January Dinner Meeting

January Dinner Meeting
Project Management: Developing Cost and Effort Estimation Speaker: Damian Bartholomew Joke: One day a Project Manager called to God and said Hey God, I would like to challenge you to a competition to build a man The PM said we have the best tools, processes, and technology God agreed but said that we must start with a handful of dirt The PM eagerly agreed As he reached down God said NO SO FAST Get your own dirt I am Damian Bartholomew * 2 undergraduate degrees and a MSCS * Patent for a Distributed Software technology * 15 years on Projects with companies to include: Lockheed Martin, JC Penney, ATT, ERICSSON, NSA, Northrop Grumman, Raytheon, Fiserv, Deloitte * CTO of 2 companies * LTC in the US Army Reserves currently stationed at Ft Gordon

Outline Guidelines References Estimating Overview
How is Estimation Done (Cost Estimating) How is Estimation Done (Effort Estimating) Effort Estimation Improving Accuracy Determine a Budget Quick and Dirty Estimate

Guidelines Humor and Questions are welcome at any time
Subject applicable to different Domains Applicable from Novice to Expert Project Managers Non-retribution environment

Estimating Overview Lets get into it

Estimating Overview COST MANAGEMENT PROCESS DONE DURING
Plan Cost Management Planning Process Group Estimate Costs Determine the Budget Control Costs Monitoring and Controlling Process Group Overall Project Management Process This is where we are with reference to the PMBOK You are familiar with that correct?

Estimating Overview PLANNING
Determine How you will plan for each Knowledge area Estimate Time and Cost Develop Budget Overall Project Management Process This is where we are in the Rita’s Process Chart, Rita Mulcahy

Estimating Overview DO YOU: Create a budget for your project?
Have experience estimating project costs? Realize the connection between Cost Management and Time Management? When we talk about Estimating overview, DO YOU: Raise your hands… You do realize that this is like a 12 Step Program, you have to admit we have a problem

Estimating Overview Planning Cost Management
The output of this process is the: “Cost management plan” “Budget management plan” “Budget plan” These three names for the same thing Its all a dance, its just a question of whether you select a Formal or Informal Approach It can be Formal or Informal Approach

Estimating Overview Formal Planning Management
Basic COCOMO Algorithmic Model: In this process costs are analyzed using mathematical formulas- linking costs or inputs with metrics to produce an estimated output. The formula used in a formal model arise from the analysis of historical data. The accuracy of the model can be improved by calibrating the model to your specific development environment. Most of the work in the cost estimation field has focused on algorithmic cost modeling. In this process costs are analyzed using mathematical formulas linking costs or inputs with metrics to produce an estimated output. The formula used in a formal model arise from the analysis of historical data. The accuracy of the model can be improved by calibrating the model to your specific development environment, which basically involves adjusting the weightings of the metrics. Generally there is a great inconsistency of estimates. One study indicated that estimates varied from as much as % between predicated and actual values. Calibration of the model can improve these figures, However, models still produce errors of %.

Estimating Overview Formal Planning Management
Basic COCOMO II Algorithmic Model: Provides different effort estimating models based on the stage of development of the project. Provides likely ranges of estimates that represent one standard deviation around the most likely estimate. Uses five scale factors to generalize and replace the effects of the development mode. Similar to COCOMO I but COCOMO'II adjusts for the effects of reengineering in its effort estimate. COCOMO'II ( Constructive Cost Model ) Parametric in Nature * Provides different effort estimating models based on the stage of development of the project. * provides likely ranges of estimates that represent one standard deviation around the most likely estimate. * Adjusts for reuse and reengineering where automated tools are used for translation of existing software * Accounts for requirements volatility in its estimates. * Uses five scale factors to generalize and replace the effects of the development mode.

Estimating Overview InFormal Planning Management
1965, the House Ways and Means Committee estimated that the hospital insurance program of Medicare would cost $9 billion by The actual cost that year was $67 billion. 1967, the House Ways and Means Committee said the entire Medicare program would cost $12 billion in 1990. The actual cost in 1990 was $98 billion. 1987, Congress projected that Medicaid -would make special relief payments to hospitals of less than $1 billion in 1992. Actual cost: $17 billion 1993 cost of Medicare’s home Care Benefit was projected in 1988 to be $4 billion, but ended up at $10 billion. Iraqi War Effort Estimate under $50 billion, Close to $500 billion. These are not isolated incidents ; they are prevalent in many industries. Beijing 2008 Olympics (302 Events) million per event Sochi (98 Events) million per events (87 Billion total)

Estimating Overview InEffective Planning Management
Only one PM in history effectively accounted for feeding 5000 people. This approach to Estimating will not work for you.

How is Estimating Done? Cost Estimating

Estimate Costs Size WBS Source of the Information Statement of Work
Requirements Constraints Standards Processes History... Estimate Size Estimate Effort and Cost Effort & Cost Revise and Negotiate Estimate Schedule Show the linkage between WBS, Estimating Size, and Estimating Effort Note the flow allows for correction until Completion (Show) Bad Schedule Complete Detailed Planning Good Evaluate

Method #1: Bottom-Up How is Cost Estimating Done?
Reverse axiomatic approach to analyzing the details from a microscopic level to a macroscopic level

Method #2: Analogous On the left is the American shuttle
On the right is the Russian Shuttle Do you think the Russians used an Analogous approach to developing their shuttle? If you have existing project that are similar to the project being developed, you usually have a good way to estimate the size of the new project

