Make or Break: Why Accurate Cost Estimation Is Key
A recent article from executivebrief.com sent to me By Dr. Ricardo Valerdi of MIT discusses how the accuracy of the cost estimation process can make or break a project’s success.
“When it comes to controlling costs, it is a critical first step to make appropriate estimations at the outset of a project. Being able to control costs is largely a matter of adhering to established guidelines, oftentimes by learning from previous projects and reacting to current circumstances efficiently and effectively.”
It is amazing to me how simple this concept is, yet how many CEO’s don’t even know it is possible. Accurate estimates (of course with risk and uncertainty factored in) yield viable project plans which can then be successfully monitored and controlled. In fact the application of techniques such as earned value management, as powerful as they are, crumble when the baseline plan is unachievable.
Step Ten: Track Project throughout Development
Refining Estimates throughout Project
Estimating software size, cost, and schedule should be an ongoing process. Preliminary estimates may be required to bid a job or to initiate the development process, or you may need to conduct a cost-benefit or return-on-investment (ROI) analysis to evaluate a project’s feasibility.
Preliminary estimates are the hardest to develop and are the least accurate because of the incomplete nature of the information available and the other factors discussed.
You can improve the accuracy of a preliminary estimate by using the sizing methodology identified in Step 4 or by using two different estimation techniques and having your analysts normalize the differences. There will still be a significant risk in using the preliminary estimate to structure a project or to evaluate risk in the early stages of a project life cycle.
Once a project has started, you will need to complete more detailed estimates to accurately plan the project and throughout the conduct of the project you will need to monitor the actual effort and duration of tasks and/or phases against planned values to ensure you have the project under control.
Summary
Software cost estimation is a difficult process but a necessary part of a successful software development. You can help ensure useful results by adopting a process that is standardized and repeatable. Several of the steps we have discussed, particularly those that do not result directly in the production of the estimate (Steps 1, 6, and 7) are often deferred or, worse still, not performed at all, often for what appear to be good reasons such as a lack of adequate time or resources or a reluctance to face the need to devise a plan if a problem is detected. Sometimes you simply have more work than you can handle and such steps don’t seem absolutely necessary. Sometimes management is reluctant to take these steps, not because the resources are not available, but because managers do not want to really know what they may learn as a result of scoping their estimates, quantifying and analyzing risks, or validating their estimates. This can be a costly attitude, because in reality every shortcut results in dramatic increases in project risks.
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Step Nine: Document Estimate and Lessons Learned
Step Nine: Document Estimate and Lessons Learned
Each time you complete an estimate and again at the end of the software development, you should document the pertinent information that constitutes the estimate and record the lessons you learned. By doing so, you will have evidence that your process was valid and that you generated the estimate in good faith, and you will have actual results with which to calibrate your estimation models. Be sure to document any missing or incomplete information and the risks, issues, and problems that the process addressed and any complications that arose. Also document all the key decisions made during the conduct of the estimate and their results and the effects of the actions you took. Finally, describe and document the dynamics that occurred during the process, such as the interactions of your estimation team, the interfaces with your clients, and trade-offs you had to make to address issues identified during the process. Cost models, which are based on the actual costs of past projects, can be calibrated and their accuracy can be demonstrated by comparing the costs of your current estimates with both past project data and the actual costs of your completed project, thereby adjusting the model input parameters to improve future accuracy.
