
• Manage IT portfolios for value and not just cost
• IT needs to implement a process for justifying its costs and
be seen to be taking these steps

22. November 8, 2022 22
IT Investment Management
• Aligns IT Investments to organisation strategy (scoring)
• Prioritises investments (ranking)
• Provides strategic criteria for investment analysis
• Conduct annual IT portfolio management reviews
• Provides recommendation to stop, slow, maintain or
accelerate program funding
• Identifies redundant/inefficient systems
• Integrates IT architectures within investments
• Ensures compliance with funding standards

23. Estimate Accuracy
Move from initial rough order/very rough order
of magnitude estimates to more accurate
Not all proposed solutions progress through all
stages and require detailed and accurate
estimates
November 8, 2022 23
Move From Initial Solution Concept To Delivery
Estimates need to be more accurate as the
implementation of the solution becomes more
likely
More accurate estimates requires more accurate
information and more effort

24. Estimation Approaches
November 8, 2022 24
Bottom Up – Assemble
Estimates From Detailed
Work Breakdown
Top Down – Assemble
Estimates Similar Solutions
And Experiences

25. What Does An Estimate Consist Of?
November 8, 2022 25
Effort
Roles and Skills
Additional Resources
Duration/Time
Cost
Allowance For
Uncertainty/
Contingency
+
Initial and Ongoing

26. Estimation Range
• An estimate is not a single value
• It is a range of values depending on a number of
conditional factors such level of knowledge, certainty,
complexity and risk
• The range will narrow as the level of knowledge and
uncertainty decreases
November 8, 2022 26

27. Two Aspects To Estimates
Need to create
estimates for
both
implementation
and operation
and for the
benefits and
saving that will
be achieved and
when they will
be achieved
November 8, 2022 27
Implementation
And Operation
Estimates
Savings And
Benefits
Estimates

28. Solution Estimation Template
• This presents an approach to and associated template for
solution estimation that includes the activities outlined in
these notes
• A structured and repeatable process gives consistent
results
• A library of estimates can be created and maintained and
used as a reference to refine the estimation process and
improve its accuracy and precision
November 8, 2022 28

29. Overview Of Estimation Approach
• The core solution breakdown structure and their associated
build estimates are at the core of the estimate process
• Other estimates are effectively uplifts of these core estimates
November 8, 2022 29
Core Solution
Build
Estimates
Other Solution Delivery
Phases Estimates
Project Management Overhead Estimates
Solution
Operation
Risk and Contingency Overhead Estimates
Complexity Overhead Estimates
1
2
3 4
5
6

30. Overview Of Estimation Approach
• This gives rise to a set of activities:
− 0. Define Solution Overview
− 1. Create Solution Component Work Breakdown
− 2. Create Estimates For Solution Components
− 3. Estimate Solution Delivery Complexity and Impacts
− 4. Create Estimates For Non-Build Project Phases
− 5. Estimate Solution Delivery Risks
− 6. Uplift Estimates With Risk, Contingency And Complexity Factors
− 7. Estimate Delivery Size And Duration
− 8. Estimate Benefits
− 9. Estimate Resource Costs
− 10. Create Multi-Year Cost Estimates
− 11. Create Solution Estimate Overview Dashboard
November 8, 2022 30

31. 0. Define Solution Overview
• Enter solution
overview details
including
− Number of years for
which the estimate is to
be created
− The annual rate of
increase to be applied
to estimates
November 8, 2022 31

32. 1. Create Solution Component Work Breakdown
November 8, 2022 32

33. Solution Component Breakdown Structure
• The start of any solution estimation is an effective knowledge of
the solution component breakdown
• This provides a basis for an informed estimates
• The initial solution component breakdown does not have to be
exact – it can be refined as more exact estimates are required
• The solution component breakdown provides knowledge of the
solution structure
• The solution breakdown structure is effectively a high-level
solution design
• The precise nature of the ultimate solution may not be known
or agreed at the initial estimation stage
• There may be several solution options that need to be
estimated
November 8, 2022 33

34. Solution Component Types
• Any solution will consist of a number of components of a range
of component types
November 8, 2022 34

35. Solution Component Structure And Integrations
• The solution architect can create a logical solution component view (and their
options) in order to create the solution breakdown structure
November 8, 2022 35
Solution
Central Data
Store
Solution
Central
Application
Component
Solution API
Solution
Central
Infrastructure
Solution
Hosted
Infrastructure
Solution
Internal
Consumers
Solution
External
Private
Consumers
Solution
Hosted Data
Store
Solution
Hosted
Application
Component
Solution
Hosted
Analytics
Access and
Security
Infrastructure
Central To
Hosting
Facility
Connectivity
Solution
External Public
Consumers
Solution
Mobile App

36. Solution Components And Solution Component Types
November 8, 2022 36
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Component
Changes to Existing Systems
New Custom Developed
Applications
Acquired and Customised Software
Products
System Integrations/ Data
Transfers/ Exchanges
Reporting and Analysis Facilities
Sets of Installation and
Implementation Services
Information Storage Facilities
Existing Data Conversions/
Migrations
New Data Loads
Central, Distributed and
Communications Infrastructure
Cutover/ Transfer to Production And
Support
Operational Functions and
Processes
Parallel Runs
Enhanced Support/ Hypercare
Sets of Maintenance, Service
Management and Support Services
Application Hosting and
Management Services
Changes to Existing Business
Processes
New Business Processes
Organisational Changes, Knowledge
Management
Training and Documentation

37. Solution Component Types And Estimates
• Some solution component types give rise to effort which in turn
give rise to cost
• Other solution component types give rise to costs associated
with the acquisition of products and/or services
• This cost and effort profile will affect the solution estimates
November 8, 2022 37
Component Type
Components
That Give Rise to
Effort
Components
That Give Rise to
Cost
Initial and
Recurring
Initial Cost
Ongoing
Operating and
Usage Cost
Recurring Service
Cost

38. Solution Components Classes And Types
November 8, 2022 38
Solution Components
Time-Bounded Delivery Entity
Types
Sets of Installation and
Implementation Services
Existing Data Conversions/
Migrations
New Data Loads
Parallel Runs
Enhanced Support/ Hypercare
Enduring Operational
Technology Entity Types
Changes to Existing Systems
New Custom Developed
Applications
Acquired and Customised Software
Products
System Integrations/ Data
Transfers/ Exchanges
Reporting and Analysis Facilities
Information Storage Facilities
Central, Distributed and
Communications Infrastructure
Application Hosting and
Management Services
Enduring Process, Procedure
and Structural Entity Types
Cutover/ Transfer to Production And
Support
Operational Functions and
Processes
Sets of Maintenance, Service
Management and Support Services
Changes to Existing Business
Processes
New Business Processes
Organisational Changes, Knowledge
Management
Training and Documentation

