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Cost estimating


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Building credible cost and schedule estimates requires discipline, skill, and experience. All 3 can be acquired over time. The starting point is understanding what processes make up the discipline of estimating

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Cost estimating

  1. 1. HOW TO DEVELOP CREDIBLE COST & SCHEDULE ESTIMATE Building credible cost and schedule estimates requires discipline, skill, and experience. All 3 can be acquired over time. The starting point is understanding what processes make up the discipline of estimating/
  2. 2. “…It was also becoming painfully evident that estimating the cost of technologically state-of-the-art projects was an inexact science. The experts, in spite of their mountains of numbers, seemingly used an approach descended from the technique widely used to weigh hogs in Texas. It is alleged that in this process, after catching a hog and tying it to one end of a teeter–totter arrangement, everyone searches for a stone which, when placed on the other end of the apparatus, exactly balances the weight of the hog. When such a stone is eventually found, everyone gathers around and tries to guess the weight of the stone. Such is the science of cost estimating.” ‒ Augustine’s Laws, Norm Augustine, Retired President, Lockheed Martin
  3. 3. Estimating Provides Direction to the Project 3
  4. 4. 4 In any science, we can only estimate by extrapolating from the past. The Fundamental Theorem Of Estimating This does not mean we just look at the trends. It means we have to extract from past observations some concepts, some relationships, some guidelines, from which the future may, within a confidence interval, be predicted.
  5. 5. The Real Problem With Estimating 5 “Nobel Prize to Project Management: Getting Risk Right,” Bent Flyvbjerg, Aalborg University, Denmark Figure 1: Explanatory power of optimism bias and strategic misrepresentation, respectively, in accounting for forecasting inaccuracy as function of political and organization pleasure.
  6. 6. Failing To Understand This Problem Means Estimates Are Not Credible 6
  7. 7. 7 Five Sources of Estimating Failures 1. Our techniques of estimating are poorly developed. They reflect an unvoiced assumption which is quite untrue – “That all will go well.” 2. Our estimating techniques confuse effort with progress, hiding the assumption that men and months are interchangeable. 3. Because we are uncertain of our estimates, software managers often lack the courteous stubbornness of Antoine's† chef. 4. Schedule progress is poorly monitored. Techniques proven and routine in other engineering disciplines are considered radical innovations in software engineering. 5. When schedule slippage is recognized, the natural response is to add manpower. Like dousing a fire with gasoline, this makes matters worse. More fire requires more gasoline starting a regenerative cycle that ends in disaster. † Antoine's is a New Orleans restaurant whose menu states: Good cooking takes time. If you are made to wait, it is to serve you better and to please you.
  8. 8. 8 Estimating Cost and Schedule Must be Treated as Risk Management Rather than seeking the perfect method for estimating size and duration, a realistic approach to improving estimates is to reduce the risks associated with improper sizing, cost, and duration estimates
  9. 9. 9 Motivation for Increasing the Maturity of a Project Based Organization Hilson, “Benchmarking Orgnisational Project Management Capability”. Proceedings of the Annual Project Management Seminars & Symposium, Nashville, 2001.
  10. 10. 10 It’s tough to make predictions, especially about the future –Yogi Berra “Understanding the importance of accurate estimation, and a willingness to put in the resources ... are vitally important to a company’s success.”
  11. 11. 7 Questions to Test Your Willingness to Depend on Estimates 1. Are the objectives of the estimate clear and correct? 2. Has the task been appropriately sized? 3. Are the estimated cost and schedule consistent with demonstrated accomplishments on other projects? 4. Have the factors that affect the estimate been identified and explained? 5. Have steps been taken to ensure the integrity of the estimating process? 6. Is the organization's historical evidence capable of supporting a reliable estimate? 7. Has the situation changed since the estimate was prepared? 11
  12. 12. 12 So How Fast Can We Go?
  13. 13. If you don’t know your capacity for work, you can’t estimate how long it will take to finish the job 13
  14. 14. How Long Will It Take? Past performance or a “model” is needed. This means keeping a history of past performance. 14
