1. Software Project Management
UNIT2
Software Project Management

2. Overview Different level of estimation Project Evaluation
Introduction to Estimation
Size Estimation
Cost Estimation
The emphasis is on the last two items.
However, project managers need to understand there are various level of estimation based on the purposes.
Spend minutes on first 34 slides. Can skip some because they are rather obvious.
Software Project Management

3. Different level of estimation
Before decision to do a project
The estimation is coarse
The estimation is in high level terms
Profit? Good to the organization? etc.
After decision to go ahead
More detailed size and cost estimations are required
Software Project Management

4. Project Evaluation A high level assessment of the project
to see whether it is worthwhile to proceed with the project
to see whether the project will fit in the strategic planning of the whole organization
Software Project Management

5. Project Evaluation - Why
Want to decide whether a project can proceed before it is too late
Want to decide which of the several alternative projects has a better success rate, a higher turnover, a higher ...
Is it desirable to carry out the development and operation of the software system?
Software Project Management

6. Project Evaluation - Who
Senior management
Project manager/coordinator
Team leader
Software Project Management

7. Project Evaluation - When
Usually at the beginning of the project
e.g. Step 0 of Step Wise Framework
Software Project Management

8. Project Evaluation - What
Strategic assessment
Technical assessment
Economic assessment
Software Project Management

9. Project Evaluation - How
Cost-benefit analysis
Cash flow forecasting
Cost-benefit evaluation techniques
Risk analysis
Software Project Management

10. Strategic Assessment
Used to assess whether a project fits in the long-term goal of the organization
Usually carried out by senior management
Needs a strategic plan that clearly defines the objectives of the organization
Evaluates individual projects against the strategic plan or the overall business objectives
Software Project Management

11. Strategic Assessment (cont’d)
Programme management
suitable for projects developed for use in the organization
Portfolio management
suitable for project developed for other companies by software houses
Software Project Management

12. SA – Programme Management
Individual projects as components of a programme within the organization
Programme as “a group of projects that are managed in a coordinated way to gain benefits that would not be possible were the projects to be managed independently”
Software Project Management

13. SA – Programme Management Issues
Objectives
How does the project contribute to the long-term goal of the organization?
Will the product increase the market share? By how much?
Software Project Management

14. SA – Programme Management Issues (cont’d)
IS plan
Does the product fit into the overall IS plan?
How does the product relate to other existing systems?
Software Project Management

15. SA – Programme Management Issues (cont’d)
Organization structure
How does the product affect the existing organizational structure? the existing workflow? the overall business model?
Software Project Management

16. SA – Programme Management Issues (cont’d)
MIS
What information does the product provide?
To whom is the information provided?
How does the product relate to other existing MISs?
Software Project Management

17. SA – Programme Management Issues (cont’d)
Personnel
What are the staff implications?
What are the impacts on the overall policy on staff development?
Image
How does the product affect the image of the organization?
Staff implications includes skills and numbers
Staff development includes trainings, workshops, seminars, conferences, and magazine subscriptions etc.
Software Project Management

18. SA – Portfolio Management
suitable for product developed by a software company for an organization
may need to assess the product for the client organization
Programme management issues apply
need to carry out strategic assessment for the providing software company
Software Project Management

19. SA – Portfolio Management Issues
Long-term goal of the software company
The effects of the project on the portfolio of the company (synergies and conflicts)
Any added-value to the overall portfolio of the company
Long-term goal: need to ensure that the project fits into the long-term goal of the software company
Portfolio: Specialization versus Diversification
Added-value: consider whether the project will have an added-value to the overall portfolio of the company
Software Project Management

20. Technical Assessment Functionality against hardware and software
The strategic IS plan of the organization
any constraints imposed by the IS plan
Functionality: evaluate the functionality of the product against available hardware and software
Constraints: constraints imposed by the company’s IS plan will affect the development cost
Software Project Management

21. Economic Assessment Why?
Consider whether the project is the best among other options
Prioritise the projects so that the resources can be allocated effectively if several projects are underway
A common way is to compare the expected costs of development and operation of the system with the benefits of having it in production
Software Project Management

22. Economic Assessment (cont’d)
How?
Cost-benefit analysis
Cash flow forecasting
Various cost-benefit evaluation techniques
NPV and IRR
Cost-benefit analysis is to compare the estimated costs of development and operation of a system with the estimated benefits of putting the system in place.
Cash flow forecasting is …
Why need Cash flow forecasting? It is because the excess of benefits over costs is not sufficient to justify the implementation of a proposed project.
Software Project Management