39. Solution Component Types And Estimates
• This shows
the cost
profile
classification
of solution
component
types
November 8, 2022 39
Component Type Cost Profile
Changes to Existing Systems Effort
New Custom Developed Applications Effort
Acquired and Customised Software Products Product and/or Service Cost
System Integrations/ Data Transfers/ Exchanges Effort
Reporting and Analysis Facilities Effort
Sets of Installation and Implementation Services Effort
Information Storage Facilities Product and/or Service Cost
Existing Data Conversions/ Migrations Effort
New Data Loads Effort
Central, Distributed and Communications Infrastructure Product and/or Service Cost
Cutover/ Transfer to Production And Support Effort
Operational Functions and Processes Effort
Parallel Runs Effort
Enhanced Support/ Hypercare Effort
Sets of Maintenance, Service Management and Support Services Product and/or Service Cost
Application Hosting and Management Services Product and/or Service Cost
Changes to Existing Business Processes Effort
New Business Processes Effort
Organisational Changes, Knowledge Management Effort
Training and Documentation Effort

40. 2. Create Estimates For Solution Components
November 8, 2022 40

41. Solution Component Estimates
• Two types of components and their estimates:
1. Effort
2. Product/service cost
November 8, 2022 41

42. Sample Solution Effort Component Estimates
• This shows a
sample
solution
component
effort
breakdown
based on the
solution types
• Components
associated
with
component
types that
give rise to
cost rather
than effort
are left blank
here and
completed
elsewhere in
the template
November 8, 2022 42

43. Sample Solution Effort Component Estimates
• The solution architect can co-ordinate the creation of
effort estimates for the solution components
• Detailed component-specific knowledge may reside
elsewhere
• The solution architect can sense-check these estimates
November 8, 2022 43

44. Sample Solution Effort Component Estimates
• Identify the number of components of each type
• Define an optional complexity for each solution component
• Identify a low and high estimate effort range for each
component
− Solution component complexity can be used to identify the
specific low and high estimate effort range for each component
November 8, 2022 44

45. Product/Service Solution Component Estimates
November 8, 2022 45
Select
Cost Type
Specify When
Maintenance
Starts

46. Product/Service Solution Component Estimates
• Each vendor will price their product/service component
differently
− Initial cost and recurring maintenance/support charge
− Recurring charge
− Each product/service component will have a number of unit types and
unit numbers
• Estimation template needs to be able to capture this complexity
• Product/service component types include:
− Acquired and Customised Software Products
− Information Storage Facilities
− Central, Distributed and Communications Infrastructure
− Sets of Maintenance, Service Management and Support Services
− Application Hosting and Management Services
November 8, 2022 46

47. Product/Service Solution Component Costing
Example
• Solution component type of
Acquired and Customised
Software Products
• Three Unit Types in this
example
− Production Server License
− User Licenses
− Development and Test
Environment
• Select Cost Type
− Initial and Annual
Maintenance
− Recurring
• For a cost type of Initial and
Annual Maintenance define
when the maintenance cost
starts;
− Year 1 or Year 2
• Enter low and high
estimates for each Unit Type
of Component Type
November 8, 2022 47

48. Product/Service Solution Component Costing
Example
• Solution component type Acquired and Customised
Software Products called New Product 1
• Three unit types
− Production Server
• Low and high estimates of 4 and 6 for Production Server with an estimated
unit cost of €50,000
• Maintenance charge of 12% unit acquisition cost starts in the first year
− User Licenses
• Low and high estimates of 200 and 300 for User Licenses with an estimated
unit cost of €250
• Maintenance charge of 12% unit acquisition cost starts in the first year
− Development and Test Environment
• Low and high estimates of 2 and 4 for Development and Test Environment
• with an estimated unit cost of €15,000
• Maintenance charge of 12% unit acquisition cost starts in the first year
November 8, 2022 48

49. Product/Service Solution Component Costing
Example
• Production Server
− Low: 4 x €50,000 + 12 % x €50,000 = €224,000 Year 1 cost and €24,000 Year 2
and subsequent cost
− High: 6 x €50,000 + 12 % x €50,000 = €336,000 Year 1 cost and €36,000 Year
2 and subsequent cost
• User Licenses
− Low: 200 x €50,000 + 12 % x €250 = €56,000 Year 1 cost and €6,000Year 2
and subsequent cost
− High: 300 x €50,000 + 12 % x €50,000 = €84,000 Year 1 cost and €9,000 Year
2 and subsequent cost
• Development and Test Environment
− Low: 2 x €50,000 + 12 % x €50,000 = €33,600 Year 1 cost and €3,600 Year 2
and subsequent cost
− High: 4 x €50,000 + 12 % x €50,000 = €67,200 Year 1 cost and €7,200 Year 2
and subsequent cost
• Total estimates for this solution component
− Low: €313,600 Year 1 cost and €33,600 Year 2 and subsequent cost
− High: €487,200 Year 1 cost and €52,200 Year 2 and subsequent cost
November 8, 2022 49

50. 3. Estimate Solution Delivery Complexity and
Impacts
November 8, 2022 50

51. Complexity And Risk
• Complexity refers to uncertainty regarding the set of
information on solution components that comprise the solution
• Risks refer to negative events relating to the overall solution
delivery activity that have a probability of occurrence and that,
if they occur, will have a negative impact on delivery in terms of
increased time and cost
• Proposed solution estimation approach and template handles
both complexity and risk as separate estimation uplift factors
that are applied to solution component estimates
• Complexity and risk are different but the individua factors
leading to their calculation overlap – it is important not to
double-count and apply uplift twice
November 8, 2022 51

52. Solution Complexity Estimation
• The complexity of the solution can affect its
implementabilty, both directly and indirectly
− Directly
• Complex solutions are inherently problematic because of intrinsic
uncertainty
− Indirectly
• Apparent or actual complexity can reflect a lack of knowledge and certainty
about either or both the knowledge about the problem or the solution
• This lack of knowledge will affect the accuracy of the estimation process and
the estimates it creates
• This uncertainty is handled by adding an allowance of
additional solution delivery budget that can be expended
to develop resolutions to challenges that arise when risks
and complexities become actual
November 8, 2022 52

