Possibilistic Versus Probabilistic Estimates
I was in a cost task force meeting this morning, looking for ways to improve cost analysis in outsource environments, both from the customer and the offerer sides. These have been interesting meetings in many regards. Today the discussion focused on outsourcers who provide a low estimate, looking for the best case to win the business rather than the most probable cost.
One of the panel members pointed out that some outsources bid “possiblistic” prices rather than probabilistic prices. Possibilistic estimates are possible, if everything goes right, but everything going right is not probable.
That is one of the reasons SEER provides a range in addition to likely costs & schedule.
We recommend planning for the probable, not just the possible.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Viable Software Estimation Modeling: A Key Component Of Software Risk Management
I spoke with someone recently who explained the reason they use SEER is for risk management. They pointed out that not only can they determine the risks of schedule, effort and reliability, but the whole of SEER allows them to do risk reduction. A process improvement: no problem, a quick trade off is performed by setting the appropriate SEER parameters for process improvement, process experience, development tools and practices and they can see exactly what to expect, both good and bad. Then when asked to justify the result he can state explicitly: this includes reduction of team experience with processes, the process improvement going on during this project, any tools being deployed in the process improvement effort and the anticipated cost / benefit.
And for projects that are not challenged with new and different challenges, knowledge bases do the job without needing to concentrate on parameters.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Don’t Hide Uncertainty: Measure It
We all need to deal with estimates / projections for the future. When doing so, it is essential to include analysis of uncertainty and sensitivity of the variables including:
- Most important assumptions in the result
- Sensitivity of those assumptions (what happens if the assumptions change; which assumptions are most important in controlling overall results?)
- Probability of the estimate
- Risk Analysis showing the impacts of potential risks
Without risk, I don’t believe one has a viable estimate.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Controlling Software Projects: Development Is Only Job One: Chicago SPIN Nov 12 2009
Dan will be speaking at the Chi10 stecago SPIN on November 12, 2009 on the topic of controlling software projects. Estimation, planning, control, metrics, and maintenance fo a total ownership cost view wil be discussed.
The presentation is here: Chicago SPIN November 2009 Galorath Presentation Controlling Software Projects Development Is Only Job 1
PS Dan looks forward to his short visit to Chicago, his home town. And is going to carefully avoid pizza, hot dogs, and Italian beef while he is there.
The flyer follows:
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Joint Confidence Level Solution By Galorath
Congratulations to Galorath’s Chris Hutchings and Denton Tarbet and MCR’s Steve Book for their approach to NASA’s joint probability challenge. Chris worked all weekend and had it nailed by Monday. Then he saw the papers from the prior week’s NASA 2009 cost symposium on Monday. Steve Book had independently come up with the same approach.
So while perhaps Denton and Chris can’t claim to be first to publish it, they can claim to be creators of what appears to be one of the winning approaches to joint confidence level.
Hats off to all three, and to the others who presented approaches to joint probability at the NASA Cost Symposium.  There were a number of other excellent solutions presented at the NASA symposium.Â
And other risk gurus at Galorath and elsewhere are studying even more effective solutions.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Wall Street Journal Article Points Out Monte Carlo Inadequacies
This article could have been written by Galorath’s Evin Stump who warns of Monte Carlo’s inadequacy in capturing highly improbable events.Â
Note…. I am not saying Monte Carlo is of no value… on the contrary… I believe Monte Carlo analysis is extremely useful. But is is not so good at capturing the risk of the highly improbable.
The WSJ article on risk and Monte Carlo Analysis Inadequacies pointed out:
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Black Swans: The Impact of the Highly Improbable
Before the exploration of Australia by Europeans, people thought all swans were white. This assumption seemed completely confirmed by empirical evidence. Then in Australia, an outlier… black swans. This inconsequential event illustrates the limitation of learning by experience and assuming we know and understand uncertainty. Galorath’s Evin Stump and his work in Xippr (Experience Informed Project Risk Reduction; pronounced “zipper”), has been preaching about Black Swans for some time and convinced me to read Nassim Nicholas Taleb’s book “The Black Swan: The Impact of the Highly Improbable.” A Black Swan is:
1. An outlier, because lies outside the realm of regular expectations, because history cannot convincingly point to the possibility
2. Has an extreme impact if it occurs
Traditional risk analysis, such as Monte Carlo Analysis is excellent at predicting probability in terms of uncertainty, except for one thing…. it completely misses Black Swans. So we continue to invest our money with money managers who predict regular growth… with statistical worst cases not so bad… but then Black Swan occurs…. a highly improbable event,  banking crisis or whatever, and wipes out a significant portion of the nation’s wealth. The impact of Black Swans was not included in the financial analysis.  Or airplanes crash into the World Trade Towers. And the world changes forever.
Now we need to know when to deal with Black Swans and when they are just paranoia. For an average project there may not be any real Black Swans. But for the most difficult projects, for example projects with low Technology Readiness Levels or with severe political implications,  a Black Swan can be a significant driver.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Guidelines and Metrics for Assessing Space System Cost Estimates
I recently saw a presentation by Bernie Fox of Rand regarding guidelines and metrics for assessing space system cost estimates. Very interesting presentation (if you are interested in space systems)
The paper includes:
- Â Average costs and ranges for space vehicles, subsystems, and components for crosschecks.. Powerful Read more
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NPD 1000.5 NASA Cost-Risk Directive
Just about hot off the presses (January 2009) is NASA’s cost risk directive.
The directive defines many things with potentially the most interesting being the requirement for joint cost / schedule probability. Â
Wikipedia has a nice section on joint probability.
Section h is included below… This is causing much stir in the cost communities. Feel free to submit your comments on this topic.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
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Estimating United Conference Papers Available On the Web
Follow this link to see some of the estimating united papers. it was a great conference, full of useful information. Talks encompassing cost estimating (cost estimation), value engineering, product design, software, and more.
And thanks again to all the speakers and attendees as well as the hospitality of the Manchester United Football (soccer) club. And the Galorath staff whose diligent efforts made this a great success. Presentations will be available for all to download for the next few months, then will be available as part of the Galorath corporate library.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.