23. EA – Cost-benefit Analysis
A standard way to assess the economic benefits
Two steps
Identify and estimate all the costs and benefits of carrying out the project
Express the costs and benefits in a common unit for easy comparison (e.g. $)
Software Project Management

24. EA – Cost-benefit Analysis (cont’d)
Costs
Development costs
Setup costs
Operational costs
Development costs:
Salaries and employment costs of staff
Hardware and software for development platform
Setup cost: cost for putting system in place
New hardware and ancillary equipments
Database conversion
Recruitment of staff
Staff training
Software Project Management

25. EA – Cost-benefit Analysis (cont’d)
Benefits
Direct benefits
Assessable indirect benefits
Intangible benefits
Benefits are quite difficult to quantify in monetary terms even if they are identified.
Direct benefits are those accrue directly from the operation of the system.
Examples:
Reduction of staff employment
Re-organization of staff
Assessable indirect benefits are the secondary benefits.
Example:
Increase of accuracy through a more user-friendly screen
Intangible benefits relate to those benefits that are longer term in nature or those benefits that are considered very difficult to quantify.
Enhanced job interest  lower recruitment costs
Software Project Management

26. EA – Cash Flow Forecasting
What?
Estimation of the cash flow over time
Why?
An excess of estimated benefits over the estimated costs is not sufficient
Need detailed estimation of benefits and costs versus time
Cash flow: income and expenditure
Software Project Management

27. EA – Cash Flow Forecasting (Cont’d)
Expenditure
Income
Need to spend money at first (e.g. staff salary, employment cost, hardware and software costs) no matter where the money comes from
e.g. resources from company, or money from the bank
If the money is from bank, you need to calculate the interest as well.
Software Project Management

28. EA – Cash Flow Forecasting (Cont’d)
Need to forecast the expenditure and the income
Accurate forecast is not easy
Need to revise the forecast from time to time
Expenditure:
Staff salary, recrutment costs, bank interest
We only calculate the bank interest, if any. Alternatively, we can calculate the bank repayment as one of the expense and the bank loan (principle) as one of the incomes.
Income:
Payment on completion and Payment by phases
Payment by phases is more likely to occur in outsourcing projects.
Forecast is not easy:
Not much information at the early phases of the project
The project may span several years
Revise the cash flow forecast quarterly, or even monthly.
Software Project Management

29. Cost-benefit Evaluation Techniques Example
Year
Project 1
Project 2
Project 3
Project 4
-100,000
-1,000,000
-120,000 1
10,000
200,000
30,000 2 3
20,000 4
25,000 5
100,000
350,000
50,000
Net Profit
60,000
150,000
45,000
Payback
ROI
12% 4%
10%
11%
Simple example: (where negative values represent net expenses, positive values represent net incomes)
Assumptions:
1. Cash flow take place at the end of each year.
2. The year 0 figure represents the initial investment made at the start of the project.
Let the student to do the calculation themselves during the lecture.
Software Project Management

30. Cost-benefit Evaluation Techniques
Net profit
= Total income – Total costs
Payback period
= Time taken to break even
Return on Investment (ROI)
Net profit
Advantage: simple to use
Disadvantage: ignores the timing of the cash flow
Payback period
Advantage: simple to calculate, not particular sensitive to small forecasting errors
Disadvantage: ignores any income (or expenditure) after the payback period
Return on Investment (ROI)
Advantage: simple and easy to calculate, quite popular
Disadvantage:
1. ignores the timing of the cash flow
2. Potentially very misleading because it is very tempting to compare the rate of return with the current interest rates
Software Project Management

31. Cost-benefit Evaluation Techniques – NPV
Net present value (NPV)
It is the sum of the present values of all future amounts.
Present value is the value which a future amount is worth at present
It takes into account the profitability of a project and the timing of the cash flows
NPV
Advantage: takes into account the profitability of a project and the timing of the cash flows that are produced.
Disadvantage:
1. hard to select an appropriate discount rate
2. NPV might not be directly comparable with earnings from other investments or the costs of borrowing capital.
Software Project Management

32. Cost-benefit Evaluation Techniques – NPV (cont’d)
Discount rate is the annual rate by which we discount future earning
e.g. If discount rate is 10% and the return of an investment in a year is $110, the present value of the investment is $100.
Software Project Management