53. Solution Complexity Factors
• The potential complexity of a solution can be assessed
• Any assessment is inherently and multiply subjective:
− Selection of complexity factors to be used for assessment
− Assignment of weighting or importance to complexity factors
− Assignment of score to each complexity factor
• Groups of complexity factors used in the approach are:
− Operational Factors
− Technical Factors
− Business Factors
− Product and Service Factors
− Project Factors
November 8, 2022 53

54. Solution Complexity Factors
Operational Factors
Operational Security
Requirements
Confidentiality Of Data Being
Processed
Operational Performance And
Throughput Requirements
Operational Reliability And
Availability Requirements
Amount Of On-Premises
Infrastructure Required
Volume Of Data Being
Processed
Number Of Transactions To Be
Processed
Number Of Different Types Of
Transactions To Be Processed
Number Of Internal Solution
Consumers
Number Of External Solution
Consumers
Technical Factors
Number Of Technologies
Included In The Overall
Solution
Number Of Solution
Components
Number Of Solutions
Integrations And Interfaces
Number Of Application Tiers
Technologies Already Part Of
The Organisation’s Enterprise
Architecture
Lack of Availability Of Skills
And Experience In
Technologies
Amount Of Custom
Development
Development Platform
Productivity
Amount And Complexity Of
Data To Be Loaded Or
Migrated
Reuse Of Existing Custom
Components
Business Factors
Business Resources and
Personnel Required
Number Of Business Functions
Or Areas That Will Use The
Solution
Public Use of the Solution
Number And Complexity Of
Underlying Business Processes
Regulatory And/Or
Compliance Dimension to
Solution
Lack of Familiarity Of The IT
Function With The Business
Functions Or Areas
Lack of Availability Of Business
Resources To Work On The
Solution
Number Of Locations Of
Business Functions
Number Of Existing Solution
Components Being Replaced
Organisation Change
Requirements
Product and Service
Factors
Number Of Products and
Services Required To Deliver
The Solution
Number Of Separate Suppliers
Involved In The Delivery Of
The Product(s) and Service(s)
Immaturity Of The Product(s)
and Service(s)
Lack of Supplier Proven Skills
And Experience In
Implementing Products and
Services
Products and Services Are
Being Provided By Suppliers
New To The Organisation
Number Of Supplier Offshore
Locations Involved In The
Delivery Of The Product(s) and
Service(s)
Degree Of Configuration Of
Product(s) and Service(s)
Degree Of Customisation Of
The Of Product(s) and
Service(s)
Number Of Personnel From
Supplier Involved In The
Product and Service Delivery
Nature Of Outsourcing
Relationship, If Applicable The
Delivery Of The Product(s) and
Service(s)
Amount Of New Technology
Introduced By The Product(s)
and Service(s)
Project Factors
Fixed Project Implementation
Deadline
Expected Project Duration
Overall Project Size
Number Of Outsourcing
Arrangements Included In The
Overall Solution
Number Of Externally Hosted
Components Included In The
Overall Solution
Size Of Implementation
Project Team
Multiple Language
Requirements
Number Of Jurisdictions In
Which The Solution Will
Operate
Skill and Experience
Factors
Lack of Project Manager Skills
And Experience
Lack of Implementation Team
Skills And Experience
November 8, 2022 54

55. Solution Complexity Scoring
• Complexity is scored in two ways:
− Weighting is assigned to each factor with a value assigned to each
weight:
• Very Low – 0.5
• Low – 0.75
• Medium – 1
• High – 1.25
• Very High – 1.5
− Complexity factor is then scored in a range such as 0 to 10
− Individual factor complexity is then Weighting x Score:
• Very Low x 5 = 2.5
• Very High x 8 = 12
• Overall solution complexity factor is the sum of the individual
complexity factors
• Need to be able to apply the complexity uplift factor to initial
solution estimates accurately
November 8, 2022 55

56. Solution Complexity Scoring
• If a complexity factor is not applicable, it can be assigned a
score of zero
November 8, 2022 56
Assign Importance
to Complexity
Factor
Assign Rating to
Complexity Factor
Weighted
Complexity =
Importance x Score

57. Sample Complexity Model
• 51 complexity factors in this model
• Average weighted score = 51 x 5 x 1 (Medium Weight) =
255
• Maximum weighted score = 51 x 10 x 1.5 (Very High
Weight) = 765
• The complexity distribution is not symmetric about the
mean
November 8, 2022 57

58. Sample Complexity Score
• This sample
assessment
leads to a
complexity
score of 306.25
• This will result
in the initial
solution
component
estimates being
increased by
between
13.30% and
28.70%
November 8, 2022 58

59. Sample Solution Complexity
• A low and high
complexity range
uplift is calculated
for the solution
being estimated
based on the
complexity model
November 8, 2022 59

60. Determining Overall Solution Complexity Factor
• Complexity model with
low complexity scores will
result in the estimated
effort being reduced
• Complexity is not
symmetric – complexity
can increase more than it
can decrease
• The application of a
complexity factor to an
initial estimate is one-
sided
− The estimated efforts for
simple solutions are not
uplifted but are also not
reduced
− The estimated efforts for
complex solution are
uplifted
November 8, 2022 60
Non-Symmetric or Heavy-Tailed Complexity Distribution
One-Sided Non-Symmetric Complexity Distribution

61. Complexity Assessment Uplift Factors
• Initial solution
component estimates
are uplifted by the
complexity factor
associated with the
complexity score
• There is a low-high
complexity uplift range
• Maximum complexity
uplift multiplier of 2
November 8, 2022 61
Weighted
Complexity
Score
Raw Estimate
Uplift Factor –
Low
Raw Estimate
Uplift Factor –
High
255 1 1.000
285 1.078 1.155
315 1.155 1.305
345 1.231 1.444
375 1.305 1.567
405 1.376 1.673
435 1.444 1.761
465 1.507 1.830
495 1.567 1.883
525 1.622 1.922
555 1.673 1.950
585 1.719 1.969
615 1.761 1.981
645 1.798 1.989
675 1.83 1.994
705 1.859 1.997
735 1.883 1.998
765 1.904 1.999

