Here are the slides from the Galorath / David Consulting Group estimating clinic  held in New York City. There were interesting discussions encompassing dealing with impossible demands, understanding risk and risk management, sizing, and a number of other topics.  Note: The Galorath slides and the DCG slides are combined in the one PDF file.

Concepts of IT providing business value to the organization were also discussed in detail.

Thanks to all who attended and especially to Mike Harris and David Herren for their insights.

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IBM’s Murray Canter published an interesting article in the communications of the ACM covering calculating and improving the ROI in software systems.   Murray shows how to compute the “investment value” of incomplete software and illustrates why it does have value showing how to compute the net present value and the return on investment of this in process work, using Monte Carlo simulation.  Murray states two axioms:

• Costs and benefits occur over time, so their present values are found through NPV equations
• The future values of costs and benefits are random variables, described as a statistical distribution

I should note this requires a subscription to ACM digital content.

Its abstract states:

“Constrained by limited budgets, most enterprises find it essential to apply unprecedented business discipline to the business function of software and system delivery (SSD) across entire software and system life cycles. For this reason, the CIO, CTO, or VP of software or systems development may be under increased scrutiny from the corporate chief finance office (CFO). When conversing with the CFO, money talks, so only one of two sorts of conversations can take place: software and systems as cost center or software and systems as value-creation center.”

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Here is a copy of my keynote talk at the 2011 ISMA measurement conference, Measurement and Management and Business Value.  The real point is the IT and measurement personnel have the information, knowledge and skill set to provide value to the business, far beyond the costs generate.  But the information needs to be communicated in terms leaders can understand rather than the techie language we all think and speak in… AND if IT starts showing how it contributes to the business and becomes a profit center instead of a cost center IT will get more money to apply to more valuable things.

UPDATE: Someone also asked for a reference communicating the language of management.  I believe this publication on business case analysis to be helpful in that regard.

PS In my talk I referred to software and measurement people as geeks.  To many the term geek is a source of pride.  One person in the talk was offended by being called a geek.  My sincere apologies.  However modern vernacular often defines a geek as a lover of technology, a software developer or someone with an intense love of mathematics.  I consider myself a geek.  And my friend Paul Glen makes his living by “leading geeks.”

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Today my conference presentation involved understanding and estimating value in software and IT systems as well as total ownership costs.  It still amazes me how so many software and IT leaders do not want to think in terms of Return on Investment but just want to build things that seem to be good ideas. If we would build what has the most value IT could become a profit center.  Key points were:

• Estimation is a key portion of business decision making
• Value must be considered in addition to cost
• Data doesn’t have to be perfect to be useful
• Estimators taking some responsibility for business value analysis can make a major improvement in business

 

I have included entire PowerPoint presentation here.

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The following are the bullet points from Dan’s paper on estimating best practices.  Using these best practices can increase project success dramatically.

• Decide Why You Want An Estimate
• Map Estimation Goals To Estimate Process Maturity & Develop Plan To Achieve The Maturity
• Have A Documented, Repeatable Estimation Process
• Evaluate Total Ownership Cost; Not Just Development
• Estimate A Range And Pick A Point For The Plan
• Re-estimate The Program When It Changes
• Avoid Death Marches: Programs With Unachievable Schedules Are Likely To Fail And Drain Morale

• Keep A History: Start An Enterprise Database NOW
• Business Case: Evaluate ROI In Addition To Costs
• Convert Expert Spreadsheets Into A Common Language
• Make The Estimating Process As Simple As Possible; But No Simpler
• Be Proactive: The Process Is Important, The Tools Go Along With The Process
• Get Buy-in From Program Managers
• Hold People Accountable: Center Of Excellence Can Prepare Estimate But Program Managers Must Own Them
• Tie The Estimate To The Plan
• Track Progress Vs. Estimate Throughout The Life Cycle
• Estimate Schedule As Well As Effort (Cost) For Complete Picture
• Tie The Business Case Into The Estimating Process
• Attack Non-productive Rework As Part Of The Process
• Have clear definitions: What does complete mean.  What activities are included and excluded (E.g. development only or total ownership; help desk included or excluded, etc.)   Which labor categories are included and excluded in the estimate (e.g. are managers included?  Help desk? Etc.)
• Don’t ignore IT infrastructure and IT services costs
• Tracking defect sources can go along with the process

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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.

