Every project owner desires to know the financial implication and time frame for the completion of an intended project, right from the word go. Irrespective of how small or simple a project may seem, the process of estimation is always a big deal because of its significance.
There is a lot to consider depending on the case of estimation, be it a new project, changing teams for an ongoing project or just contemplating a new idea for investment. There are also some possible factors to put in the list of considerations such as a detailed specification, functional requirements, the risks involved in the intended project and so on.Making a workable estimate that is precise and accurate to the last penny takes the discipline of a surgeon. Click To Tweet
The objective of estimation is to predict the amount of funding, resources and time needed to create a project. Considering these factors, project stakeholders can make informed decisions and ensure a smooth and efficient delivery and implementation.
Watch our webinar to learn about the practical ways to evaluate your software project estimates.
Why is Estimation Important
People often confuse an estimate for a budget. They are similar but a step from each other. An estimate becomes a budget after approval from a project owner. Only after such approval can funds be allocated. Therefore, there can be no project funding without an estimation.
An estimation accounts for producing and managing a project. It provides the calculation of resources, effort, cost and timing it might take to make the successful completion and delivery of a project.
As for you, the project owner, it should be understood that an estimate does not indicate the final cost but just a ballpark range. The intention of the estimate is to secure a budget or investors and get the project started. It is more like a prerequisite to the development phase.
Major Components of Project Estimation
Even if every project differs in the size, complexity, technologies, and requirements in general, the components of the estimate remain more or less the same. They don’t usually depend on the type of estimation technique and are used to reflect various sides of software development efforts.
A standard estimate must be transparent and fair. To provide a clear and accurate picture of your future project and its cost, it should include the following elements:
- Tasks – the details of what should be done
- Resources – the human efforts, number of experts
- Rate – the ratio of cost to time, the currency of payment and discount
- Duration – the length of production in hours or days
- Third party services – in case of additional services that might not involve the software vendor directly.
Now, let’s take a look at some of the best methods for estimating IT projects that help stakeholders stay aligned with expectations, optimize resources, manage risks, and improve the likelihood of project success.
Software Estimation Methodologies
1. Estimation by Analogy
To have an estimate by analogy, the cost of production from similar projects in the past are reviewed and compared to the one at hand. The differences between them are noted. Those could be such factors as complexity, the scale of the project, anticipated delivery date, location, inflation, present exchange rates, etc.
The resulting project estimation can be fairly accurate if a good analogy is found. Remember that no solution is exactly the same. Work on your estimates systematically and justify them to the project stakeholders.
Let’s have it in mind that if the project size in terms of scope, capacity, or performance of an intended project is twice as much as that of the analogy project, then the resulting estimate of the analogy must be “scaled up”. There is a bit of caution here – twice the size might not equate to twice the cost. The ratio of size to cost must be analogous.
This method is preferable when you have limited information about the project to be estimated.
2. Bottom-up Estimates
In this method, the project is divided into several tasks and subtasks that can be easily defined and managed. Hence it becomes easier to estimate. All the tasks are then separately estimated and totaled from the bottom to the top to provide a final estimation.
This style “bottom-up“ takes more time to make an estimation, but it gives the best level of accuracy if all the component details are put into consideration.
3. Project Evaluation and Review Technique or Three-Point Estimates
In this methodology, three ranges of estimates from three data points are first provided. The three data points being “best scenario”, “worst scenario”, and the “most likely scenario”. The final estimate is the weighted average of the estimates.
The three-point estimate has the advantage of reducing the chance of an inflated estimate. It is also one of the simple yet accurate software development cost and time estimation techniques. The three estimates to be averaged can be done by different people for better precision.
4. Parametric Estimating
This method is similar to estimation by analogy but with more accuracy. Parametric estimation involves a statistical or mathematical approach:
The first step is pinpointing the factors of development e.g. business or functional requirements, non-functional requirements, the complexity of the project, and technology.
Next is getting information about the required work to complete one unit from similar past projects, then relating it to the total number of units applicable to the present project.
Lastly, the cost is done by an empirical relationship between the factors involved and total units of the project. Scalability is then used for accuracy.
5. Use Case Points
This type of estimation is used to predict the software size, especially if Unified Modeling Language and Rational Unified Process methodologies are to be used for the software design and development.
Estimation is made possible by requirements definition for use cases. The size of the software is calculated considering elements of the system use cases, technical and environmental factors. The result is then applied to calculate the efforts for the project.
6. What-If Analysis
What-if analysis refers to the process of exploring different scenarios and assessing the potential impact of changes or variations on the project scope and estimate in particular. It is used to analyze how modifications to various factors can influence the project’s timeline, effort, resources, and costs.
This is one of the types of estimation that can also be leveraged in project management, not only at the very beginning of your endeavor. It enables managers to anticipate potential changes, risks, and uncertainties. By exploring different hypothetical scenarios and evaluating their impact, you can make more informed decisions, improve planning accuracy, and increase the chances of project success.
7. Expert Judgment
That’s one of the easiest techniques in terms of time and efforts required. Often, it’s used when you only have a project vision with not much data available and want to get an approximate idea of how much the development would cost.
Expert judgment involves seeking input and guidance from project managers and other IT experts that can provide a qualitative and subjective approach to estimation. In this case, costs will be based on their knowledge and experience.
However, it is important to note that expert judgment is not that foolproof and accurate. So if you can share more details with the team, then this method should be used in conjunction with other techniques to enhance the estimate.
Software project estimation can be challenging, and there are several common pitfalls that project teams may encounter. Being aware of them can help project owners, managers, and other stakeholders mitigate risks and improve the accuracy of estimations.
Here are some software project estimation pitfalls to watch out for:
- Insufficient requirements
- Optimistic bias
- Time pressure
- Inadequate historical data
- Neglecting risk assessment
- Overlooking dependencies
- Scope creep
- Lack of stakeholder involvement
- Inadequate experience and expertise
The Best Alternative
One of the crucial aspects of software engineering is applying appropriate techniques for accurate project size and cost estimation and ensuring successful planning and execution of development tasks.
Having considered all the top seven estimation techniques mentioned above, there is still the question:
What method is the most efficient to get a software development estimation?
Project management and estimation software tools can be of great assistance. In some cases, automated software estimating tools can even be more effective and accurate. However, the most considerable way to achieving a great estimation is by combining multiple project estimation techniques.
It is advisable to get three different estimates by applying software costing models that are most related and suitable to the conditions of a project type.
The three estimates based on their results can be considered as the “best scenario”, “worst scenario”, and the “most likely scenario”. These three resulting estimations can then be used to produce a final estimation based on a weighted average.
Velvetech will be happy to provide you an accurate solution estimation and assist with your software initiatives. Our team gives the appropriate consultations to help clients achieve their goals within a fair price and guaranteed project delivery. Learn more about our custom software development services and contact us for a consultation.