62. 4. Create Estimates For Non-Build Project Phases
November 8, 2022 62

63. Project Phases Use For Estimation
• The estimation approach uses a set of generic project phases
• These are then mapped to specific project activities
• Solution delivery management and support is an overhead that is then
prorated across these activities
November 8, 2022 63
Concept
Analysis and
Design
Plan Initiate
Implement
and Build
Test Deploy
Transition to
Production
and Close
1. Business Case, Solution Concept/
Requirements Definition
2. Analysis
3. Solution Architecture and Design
4. Design Review and Approval
5. Planning
6. Initiation and
Mobilisation
7. Implementation Configuration and
Preparation
8. Solution Build
9. Solution Test
10. Deployment,
Business Readiness
and Organisation
Change
11. Service Design, Introduction,
Transition and Management

64. Mapping Project Phases To Estimation Activities
November 8, 2022 64
Concept
Analysis and Design
Plan
Initiate
Implement and Build
Test
Deploy
Transition to
Production and Close
Business Case, Solution Concept/ Requirements
Definition
Analysis
Solution Architecture and Design
Design Review and Approval
Planning
Initiation and Mobilisation
Implementation Configuration and Preparation
Solution Build
Solution Test
Deployment, Business Readiness and
Organisation Change
Service Design, Introduction, Transition and
Management
Ongoing Solution Operation
Project Management
PMO Support
Prorate

65. Project Phases And Activities
• Three group of estimation activities
− Solution Delivery
1. Business Case, Solution Concept/ Requirements Definition
2. Analysis
3. Solution Architecture and Design
4. Design Review and Approval
5. Planning
6. Initiation and Mobilisation
7. Implementation Configuration and Preparation
8. Solution Build
9. Solution Test
10. Deployment, Business Readiness and Organisation Change
11. Service Design, Introduction, Transition and Management
− Solution Delivery Management
1. Project Management
2. PMO Support
− Operations
1. Ongoing Solution Operation
November 8, 2022 65

66. Project Phases And Activities
• Solution Build activity is used as the basis for estimates for
other activities
• This is taken from the previously created estimates of the
solution components
• The additional activities are expressed as a percentage of
the Solution Build activity
November 8, 2022 66

67. Project Phases And Activities
November 8, 2022 67
Previously Created Low and High
Solution Component Implementation
Estimates Carried Here
Low and High Percentage Estimates
Entered for Other Activities
Low and High Range of All Solution
Delivery Activities

68. Project Phases And Activities
• This shows sample low and
high percentages assigned
to each of the activity
• In this example, the 100%
that represents the solution
component
implementation effort is
uplifted to a range of 185%
to 208% to represent the
complete solution design,
delivery and deployment
effort
• This excludes product and
service costs which are
estimated separately
November 8, 2022 68
Solution Delivery Activity Low High
Business Case, Solution Concept/
Requirements Definition, Rough Order of
Magnitude Estimate
2% 3%
Analysis 4% 5%
Solution Architecture and Design 4% 5%
Design Review and Approval 2% 2%
Planning 9% 10%
Initiation and Mobilisation 3% 3%
Implementation Configuration and
Preparation
3% 3%
Solution Build 100% 100%
Solution Test 35% 45%
Project Management 12% 15%
PMO Support 2% 3%
Deployment, Business Readiness and
Organisation Change
6% 9%
Service Design, Introduction, Transition
and Management
3% 5%
Ongoing Solution Operation 15% 25%
Effort Total (Excluding Operation) 185% 208%

69. Solution Delivery And Deployment Activities Profile
• Expressing the solution delivery and deployment activities as a
proportion of the core solution build gives rise to a solution
resource profile
November 8, 2022 69

70. 5. Estimate Solution Delivery Risks
November 8, 2022 70

71. Risk And Contingency Estimation
• The estimation template takes the traditional approach to
risk estimation
• Each risk is assigned a probability range representing an
assessment of the likelihood of it occurring that is assigned
a percentage
• Each risk is assigned a impact range representing an
assessment of impact should it occur that is assigned a
percentage
• A risk score is calculated as probability percentage x impact
• A risk rating is calculated as probability x impact
November 8, 2022 71

72. Risk Rating Probability
• In this approach, there are eight risk probability bands
• These are assigned a risk probability percentage and a
score
November 8, 2022 72
Risk Rating Probability Risk Probability
Assigned
Percentage
Risk Probability
Assigned Score
None/Circumvented 0.00% 0
Very Low 1.00% 1
Low 6.00% 2
Medium 17.00% 3
Quite Likely 20.00% 4
High 25.00% 5
Very High 40.00% 6
Almost Certain 65.00% 7

73. Risk Impact Probability
• In this approach, there are six risk impact bands
• These are assigned a risk impact percentage and a score
November 8, 2022 73
Risk Impact Probability Risk Impact
Assigned
Percentage
Risk Impact
Assigned Score
None/Circumvented 0.00% 0
Very Low 1.00% 1
Low 6.00% 2
Medium 17.00% 3
High 25.00% 4
Very High 35.00% 5

74. Risk Score
• Risk Score = Risk Rating Probability % x Risk Impact Probability %
November 8, 2022 74
None/
Circumvented
Very Low Low Medium High Very High
None/Circumvented 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Very Low 0.00% 0.01% 0.06% 0.17% 0.25% 0.35%
Low 0.00% 0.06% 0.36% 1.02% 1.50% 2.10%
Medium 0.00% 0.17% 1.02% 2.89% 4.25% 5.95%
Quite Likely 0.00% 0.20% 1.20% 3.40% 5.00% 7.00%
High 0.00% 0.25% 1.50% 4.25% 6.25% 8.75%
Very High 0.00% 0.40% 2.40% 6.80% 10.00% 14.00%
Almost Certain 0.00% 0.65% 3.90% 11.05% 16.25% 22.75%

75. Risk Impact
• Risk Impact = Risk Rating Score x Risk Impact Score
November 8, 2022 75
None/
Circumvented
Very Low Low Medium High Very High
None/Circumvented 0 0 0 0 0 0
Very Low 0 1 2 3 4 5
Low 0 2 4 6 8 10
Medium 0 3 6 9 12 15
Quite Likely 0 4 8 12 16 20
High 0 5 10 15 20 25
Very High 0 6 12 18 24 30
Almost Certain 0 7 14 21 28 35