33. Cost-benefit Evaluation Techniques – NPV (cont’d)
Let n be the number of year and r be the discount rate, the present value (PV) is given by
Software Project Management

34. Cost-benefit Evaluation Techniques – NPV (cont’d)
Issues in NPV
Choosing an appropriate discount rate is difficult
Ensuring that the rankings of projects are not sensitive to small changes in discount rate
Software Project Management

35. Cost-benefit Evaluation Techniques – NPV (cont’d)
Guidelines:
Use the standard rate prescribed by the organization
Use interest rate + premium rate
Use a target rate of return
Rank the projects using various discount rates
Software Project Management

36. Cost-benefit Evaluation Techniques – NPV (cont’d)
Disadvantage
May not be directly comparable with earnings from other investments or the costs of borrowing capital
Software Project Management

37. Cost-benefit Evaluation Techniques – IRR
Internal Rate of Return (IRR)
The percentage discount rate that would produce a NPV of zero
A relative measure
Use Excel to demonstrate the calculation of NPV and IRR. See file ‘lect03-npv.xls’.
The IRR being a relative measure does not indicate the absolute size of the return.
Software Project Management

38. Cost-benefit Evaluation Techniques – IRR (cont’d)11 9 8
-3000
3000
6000
9000 12 10
Discount rate (%)
Net Present Value($)
Software Project Management

39. Cost-benefit Evaluation Techniques – IRR (cont’d)
Advantages
Convenient
Directly comparable with rate of return on other projects and with interest rates
Useful
Dismiss a project due to its small IRR value
Indicate further precise evaluation of a project
Supported by MS Excel and Lotus 1-2-3
It is convenient in the sense that further calculation are not required.
It is useful in the sense that, in many cases, it is sufficient to dismiss a project or indicate further investigation of a project even though it is an approximation.
Software Project Management

40. Estimation
Why? – to define the project budget and to ‘refine’ the product to realize the budget
Who? – the manager
What? – size and cost
When? – always
How? – techniques and models
Software Project Management

41. Issues related to Estimation
Difficult to make accurate estimation
Better to have previous data and analyze the actual values against their estimates so that you know how accurate you are
Even better to have previous data of the whole organization so that you know how accurate the estimation method, if any, used within the organization is
Even you have your own personal historic data and those of the organization, there is still no guarantee that your next estimation is an accurate one. 
Software Project Management

42. Positive Attitude Towards Estimation
Use your estimation as a guide to manage your project
From time to time, you need to revise your estimation based on the current status of the project
Software Project Management

43. Estimation Approaches
Expert judgement
Ask the knowledgeable experts
Estimation by analogy
Use the data of a similar and completed project
Pricing to win
Use the price that is low enough to win the contract
Software Project Management

44. Estimation Approaches (cont’d)
Top-down
An overall estimate is determined and then broken down into each component task
Bottom-up
The estimates of each component task are aggregated to form the overall estimate
Algorithmic model
Estimation is based on the characteristics of the product and the development environment.
Top-down: An 14-month project would have broken down into 4 months on plans and requirements specification; 4 months on months on product design; 2 months on detailed design; 2 months on coding and unit testing; 3 months on integration testing and user-acceptance testing; and 1 month on training.
Bottom-up: The reverse of top-down.
Most models in estimation are algorithmic models.
Software Project Management

45. Size Estimation Problems related to size estimation
Size Estimation Model
Function Point Analysis (FPA)
Software Project Management

46. Problems related to size estimation
Nature of software
Novel application of software
Fast changing technology
Lack of homogeneity of project experience
Subjective nature of estimation
Political implications within the organization
Nature of software is about its complexity and invisibility
Novel application of software: each time the software to be developed has some unique features.
Fast changing technology: technology changes very fast, how well the personnel can manage the new technology is still not known yet.
Lack of homogeneity of project experience: past data is not available for present estimation
Political implications: The marking director tends to push the product to be on the market at an early stage. Project manager may then have a tighter schedule as planned.
Software Project Management

47. References
Hughes, B., and Cotterell, M. (1999) Software project management, 2nd ed., McGraw Hill
Pfleeger, S.L. (1998) Software Engineering: Theory and Practice, Prentice Hall
Royce, W. (1998) Software Project Management: A Unified Framework, Addison Wesley
Center for Software Engineering, USC (1999) COCOMO II Model Definition Manual.
Software Project Management