March 8, 2012 — Bruce McGraw
If you want to provoke an emotional reaction from a group of software development managers, ask them about their experience doing project cost estimation – WOW. I doubt you will find any of them who look forward to the task. Some of the managers may even become downright hostile. Estimating the cost of a software development for a contract or a proposal can be a punishing experience. And, almost every manager will admit that their estimate — especially for a complex project or one with a long duration — will be wrong (but hopefully not by much).
Why? Because
- Requirements change during development, which changes the level of effort and therefore the cost
- The operational environment is not, and cannot be, completely understood before work begins (Unless you have the Johnny Carson “Carnack the magnificent” genie)
- In order to create a “price to win” in competitive programs, senior management reduces estimated cost and then pushes the team to “work smarter” (HA – can I hear all the groans from project members!).
- There is a gremlin called “Murphy” who loves to show up on projects and create all kinds of problems*.
The History of Software Project Cost Estimation
In the beginning there was intuition and wishful thinking that drove software cost estimation. A project manager, often not a practitioner or software developer, reviewed high-level requirements and created a cost estimate from that – “I think this should take a couple months.” That approach did not always work well (:-).
In an effort to be more scientific in cost estimating, professionals developed many techniques over the years for performing estimates – historical analogous estimating, parametric estimating, three point estimating (PERT), expert judgment, etc. In fact, PMI has produced a book called “Practice Standard for Project Estimating”.
The software industry developed one costing method that assessed a cost per line of written code and then estimated how many lines of code would be required to build the software. The success of LOC estimation methods suffered from the reasons listed above as well as the obvious problem that not all lines of code are equal in difficulty. I once asked a senior software engineer, how many lines of code it would take to develop X functionality. He replied, “How many do you want it to take?” He was not being a smart aleck, he was only acknowledging the fact that there are many ways in software development to skin a cat and those options require different amounts of code.
LOC-based cost estimating was followed by function point cost estimation. A function point is an output, inquiry, input, an internal file, or an external interface. In simple terms, you develop a cost estimate by counting the number of function points in a proposed system, assigning a cost per point, and multiplying. More involved function point counting included values for difficulty and importance to the eventual system.
There were many other attempts to develop fast, cheap and simple software cost estimation methods. I could go on for a long time – However, I won’t bore you with the details. Let’s just say there is no magic book or formula for this critical process!
Cost Estimating in Scrum
Over the last few weeks, I have been writing about using the Scrum framework for software development. Scrum practitioners do not avoid cost estimating challenges, but they have methods to assess project cost that are consistent with Scrum’s approach to project execution. They do not, however, have the magic bullet, either.
All Scrum projects begin with a story (read “high level requirements” for the PMI crowd). What does the product owner want to be able to do when the project is complete? From that vision come the initial requirements. Scrum cost estimating methods use the wisdom of the team to generate estimated effort — acknowledging from the beginning that final cost and duration will vary as uncertainty and changing requirements are reflected in actual development.
When the Scrum team meets for its initial planning, the vision is laid out by the product owner. The team then considers how to create the desired functionality, which are called story points. Each story point is rated for relative difficulty.
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