76. Risk Data Entry And Calculation
November 8, 2022 76
Select Risk
Probability Rating
Select Risk Impact
Rating
Risk Score
Calculated
Risk Rating
Calculated
Number of Risks
Identified
Total Risk
Score
Total Risk
Rating

77. 6. Uplift Estimates With Risk, Contingency And
Complexity Factors
November 8, 2022 77

78. Uplift Estimates With Risk, Contingency And
Complexity Factors
November 8, 2022 78
Risk and Contingency Uplift
Applied to Base Estimates
Complexity Uplift Applied to
Uplifted Risk and Contingency
Uplift Estimates
Total Delivery Estimate Range
After Risk and Contingency
Uplift
Total Delivery Estimate Range
Complexity Uplift Applied to
Uplifted Risk and Contingency
Uplift Estimates

79. Uplift Estimates With Risk, Contingency And
Complexity Factors
• In this example, the
initial effort estimate
range of 2,324 - 3,458 is
uplifted to a range of
3,065 - 5,181 to provide
an allowance of
resources to handle
delivery challenges
relating to uncertainty
November 8, 2022 79

80. 7. Estimate Delivery Size And Duration
November 8, 2022 80

81. Estimate Delivery Size And Duration
• The previous resource estimates need to be translated into
delivery option based on the previously estimated solution
delivery activities
• The solution delivery phases represent temporal activities
• There are several ways in which the solution delivery can
be organised based on the resources allocated
• Estimation model uses three approaches
1. Resources allocated by phase to determine phase elapsed time
2. Fixed duration
3. Square root – uses the square root of the estimated effort
months
November 8, 2022 81

82. Estimate Delivery Size And Duration
November 8, 2022 82
Concept
Analysis and Design
Plan
Initiate
Implement and Build
Test
Deploy
Transition to
Production and Close
Business Case, Solution Concept/ Requirements
Definition
Analysis
Solution Architecture and Design
Design Review and Approval
Planning
Initiation and Mobilisation
Implementation Configuration and Preparation
Solution Build
Solution Test
Deployment, Business Readiness and
Organisation Change
Service Design, Introduction, Transition and
Management
Ongoing Solution Operation
Project Management
PMO Support
Solution Delivery Activities
Solution Delivery Phases

83. Estimate Delivery Size And Duration
November 8, 2022 83
Solution Delivery Activities
Mapped to Delivery Phases with
Management Overhead Prorated
Available Personnel
By Phase Entered
Elapsed Months
by Phase
Calculated
Elapsed Time
Estimates for Fixed
Duration Option
Calculated
Elapsed Resources
Estimates for Fixed
Duration Option
Calculated
Enter Fixed
Duration in Months
Estimated Elapsed
Months for Allocated
Personnel Option
Estimated Personnel
for Fixed Duration
Option
Estimated Elapsed
Months and Resources
for Square Root Option

84. 8. Estimate Benefits
November 8, 2022 84

85. Estimate Benefits
• The implementation of new solutions should lead to
benefits
• Benefits should be able to be expressed in financial terms
• The cost of the solution implementation and operation
should be offset by any expected benefits to create a net
cost
November 8, 2022 85

86. Estimate Benefits
November 8, 2022 86
Benefits Are Entered for Each
Year and Are Not Automatically
Increased

87. 9. Estimate Resource Costs
November 8, 2022 87

88. Estimate Resource Costs
• Solution delivery components that require resources will have a
cost that is based on the profile of resources and their
individual involvement
• Solution delivery resource profile will depend on the solution
costs
− Custom development compared to product(s)
− Use of internal compared to external resources
• Two estimation approaches
− Simple – define the resource role cost and involvement across the entire
solution delivery set of activities
− Complex – define the resource role cost and involvement by individual
delivery phase
• Create average/blended rate that can be used for cost
estimation
November 8, 2022 88

89. Estimate Resource Costs – Simple Approach
November 8, 2022 89
Define Roles
Define Role Costs
Average Rate Across
All Roles and
Involvement
Define Role
Involvement
Across Entire
Project

90. 10. Create Multi-Year Cost Estimates
November 8, 2022 90

91. Multi-Year Cost Estimates
• Multi-year
cost
estimates
bring all the
previously
entered
information
together into
a complete
delivery and
operation
view
November 8, 2022 91
When Solution Delivery Stops,
Previously Estimated Solution
Operation Costs Are Applied,
Prorated For the First Year
Costs For Second and
Subsequent Years Are
Increased by Previously
Entered Rate

92. Multi-Year Cost Estimates
• There will be some variation across estimated costs
because of slower or faster solution implementation and
the start of solution operation
November 8, 2022 92

93. 11. Create Solution Estimate Overview Dashboard
November 8, 2022 93

94. Solution Estimation Overview Dashboard
• The previously
entered and
calculated
estimation
information can be
used to create a
solution estimation
dashboard
• Dashboards can be
created for each
solution option and
for the portfolio of
solutions being
evaluated
November 8, 2022 94

95. Errors In Estimates
• The estimation process has the potential for multiple
errors along the estimation process
− Errors in number and type of components
− Errors in component delivery estimates
− Errors in component acquisition costs
− Errors in resource estimates
− Errors in resource cost estimates
− Errors in complexity estimates
− Errors in risk estimates
• The errors will accumulate and be magnified throughout
the estimation process
November 8, 2022 95

96. Errors In Estimates
• Estimation errors will always exist
• There will always be a trade-off between speed and accuracy of estimates
November 8, 2022 96
Risk Estimates Errors
Complexity Estimates Errors
Resource Cost Estimates Errors
Resource Estimates Errors
Component Acquisition Cost
Estimates Errors
Component Delivery
Estimates Errors
Component
Identification
Errors

97. Errors In Estimates
• Estimates will necessarily be inaccurate and subject to
change when initial, high-level estimates are being created
• Risk, contingency and complexity factors can be adjusted
to reflect this early stage estimation uncertainty
November 8, 2022 97

98. Amount Of Data Required For Estimation
• The more data you enter, the greater the opportunity for errors as mistakes can
accumulate
• In the sample estimation template data entry is required at multiple stages with
corresponding chances of errors
− Overview – annual rate of increase
− Solution Component Work Breakdown – wrong set of components identified, solution too
complex, solution not sufficiently complex
− Estimates For Solution Components – estimates are not accurate
− Solution Delivery Complexity – under or over estimate
− Estimates For Non-Build Project Phases – incorrect costs identified
− Solution Delivery Risks – risks not correctly identified or probabilities or impacts wrong
− Benefits – under or over estimate
− Resource Costs – under or over estimate
• Numbers can give the illusion of accuracy (free from errors) and precision (measure
of exactness) while being very wrong
• Be aware of the deception and false comfort of numbers
• Always check and recheck your estimates and have different people perform the
same estimation task
November 8, 2022 98