  15. 15. 15 The Notion That Experts are Better Than Models Is Not Supported By The Evidence “A Framework for the Analysis of Software Cost Estimation Accuracy,” Stein Grimstad and Magne Jørgensen, ISESE'06, September 21–22, 2006, Rio de Janeiro, Brazil § Mean estimation error for expert judgment = 18% § Mean estimation error for model based = 7% § T-test in means p=0.04
  16. 16. Estimating Means Balancing Experts and Models 16
  17. 17. Reducing Risk Starts With Understanding The Past Performance Gaps What Went Wrong? 17
  18. 18. 18 Two Techniques to Reducing Estimating Risk 1. Identify the areas of uncertainty 2. Analyze the estimating process to determine where risk mitigation can reduce uncertainty
  19. 19. Estimating Is More Than These Two Steps of Course 19 § Identify the software cost components § Develop the costing relationships § Define the software productivity § Define the productivity measures § Define the software units of measure § Identify the factors impacting productivity § Assess quality needs § Chose the estimation technique § Pick a design model § Identify the multipliers
  20. 20. 20 Quantified Schedule Risk Assessment determines program–level schedule risk as a function of risk associated with various activities that compose the program. Probability distributions are developed for each activity duration with reference to historical data and use interview techniques. The method uses these distributions in a Monte Carlo simulation of the schedule to derive a probability distribution of total project completion or other key dates for the program. It also identifies the activities or paths most likely to delay the project for targeted risk mitigation. The resulting program level schedule is then analyzed to determine the actual schedule risk and to identify the schedule drivers. With this approach the probability of overrunning a program–schedule can be estimated by determining how much risk exists and where it is greatest. This approach enables Program Managers to estimate early in a program the possibility of a significant probability/likelihood of overrunning the program schedule by determining how much and where the risk to successful schedule completion is greatest. This is achieved by identifying the “highest risk path”; which involves calibrating the risk criticality of activities. Quantifying Schedule Risk
  21. 21. 21 Notional Software Development Activities There’s more to estimating Software than Software Development
  22. 22. 22 Ranked Sources of Inaccurate Cost Estimates Frequent requests for changes by users over looked Overlooked tasks Users' lack of understanding of their own requirements Insufficient user-analyst communication and understanding Poor or imprecise problem definition Insufficient analysis when developing estimate Lack of coordination of systems development, technical services. Operations, data administration, etc., Functions during development Lack of an adequate methodology or guidelines for estimating Changes in department personnel Lack of historical data regarding past estimates and actuals Lack of setting and review of standard for use in estimation Pressures from managers, users, or others to increase or reduce the estimate Inability to anticipate skills of project team members Lack of project control comparing estimates and actuals Inability to tell where past estimates failed Reduction of project scope or quality to stay within estimate resulting in extra work later Lack of careful examination of the estimate by management Lack of participation in estimating by analysts and developers who ultimately develop the system Performance reviews do not consider whether estimates were met Removal of padding from the estimate by management
  23. 23. Stakeholders Define the Boundaries of Cost and Schedule 23
  24. 24. And of Course There Is Always The Problem Of Failing To Manage The Process 24
  25. 25. But We Can’t Be Throwing The Dice 25 We’ve Got To Have Plan
  26. 26. Software Cost Estimating Methods § Parametric Estimating § Wideband Delphi § COCOMO § SLIM § SEER-SEM Parametric Estimation of Effort, Schedule, Cost, Risk. Minimum time and staffing concepts based on Brooks's law § Function Point Analysis § Proxy-based estimating (PROBE) (from the Personal Software Process) § The Planning Game (from Extreme Programming) § Program Evaluation and Review Technique (PERT) § Analysis Effort method § TruePlanning Software Model Parametric model that estimates the scope, cost, effort and schedule for software projects. § Evidence-based Scheduling Refinement of typical agile estimating techniques using minimal measurement and total time accounting. § ACEIT 26
  27. 27. Putting Everything Together 27