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Estimating for Fixed Price Projects
Overview
• Problem statement
• Known estimation approaches
• WBS-based (bottom up) estimation
• Three-point estimation
• Assumptions
• Risk management and reserves
• Reserves versus Assumptions
• Reasons for poor estimates
Problem statement
• Project or even domain is
unknown
• Team is not yet defined
• Lack of experts
• Typically lack of time and efforts
for analysis and discovery
• But you need to prepare RFP
Cone of uncertainty
• Analogy-based estimation
• WBS-based (bottom-up)
estimation
• Parametric models
• Size-based estimation models
• Group estimation
• Mechanical combination
• Judgmental combination
• Typical projects
• Discuss it later…
• Typical Android screen = 40hrs
• Story points in Agile
• Planning poker
• AVG(Analogy-based, WBS)
• Expert judgment for above
models
Known estimation approaches – no silver bullet
• Deliverable-oriented
decomposition of the project into
smaller components
• WBS permits summing of
subordinate costs for tasks,
materials, etc…
• Design principles: 100% rule,
mutually exclusive components,
outcomes not actions, level of
detail
WBS-based (bottom up) estimation
Product, data, service
Three-point estimation
Normal distribution plot
2xSD = 95% (typical in software dev)
3xSD = 99.7%
• Optimistic, most-likely,
pessimistic
• Estimate(50%) = (P+4*ML+O)/6
• SD = (O – P) / 6
• Estimate(95%) = E + 2 * SD
Assumptions
• Reading between lines
• Requirements guessing
• Functional and non-functional (technology)
• Out of scope assumptions
• Team / resources assumptions
• Skill level
• Availability
• Realistic
• Review with customer -> change requests
Risk management and reserves
• Identification - Risk registry
• Assessment
• Estimates, Risks – input to Cost mgmt
• Contingency reserves
• Management reserves
Reserves versus Assumptions
• Two extremes for unknown: all assumed and all are risks
• All assumed – Low cost and lots of changes
• All are risk – High cost
• Balance:
• Everything critical for customer – assumptions
• Everything optional - risks
Reasons for Poor estimates
• Undefined objectives
• Incomplete plans
• Unrealistic resource assumptions
• Naïve estimates
• Customer/management arrogance
• Lack of training in developing estimates
• Adverse relationship between estimators and customers
• Absence of accountability
• Lack of candor (transparency)
THANK YOU
Anton Bobykin
Project Manager
abobykin@eastbanctech.com
202-295-3000
eastbanctech.com

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Estimating for Fixed Price Projects

  • 1. Estimating for Fixed Price Projects
  • 2. Overview • Problem statement • Known estimation approaches • WBS-based (bottom up) estimation • Three-point estimation • Assumptions • Risk management and reserves • Reserves versus Assumptions • Reasons for poor estimates
  • 3. Problem statement • Project or even domain is unknown • Team is not yet defined • Lack of experts • Typically lack of time and efforts for analysis and discovery • But you need to prepare RFP Cone of uncertainty
  • 4. • Analogy-based estimation • WBS-based (bottom-up) estimation • Parametric models • Size-based estimation models • Group estimation • Mechanical combination • Judgmental combination • Typical projects • Discuss it later… • Typical Android screen = 40hrs • Story points in Agile • Planning poker • AVG(Analogy-based, WBS) • Expert judgment for above models Known estimation approaches – no silver bullet
  • 5. • Deliverable-oriented decomposition of the project into smaller components • WBS permits summing of subordinate costs for tasks, materials, etc… • Design principles: 100% rule, mutually exclusive components, outcomes not actions, level of detail WBS-based (bottom up) estimation Product, data, service
  • 6. Three-point estimation Normal distribution plot 2xSD = 95% (typical in software dev) 3xSD = 99.7% • Optimistic, most-likely, pessimistic • Estimate(50%) = (P+4*ML+O)/6 • SD = (O – P) / 6 • Estimate(95%) = E + 2 * SD
  • 7. Assumptions • Reading between lines • Requirements guessing • Functional and non-functional (technology) • Out of scope assumptions • Team / resources assumptions • Skill level • Availability • Realistic • Review with customer -> change requests
  • 8. Risk management and reserves • Identification - Risk registry • Assessment • Estimates, Risks – input to Cost mgmt • Contingency reserves • Management reserves
  • 9. Reserves versus Assumptions • Two extremes for unknown: all assumed and all are risks • All assumed – Low cost and lots of changes • All are risk – High cost • Balance: • Everything critical for customer – assumptions • Everything optional - risks
  • 10. Reasons for Poor estimates • Undefined objectives • Incomplete plans • Unrealistic resource assumptions • Naïve estimates • Customer/management arrogance • Lack of training in developing estimates • Adverse relationship between estimators and customers • Absence of accountability • Lack of candor (transparency)
  • 11. THANK YOU Anton Bobykin Project Manager abobykin@eastbanctech.com 202-295-3000 eastbanctech.com