99. Small Errors Accumulate
• In these examples, the high-
low variation for
accumulated error rates can
be:
− 3% error rate - 48%
− 4% error rate - 65%
− 5% error rate - 81%
− 6% error rate - 98%
− 7% error rate - 116%
• For example, a single error
rate of plus or minus 3%
multiplied 8 times means the
variation between the lowest
and highest value will 48% -
from plus 26% to minus 24%
November 8, 2022 99

100. Wider Context of Solution Estimation
November 8, 2022 100

101. Wider Context of Solution Estimation
• Solution estimation exists in a wider context
November 8, 2022 101
Solution
Solution
Option 1
Solution
Option 2
Solution
Option 3
Solution
Solution
Option 1
Solution
Option 2
Solution
Option 3
Solution
Solution
Option 1
Solution
Option 2
Solution
Option 3
Solution
Solution
Option 1
Solution
Option 2
Solution
Option 3
Individual Solution
and Its Options
Portfolio of Solutions
and Their Options
IT Investment and Value
Management and Control
and Business Strategy and
Context

102. November 8, 2022 102
IT Investment And Value Management And Control
• IT Investment And Value Management And Control is a systematic
process for deciding on IT investments in new systems
and maintaining and operating existing technology solutions
• It is a process for effective decision-making that ensures IT
investments integrate strategic planning, budgeting, procurement,
and the management of IT in support of the organisation’s needs
− Determines if a given investment in IT is justified
− Ensures IT investment decisions support the needs of the organisation, minmise
risks and maximise returns throughout the investment lifecycle
• It is a structured process for managing the risks and returns
associated with IT investments
• It should ensure that IT investments are implemented at acceptable
costs, within reasonable and expected timeframes, and contribute to
tangible, observable improvements in organisation performance
• An effective estimation process and supporting toolsets is an
important part of overall IT investment management

103. November 8, 2022 103
IT Investment Management Control Function
Responsibilities
IT Investment
And Value
Management
And Control
Technical
Scope
Management
Technical
Requirements
Management
Progress
Reporting and
Management
Risk
Management
Scope, Cost
and Schedule
Management
Earned Value
Management
Portfolio
Management

104. November 8, 2022 104
Portfolio Management
• Portfolio Management is an approach typically combined with a set
of tools for identifying, diagnosing, controlling, and increasing the
aggregate return on investments at a given level of risk tolerance
• Based on the management principle that any set of investments
requires proactive management to maximise value while minimising
risk
• IT portfolio management takes advantage of an integrated set of IT
management processes, techniques, and tools that assist decision
makers in analysing, selecting, evaluating, and controlling an optimal
set of investments
• Properly executed IT portfolio management delivers the benefits of
balancing supply and demand of IT resources (financial and non-
financial), eliminating redundancy, and enabling better alignment
with strategic goals

105. November 8, 2022 105
Earned Value Management
• Earned Value Management (EVM) is a project management metric
that integrates the technical scope of work with schedule and cost
elements for investment planning and control
• Compares the value of work accomplished in a given period with the
value of the work expected in that period
• Differences in expectations are measured in both cost and schedule
variances
• Use EVM in performance-based management systems
• Management of a cost estimate involves continually updating the
estimate with actual data as they become available (EVM) revising
the estimate to reflect changes and analysing differences between
estimated and actual costs

106. November 8, 2022 106
Cost Estimation Best Practices Checklist
• The cost estimate type is clearly defined and is appropriate
for its purpose
• All applicable program costs have been estimated,
including all life-cycle costs
• The cost estimate is independent of funding source
• An affordability analysis has been performed at the agency
level to see how the project fits within the overall portfolio
• The estimate is updated as actual costs become available
from the EVM system or as requirements change
• Post-mortems and lessons learned exercises are
continually documented as information becomes available

107. November 8, 2022 107
Formal Solution Estimation Process
Step 1:
Define the
Purpose of
the Estimate
Step 2:
Develop the
Estimating
Plan
Step 3:
Define the
Project
Step 4:
Determine
the
Estimating
Approach
Step 5:
Identify
Ground Rules
and
Assumptions
Step 6:
Obtain Data
Step 7:
Develop
Point
Estimate
Step 8:
Conduct
Sensitivity
Analysis
Step 9:
Conduct Risk
and
Uncertainty
Analysis
Step 10:
Document
the Estimate
Step 11:
Present
Estimate for
Approval
Step 12:
Update
Estimate to
Reflect
Actual Costs
and Changes
Initiation and Research
The audience, what is
being estimated and why
It is being estimated are
very importance
Assessment
Cost assessment steps
are iterative and can be
accomplished in varying
order or concurrently
Analysis
The confidence in the
point or range of the
estimate is crucial to the
decision maker
Presentation
Documentation and
presentation can make or
break a cost estimating
decision outcome

108. November 8, 2022 108
Formal Solution Estimation Process
• A formal solution estimation process encapsulates the
previously described structured process and associated
template and provides a wider business and investment
context
• Each of the 12 steps is important for ensuring that high-
quality cost estimates are developed and delivered in time
to support important decisions

109. November 8, 2022 109
Cost Estimating Process
• Step 1: Define the Purpose of the Estimate
− Determine the estimate’s purpose
− Determine the level of detail required
− Determine who will receive the estimate
− Determine the overall scope of the estimate
• Step 2: Develop the Estimating Plan
− Determine the cost estimating team
− Outline the cost estimating approach
− Develop the estimate timeline
− Determine who will do the independent cost estimate
− Develop the schedule

110. November 8, 2022 110
Cost Estimating Process
• Step 3: Define the Project
− Identify in a technical baseline description document
− The purpose of the project
− Its system and performance characteristics
− Any technology implications
− All system configurations
− project acquisition schedule
− Acquisition strategy;
− Relationship to other existing systems
− Support (manpower, training, etc.) and security needs
− Risks
− Assumptions
− System quantities for development, test, and production
− Deployment and maintenance plans;
− Predecessor or similar legacy systems
• Step 4: Determine the Estimating Approach
− Define work breakdown structure (WBS) and describe each element
− Choose the estimating method best suited for each WBS element
− Identify potential cross-checks for likely cost and schedule drivers.
− Develop a cost estimating checklist

