Good Software cost estimate is important in order to keep the project within the budget. There are several costs that can occur during the life cycle of a project, and an effective calculation approach can be the difference between a good plan and a failed one. Estimation, though, is easier to tell than to do. Projects bring with them threats and risks bring with them unforeseen costs.
Cost estimation is a method that takes these factors into account and calculates a budget that meets the financial commitment required for a successful project. Project cost estimate applies to anything from constructing a bridge to creating a new killer app. It all costs money, so the clearer you are on the sum you need, the more likely you will be to achieve your target.
Phase method for estimating costs
- Define Estimate Aim: Decide the purpose of the estimate, the level of detail needed, who receives the estimate and the overall scope of the estimate.
- Develop Estimated Plan: Assemble a cost estimation team and outline their strategy. Create a timeline and decide who will make an individual cost estimate. Establish the team’s schedule, eventually.
- Define Characteristics: Create a basic overview of the purpose, system and performance characteristics of the system. This covers any technical implications, system configurations, schedules, policies and relationships with current systems. Don’t forget about support, defence, risk products, testing and development, implementation and maintenance, and any related legacy systems.
- Determine Estimated Approach: Describe the Work Distribution Structure (WBS) and choose an estimation method that is best suited for each element in the WBS. Cross-check the expense and schedule of the drivers; then create a checklist.
- Identify the rules and assumptions: explicitly specify what is included and excluded from the calculation and identify basic assumptions.
- Get Data: Create a data collection plan and evaluate data to identify cost drivers.
- Build Point Estimate: Develop a cost model by calculating each aspect of the WBS.
- Conduct Sensitivity Analysis: Measure the sensitivity of costs to changes in the calculation of input values and key assumptions, and identify key cost drivers.
- Conduct Risk and Uncertainty Analysis: Assess the costs, schedules and technical risks inherent in each WBS item and how to handle them.
- Document Estimate: Provide documents for each step of the project to keep everybody on the same page with the cost estimate.
- Present Estimate to Management: Brief Cost Estimates Decision-makers to get approval.
- Update Estimate: Any changes must be changed and documented. Often, do a postmortem where you can record lessons learned.
Cost Estimate Problems
There are several variables that are unknown when calculating costs. For example, if the project isn’t like the previous ones, experience won’t help to direct you. If the planning horizon is farther out, the greater the uncertainty. That said, the longer the length of the project, the less oriented the cost estimate would be.
Then there is the team: the amount of expertise and experience required would have a huge effect on the total cost of the project.
Project Cost Estimation Techniques
Both of these considerations have an effect on project cost estimation, making it difficult to make reliable estimates. Fortunately, there are methods that can aid in the creation of a more precise cost estimate.
Analog estimation
Find the assistance of specialists who have expertise with similar ventures, or use your own historical details. If you have access to the relevant historical data, try an equivalent calculation, which might show precedents that help you define what the potential costs will be in the early stages of the project.
Statistical modelling
There is mathematical modelling or parametric estimation, which often uses historical data on key cost factors and then estimates what those costs would be if the length or other element of the project were modified.
Bottom-up estimate
A more granular approach is the bottom-up calculation, which uses estimates of the individual tasks and then combines them to calculate the total cost of the project.
Estimated three-point
Another method is the three-point estimation, which poses three scenarios: most likely, positive and pessimistic. These are then put into an equation to make an approximation.
Review of the Reserve
Reserve analysis determines how much contingency reserve needs to be allocated. This strategy is attempting to wrangle the confusion.
Quality Expense
Quality cost uses money used during the project to prevent errors and money used after the project to fix failures. This will help you fine-tune your total project cost estimate. And the comparison of bids from suppliers can also help to work out prices.