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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.

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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.

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Dan will be speaking at the Chicago SPIN on November 12, 2009 on the topic of controlling software projects.  Estimation, planning, control, metrics, and maintenance for a total ownership cost view will 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:

Chicago Software Process Improvement Network

(C-SPIN) Meeting

AT&T Center Campus

AT&T Institute 2501 W. Eagle Way at

Lakewood Blvd and Eagle Way, Hoffman Estates, IL 60192

Be sure to check the C-SPIN website (http://c-spin.net/) to confirm details.

SPECIAL DATE: Thursday, November 12, 2009

6:00 – 7:00 PM – Atrium: Registration, Networking, & Light Snacks

6:20 – 6:40 PM – Birds-of-a-Feather Topic – TBD

7:00 – 8:30 PM – Auditorium: Presentation

8:30 – 9:00 PM – Auditorium: Additional Q&A and discussion

Abstract:

Planning software development projects is never easy. Requirements, time-to-market, architectural and quality issues, staffing, risks and many other factors must be carefully considered. Development tradeoffs impact software maintainability andcan significantly impact total cost of ownership. Many factors other complicate software planning.  Software planners tend to underestimate the degree to which code degrades over time. Software development costs are only a portion of the total cost of ownership. Software maintenance can often be up to four times the initial development cost.

This session will provide a systematic approach to addressing total cost of ownership across the software lifecycle, including design for maintainability, development of measurement criteria, collection of metrics, and industry standards, guidelines, and best practice options. Parametric modeling will be discussed using the SEER platform as a specific example. Estimating block changes and their potential interdependencies and impacts will also be covered.

Biography

Over a period of three decades, Dan Galorath has established a reputation as a leading expert in project estimation, analysis, management and control. He has literally written the book on the subject (Software Sizing, Estimation and Risk Management, Auerbach Publishing). Dan realized early that there was a better way to develop accurate project estimates. Today SEER ® analysis tools from Galorath Inc. are saving millions of dollars for organizations worldwide. Galorath’s customer base reads like a who’s who of American and European industry: Airbus, Bank of America, Boeing, Ford Motor Company, Lockheed Martin, NASA, Raytheon, Siemens, and the U.S. Army, Navy, and Air Force, etc.

Dan lectures internationally and has published numerous articles and papers on software cost modeling, testing, software lifecycle error prediction and requirements definition. Dan was named winner of the 2001 International Society of Parametric Analysts (ISPA) Freiman Award presented to individuals who have made outstanding contributions to the theoretical or applied aspects of parametric modeling. Dan also received the 2009 lifetime achievement award for his contributions to estimation, planning and control from The Society of Cost Estimation and Analysis (SCEA)

Driving and Parking Directions

From I-90 Northwest Tollway, exit North on Barrington Road; take Barrington Road to Lakewood Blvd (2nd light) and turn East (right) onto Lakewood Blvd.  Turn right into the AT&T Campus Center’s West Employee Entrance (the first entrance past Eagle Way) and follow the signs to the West Parking Structures.  Parking in covered lot W3 is recommended.  Look for parking spaces near the west entrance/exit of parking structure W3. Then walk west from the parking structure to the Institute Building to the main door, which has a big ENTRANCE sign over the door.  The Institute is approximately 100 yards from the parking structure–back across the road you came on.  Visit http://www.c-spin.net for a map of the AT&T Campus Center.  (Additional parking is available in covered lot W2 as well as upper level parking lot W1.)

About C-SPIN

C-SPIN is a leadership forum for the free and open exchange of software process improvement experiences and practical ideas. We promote achieving higher levels of process maturity, software quality, and mutual respect. Companies, academic institutions, government organizations, and individuals are invited. For information about C-SPIN or the steering committee, contact Karen Mermel at kmermel@yahoo.com.

To receive future announcements electronically, register your e-mail address (include name, personal email address, company, and phone number) http://c-spin.net/newsletter/

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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. 

And other risk gurus at Galorath and elsewhere are studying even more effective solutions.

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