111. November 8, 2022 111
Cost Estimating Process
• Step 5: Identify Ground Rules and Assumptions
− Clearly define what is included and excluded from the estimate
− Identify global and program specific assumptions such as:
• The estimate’s timescale, including time-phasing and life cycle
• Program schedule information by phase
• Program acquisition strategy
• Any schedule or budget constraints
• Inflation assumptions
• Costs such as travel and other expenses
• Equipment the organisation is to furnish
• Prime contractor and major subcontractors
• Use of existing facilities or new modifications or developments
• Technology refresh cycles
• Technology assumptions and new technology to be developed
• Commonality with legacy systems and assumed heritage savings
• Effects of new ways of doing business
• Step 6: Obtain Data
− Create a data collection plan with emphasis on collecting current and relevant technical, programmatic, cost, and
risk data.
− Investigate possible data sources
− Collect data and normalise them for cost accounting, inflation, learning, and quantity adjustments
− Analyse the data to look for cost drivers, trends, and outliers compare results against rules of thumb and standard
factors derived from historical data
− Interview data sources and document all relevant information including an assessment of data reliability and
accuracy

112. November 8, 2022 112
Cost Estimating Process
• Step 7: Develop Point Estimate
− Develop the cost model by estimating each WBS element, using the best methodology
from the data collected
− Include all estimating assumptions in the cost model
− Express costs in constant year currency
− Time-phase the results by spreading costs in the years they are expected to occur, based
on the pro gram schedule
− Sum the WBS elements to develop the overall point estimate
− Validate the estimate by looking for errors like double counting and omitting costs
− Compare estimate against the independent cost estimate and examine w here and why
there are differences
− Perform cross-checks on cost drivers to see if results are similar
− Update the model as more data become available or as changes occur and compare
results against previous estimates
• Step 8: Conduct Sensitivity Analysis
− Test the sensitivity of cost elements to changes in estimating input values and key
assumptions
− Identify effects of changing the program schedule or quantities on the overall estimate
− Determine which assumptions are key cost drivers and which cost elements are affected
most by changes

113. November 8, 2022 113
Cost Estimating Process
• Step 9: Conduct Risk and Uncertainty Analysis
− Determine the level of cost, schedule, and technical risk associated with each WBS element and discuss with
technical experts
− Analyse each risk for its severity and probability of occurrence
− Develop minimum, most likely, and maximum ranges for each element of risk
− Use an acceptable statistical analysis methodology to develop a confidence interval around the point estimate
− Determine type of risk distributions and reason for their use
− Identify the confidence level of the point estimate
− Identify the amount of contingency funding and add this to the point estimate to determine the risk-adjusted cost
estimate
− Recommend that the project office develop a risk management plan to track and mitigate risks
• Step 10: Document the Estimate
− Document all steps used to develop the estimate so that it can be recreated quickly by a cost analyst unfamiliar
with the program and produce the same result
− Document the purpose of the estimate, the team that prepared it, and who approved the estimate and on what
date
− Describe the program, including the schedule and technical baseline used to create the estimate
− Present the time-phased life-cycle cost of the program
− Discuss all ground rules and assumptions
− Include auditable and traceable data sources for each cost element
− Document for all data sources how the data were normalised
− Describe the results of the risk, uncertainty, and sensitivity analyses and whether any contingency funds were
identified
− Document how the estimate compares to the funding profile
− Track how this estimate compares to previous estimates, if applicable

114. November 8, 2022 114
Cost Estimating Process
• Step 11: Present Estimate for Approval
− Develop a briefing that presents the documented life-cycle cost estimate for management
approval, including
• An explanation of the technical and programmatic baseline and any uncertainties;
• A comparison to an independent cost estimate (ICE) with explanations of any differences;
• A comparison of the estimate (life-cycle cost estimate (LCCE) or independent cost estimate to the budget;
and
• Enough detail so the presenter can easily defend the estimate by showing how it is accurate, complete, and
high in quality.
− Focus the briefing, in a logical manner, on the largest cost elements and drivers of cost
− Make the content concise and complete so that those who are unfamiliar with it can easily
comprehend the competence that underlies the estimate results
− Make backup slides available for more probing questions
− Act on and document feedback from management
− The cost estimating team should request acceptance of the estimate
• Step 12: Update Estimate to Reflect Actual Costs and Changes
− Update the estimate to
• Reflect any changes in technical or program assumptions
• Keep it current as the program passes through new phases
− Replace estimates with EVM EAC and Independent estimate at completion (EAC) from EVM
− Report progress on meeting cost and schedule estimates
− Perform a post mortem and document lessons learned for elements whose actual costs or
schedules differ from the estimate.
− Document all changes to the program and how they affect the cost estimate

115. November 8, 2022 115
Work Breakdown Structure (WBS)
• Cornerstone of every solution delivery because it defines in detail
the work necessary to accomplish a solution’s objectives
− Essential part of developing a project’s cost estimate
− WBS reflects the delivery of the agreed requirements to the agreed solution
design
• A typical WBS reflects the requirements, resources and tasks that
must be accomplished to develop a program
• WBS communicates to everyone what needs to be done and how the
activities relate to one another
• Provides a consistent framework for planning and assigning
responsibility for the work
• Define a project in terms of product-oriented elements, broken into
a hierarchical structure
• Product-oriented WBS ensures that all costs are captured
• The WBS is derived from and expands on the previously described
solution component breakdown structure

116. November 8, 2022 116
Validating Cost Estimates
• Cost estimates should be validated against best practice
characteristics
− Comprehensive
− Well-documented
− Accurate
− Credible

117. November 8, 2022 117
Validating Cost Estimates
• Comprehensive
− Completely define the program and reflect the current schedule
− Include all possible costs using a logical WBS that accounts for all requirements
− Ensure that no costs are omitted nor double-counted
− Explain and document key assumptions that are technically reasonable
• Well-documented
− They can be easily repeated or updated and traced to original sources through
auditing
− Supporting documentation identifies the data sources, justifies all assumptions,
and provides a description of each estimating methodology for every WBS cost
element
− Schedule milestones and deliverables are traceable and consistent with the
cost estimate documentation

