I saw a demo today of our new labor rate calculator.  It takes in various labor rate drivers and computes a viable labor rate.   It even evaluates the cost of equipment, electricity, floor space, insurance, etc.

This is a great step forward in the “should cost” and will cost for product manufacturing.  Buying organizations can describe the problem and see what a fair labor rate for the region, country, machine, etc.  Mixed currencies are supported as well.

The following is a small example of the kinds of information that can be specified  In this case it is configured for manufacturing.

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Frank Vogelezang of Ordina‘s presentation at the Galorath conference in the Netherlands yielded numerous interesting and well prepared presentations by customers and partners.  The presentation included here:  Estimating & Pricing of Application Management covered the processes for estimating what the problem will cost and the separate processes for pricing what will be charged to the customer.

Estimation Vs Pricing

Estimation was described as an engineering discipline while pricing was described as a commercial discipline that leads to a structure optimized to win the deal with an offering that meets customer acceptance criteria.

SEER Validation of the COMPLETE SYSTEM

The part I found even more interesting was the SEER validation included within the paper.  This validation compared the IT total system cost, including software development estimated by SEER-SEM, IT infrastructure (hardware, bandwidth, etc.) and IT services estimated by SEER-IT, and other (pass through) items estimated via manual processes.  The results were good even before any calibration, and even better after they calibrated with some of their history.

One Size Fits All Models Versus SEER

Frank pointed out the risks of using simple cost estimating relationships for estimating and defined the reasons why they choose SEER including:

• The estimating model needs to have a breakdown structure that can accommodate different cost-drivers
• Requirements for a supporting tool: Ability to facilitate a breakdown with different cost-drivers Based on experience data
• Possibility of calibrating the data with own experience
• SEER for IT as the basis for the model Six types of knowledge bases (out of 12)
• SEER for Software for Application Development calculations

WBS In SEER IT Infrastructure, IT Services, Software Development

 

Results before calibration (at a 50%) probability were slightly higher than actuals.  With calibration they were within a few percent.  And again, this was the entire system estimate including software, hardware, services, and other costs.Be sure to check out Frank’s blog http://www.ThePriceofIT.blogspot.com for more insights from him on a variety of relevant topics.

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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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We have some exciting events coming up this month with the first: The Future of Software Analysis and Measurement on October 12, 2011. I am really excited to share the virtual podium with Bill Curtis, Senior VP and Chief Scientist of CAST Corporation and with David Herron, David Consulting Groups VP of Knowledge Solution Services as moderator.

Bill and I both spoke at a software engineering conference last year and I got very excited about his work in software analysis with CAST. Besides Bill being an engaging speaker his content was very illuminating, covering issues of existing software, its complexity and reliability. He ev!–more–
en showed the number of latent defects in software of various languages. I have greatly summarized some of the a href=http://www.galorath.com/wp/software-defects-in-fielded-software-cast-analysis.phpsoftware defect conclusions /aelsewhere on this BLOG and CAST has been instrumental in recognizing and quantifying the a href=http://www.galorath.com/wp/500-billion-it-debt-for-deferred-maintenance.phptechnical debt/a

And with David Herron, one of the most knowledgeable people in the measurement community, this should be a do not miss event.

Details of the event follow as does a link to signup. Hope you can make it.
blockquotestrongThe Future of Software Analysis and Measurement/strong

October 12, 2011 8:00am Pacific, 11:00am Eastern, 4:00pm London

a href=http://www.castsoftware.com/news-events/event/future-of-sam?gad=glrClick this Webinar Link to sign up/a

Join us on October 12th to hear from an exciting lineup of experts on the Future of Software Analysis and Measurement: Dan Galorath, President CEO of Galorath Inc and Bill Curtis, SVP Chief Scientist, CAST will have an engaging discussion moderated by David Herron, VP, Knowledge Solution Services, David Consulting Group.

These industry veterans will share experiences with their client’s software development processes and discuss how Software Analysis and Measurement tools coupled with Parametric Estimation models can impact organizational performance through increased ROI, customer satisfaction and business value.

The panel will provide insightful and actionable steps that will make an immediate impact on your strategy including how to:

• Drive organization value by fueling Estimate and Measurement practices within an enterprise

• Build the funding rationale through proven economic impact models

• Establish the ROI from Estimate and Measurement practices and process/blockquote

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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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I stumbled across a working draft of an excellent document on my hard drive, produced, I believe, by a gentleman from Texas Instruments some years ago.  I thought this list of why we estimate cost and schedule was excellent and still relevant.

Why We Estimate Schedule & Cost

• To scope proposed tasks
• To explore alternative system concepts

design to cost/budget

• To explore alternative design concepts
• To explore alternative proposals for enhancements and upgrades
• To identify key design elements
• To identify key process parameters

prioritize needs vs wants

• To identify key assumptions
• To identify and quantify uncertainties
• To identify tasks and their relationships
• To assess schedule feasibility
• To identify, allocate and schedule resources
• To assess an organization’s ability to perform within targeted costs
• To evaluate the consequences of internal and external constraints
• To establish achievable objectives
• To establish a basis for quality service
• To establish commitments
• To bound the risk against customer needs
• To balance levels of risk against customer needs
• To provide a basis of successful risk management

build vs buy analysis

• To prepare successful proposals
• To evaluate proposals from competing bidders
• To establish baselines for project tracking

enhance/reuse vs redesign analysis

• To predict life-cycle costs
• To predict returns on investments
• To provide information for establishing business and investment strategies

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It has long been that IV&V (Independent Verification & Validation) was purchased by the pound, in other words spend what you want.  That is beginning to change.  Galorath’s Bob Hunt briefed a method for performing a cost estimate and return based on defects and estimating the optimal spend with ROI considerations for IV&V on critical software.  Bob rightly claims this approach needs refinement but it is a great start.  Here are the basics:

 *SM – size metric could be  expressed as Lines of Code, Function Points, …

(c) “Harlan Mills pioneered ‘cleanroom development’, a technique that has
been able to achieve rates as low as 3 defects per 1000 lines of code during in-house testing and 0.1 defect per 1000 lines of code in released product (Cobb and Mills 1990). A few projects – for example, the space-shuttle software – have achieved a level of 0 defects in 500,000 lines of code using a system of format development methods, peer reviews, and statistical testing.“

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I get so excited when an organization does a true business case and evaluates cost versus benefits of a software / IT system along with the risks.  . Part of the key is thinking and  analysing and communicating like a C llevel person rather than like a technical person.   Here is a link to the PowerPoint I did a webinar on this topic during July 2011 Establishing the ROI on Software Through Examination of Total Ownership Costs.  The full recorded webinar is available on the ITMPI site as well.

One might say that business case analysis is finance 101 and I would agree… Sometimes uncommon success is achieved by doing common things uncommonly well.

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Here is (one of) the original papers on Function Points, circa 1983.

I love the simple definition of function points in the paper: “…essentially the weight sum of the number of inputs, outputs, master files,  inquiries provided to or generated by the software.”

Today function points are a widely used method of defining software size or scope.  Many organizations use them for estimating.  Many also use them for executive oversight of software development using metrics such as hours per function point and number of defects per function point.

It is interesting to note that one of the major findings was the high correlation between lines of code and function points and the work pointing to Halstead’s software science and their relation to function points.   He demonstrated a correlation from .854 to .997 of lines of code to function points in this paper.

It is also a walk down memory lane for me.  My foray into estimating, after my project being killed due to my estimate, was Halstead’s software science.

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