118. November 8, 2022 118
Validating Cost Estimates
• Accurate
− They are not overly conservative or too optimistic
− Based on an assessment of most likely costs and adjusted properly for inflation
− Contain few, if any, mistakes that are minor in nature
− Are updated when assumptions or requirements change to reflect current status
− Cost estimating relationships and parametric cost models are validated to ensure they are good predictors
of costs
• Data is current and applicable to the new program,
• The relationships between technical parameters are logical and statistically significant
• Results are tested with independent data
• Credible
− They clearly identify any limitations because of uncertainty or biases surrounding the data or assumptions
− Results are similar to cross-checks and an independent cost estimate derived using different
methodologies
• Independent cost estimates performed by estimators farthest away from the acquiring program office represent a
best practices because they
− Tend to produce higher and more accurate cost estimates than those performed by staff sharing a common supervisor
with the program office
− Produce more credible estimates than other types of independent estimate reviews which may not be as inclusive as an
ICE (e.g., IGCE, ICA, Sufficiency Review, etc.)
− A sensitivity analysis has been performed to identify cost drivers and the impacts of varying assumptions
− A risk / uncertainty analysis has been performed to determine the level of risk associated with the point
estimate

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Cost Assessment Team
• Cost estimates are frequently developed with an
incomplete knowledge of what the exact final technical
solution will be
• Cost assessment team must manage a great deal of risk,
especially for programs that are complex or use leading
edge of technology
• Cost estimates define what a given solution will ultimately
cost
• Estimate will be affected by multiple assumptions and an
interpretation of what the historical data represent

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Disciplines and Concepts in Cost Analysis
Economics
•Break-even Analysis
•Personnel Cost
•Inflation
•Present Value
Analysis
Cost
Analysis
Team Skills
Budgeting
•Organisation
Specific Skills
•Program Specific
Skills
Information
Technology
•Analysis
•Design
•Development
•Testing
•Scheduling
•System Integration
Statistics
•Forecasting
•Risk/Uncertainty
Analysis
Accounting
•Cost Data Analysis
•Financial Analysis
•Overhead Analysis
•Proposal Analysis
Interpersonal Skills
•Approach
•Estimate
•Knowledge
Commercial
•Analysis of
Commercial Models
•Analysis of
Proposals
•Development of
Cost Estimating
Relationship

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Cost Assessment Team Best Practices Checklist
• The composition of the estimating team includes the skills
needed for the program of work
− The team has the proper number and mix of resources
− The team has the proper number and mix of resources
− The team includes experienced and trained cost analysts
− The team includes, or has direct access to, analysts experienced in
the IT portfolio’s major areas
− Team members’ experience, qualifications, certifications, and
training are identified
• A master schedule with a written study plan has been
developed
• The team has access to the necessary subject matter
experts

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IT Investment Management Maturity Stages
Description
Creating Investment
Awareness
Building the Investment
Foundation
Developing a Complete
Investment Portfolio
Improving the
Investment Process
Leveraging IT for
Strategic Outcomes
5
4
3
2
1
The organisation has mastered the selection, control, and evaluation
processes and now seeks to shape its strategic outcomes by benchmarking
its IT investment processes relative to other "best-in-class" organizations.
The organisation is focused on evaluation techniques to improve its IT
investment processes and portfolio(s), while maintaining mature selection
and control techniques.
The organisation has developed a well-defined IT investment portfolio
using an investment process that has sound selection criteria and
maintains mature, evolving, and integrated selection, control, and
evaluation processes.
Basic selection capabilities are being driven by the development of project
selection criteria, including benefit and risk criteria, and an awareness of
organizational priorities when identifying projects for funding. Executive
oversight is applied on a project-by-project basis.
Ad hoc, unstructured, and unpredictable investment processes
characterise this stage. There is generally little relationship between the
success or failure of one project and the success or failure of another
project.

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Increasing IT Investment Management Maturity
1 Creating Investment
Awareness
2 Building the Investment
Foundation
3 Developing a Complete
Investment Portfolio
4 Improving the
Investment Process
5 Leveraging IT for
Strategic Outcomes
1. The organisation learns from and adopts the tools,
techniques, or methods used by best-in-class external
organisations
2. Changes to strategic business processes are driven by the
capabilities of identified information technologies
1. Evaluation techniques are being used to improve the
investment processes and the portfolio
2. Succession management processes are developed for
retaining or disposing of investments.
1. Criteria are developed for identifying investments that best
fit with the portfolio.
2. The portfolio is developed through the use of categorisation
when comparing investments.
3. Performance reviews are conducted both during and after
implementation
1. An investment board is established to drive the investment
process
2. Business needs are identified for each project
3. An investment selection process is developed
4. Board oversees the progress of individual projects
5. Investment information is collected and disseminated

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IT Investment Management
• Aligns IT Investments to organisation strategy (scoring)
• Prioritises investments (ranking)
• Provides strategic criteria for investment analysis
• Conduct annual IT portfolio management reviews
• Provides recommendation to stop, slow, maintain or
accelerate program funding
• Identifies redundant/inefficient systems
• Integrates IT architectures within investments
• Ensures compliance with funding standards

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Characteristics of Credible Cost Estimates
• Clear identification of requirements of the ultimate deliverable
• Broad participation in preparing estimates
• Availability of valid data for performing estimates – historical,
experience, benchmarks
• Standardised and comprehensive estimate structure that includes all
possible sources of cost
• Provision for uncertainties – include known costs explicitly and allow
for unknown costs
• Recognition of inflation
• Recognition of excluded costs
• Independent review of estimates for completeness and realism
• Revision of estimates for significant changes in requirements

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Challenges of Developing Good Cost Estimates
• Requires detailed, stable, agreed requirements
• Agreed assumptions
• Access to detailed documentation and historical data for
comparison
• Trained and experienced analysts
• Risk and uncertainty analysis
• Identification of a range of confidence levels
• Adequate contingency and management reserves

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Sources of Risk and Uncertainty in Estimating Costs
• Lack of understanding of the project requirements
• Shortcomings of human language and differing
interpretations of meaning of project
• Behaviour of parties involved in the cost estimation
process
• Haste
• Deception
• Poor cost estimating and pricing practices

128. More Information
Alan McSweeney
http://ie.linkedin.com/in/alanmcsweeney
https://www.amazon.com/dp/1797567616
8 November 2022 128