Method #3 Wideband Delphi Method
Uses the experience of several people to reach an estimate that incorporates all of their knowledge. This is MOST effective to Estimate Effort for small projects. Estimates ALWAYS require several iterations (or Rounds) to reach a consensus In this case, the range from the Experts was initially 550 – 2200 This evolved to Get a few experts (typically three to five) Discuss issues and describe the software to the experts 3) Each expert develops an estimate Independent and anonymous 4) Record estimates anonymously Usually done by a facilitator 5) Meet and have each expert discuss his/her estimate Assumptions Rationale 6) Seek consensus on assumptions, etc. May result in action items to gather factual data 7) Each expert updates his or her estimate based on the new information 8) Record the new estimates 9) Discuss again Typically, new questions will come up But this round is typically much shorter 10) Repeat from step 7 until you reach a consensus Stop repeating when either: a) The experts agree on an estimate, OR b) There is no significant change in the estimate over two consecutive cycles and no significant additional data are available 12) Gather all of the detailed estimates and resolve remaining issues Major discrepancies between experts’ views on individual components Unknowns that can be resolved by gathering data Assumptions that can be verified

Method #4: Prototyping Build a prototype of the system, including certain important functions Use the prototype to answer questions raised by other estimating methods Then revisit previous estimates with the new information Prototypes can be STORY TIME: When I was 12, I built a Prototype of a Surface-to-Air missile I used the prototype to answer questions such as how high could it go? How much fuel did it need? How much explosives could it carry? How large a silo I needed to build with cement in the back yard? Subsequent prototypes improved my launch capability as I aimed at overflying helicopters The Bartholomew program was suspended after the FBI came to my house to ask questions

Method #5: Statistical Method
This is really a method of evaluating the results of other methods to determine the level of uncertainty and risk. Likely = (min + 4*expected + max ) / 6 The method is only valid from a statistical viewpoint if the min and max values cover 3 standard deviation limits This means that the probability of the actual size being inside these limits is 99.7% or 99.7 times out of 100 (i.e., 299 times out of 300)

Method #6: Function Point
1) Count the functions in each category. 2) Establish the complexity of each (H, M, L) 3) Establish weights for each complexity. 4) Multiply each function by its weight, and then sum to get total function points. 5) Adjust for application characteristics. Basically, Function points measure the size of the customer’s requirements, or the size of the functionality to be produced, rather than the physical size of the project This is analogous to measuring the size of a house by counting the number and types of rooms, rather than by square footage

Method #7: Historical Year Built Project Status Lines of Code (KLOC)
1977 Enterprise Retired 21.9 1981 Columbia Destroyed 32.7 1983 Challenger 48.0 1984 Discovery 49.4 1985 Atlantis 55.9 1992 Endeavor 93.3 This demonstrates the number of (KLOC) Thousands of Lines of Code developed to support the Space Shuttle on the initial voyage of each flight Notice a general increasing trend over time But be careful What does the number actually tell you? You do not know the difference in hardware, the number of subsystems, nor the purpose of the flight

Alternate Method No Data
Try: Function Points if you know the functional requirements Wideband Delphi Count requirements What if you have absolutely no data on the project to be developed? No prior experience No expertise available This is a common practice by inexperienced contracting companies developing project proposals. How do I know? I was the person assigned to imagine/create these estimates

How is Estimating Done? Effort Estimating
Lets transition into Effort Estimating Effort Estimating

Effort Estimating Size WBS Source of the Information Statement of Work
Requirements Constraints Standards Processes History etc. Estimate Size Estimate Effort and Cost Effort & Cost Revise and Negotiate Estimate Schedule Now we can show the next step in the linkage between WBS, Estimating Size, and Estimating Effort Bad Schedule Complete Detailed Planning Good Evaluate

Effort Estimation These are the Major Tasks to be Performed as Inputs to Effort Estimating (and found in the WBS). Development tasks Design, Build, Test Additional Development tasks Requirements, system integration Support tasks CM, QA, Project Management Tasks requiring additional labor Documents, Audits, etc. Additional dollar costs Travel, Equipment, etc These are the Major Tasks to be Performed as Inputs to Effort Estimating (and found in the WBS). Project Management is highlighted to demonstrate where the overhead is allayed with respect to the Effort

Effort Estimating Estimate Development Costs Then Estimate Other Costs
Development Tasks Requirements Design ... Estimate Size and Then Effort Convert to $ WBS Total Cost Estimate Estimate Development Costs Other Tasks and Costs Management Travel Training Overhead Facilities Equipment Software … Then Estimate Other Costs Note how the flow proceeds in two directions to the Total Cost Estimate <Follow top route> <Follow bottom route> Estimate Costs Directly or as % of Development Costs

Effort Estimation Notes
Accuracy of estimate depends on Experience Historical data Availability of information LUCK! When writing a proposal you could easily be 50% off in your estimate At the start of a project, you are lucky to be within 20% unless you have very good historical data Historical productivity data can be very helpful in estimating effort But they give ranges rather than precise estimates

How is Estimating Done? Improving Accuracy
So if you can off by 50% how can you improve the accuracy? What are the Accuracy of Estimates? ROM Budget Definitive Improving Accuracy

Improving Accuracy Plan to update your estimates
You will have better information in the future Use multiple estimating methods Improves the bounds on your estimate Each new method will identify issues that other methods overlook Help to understand the degree of uncertainty/ confidence in your estimate How much reserve to set aside Risk mitigation actions to take

Improving Accuracy Use Multiple Methods
Statistical Variances and Uncertainties Here are three Methods Now, where do you think the truth is? Why are they so different? The more estimates you have, the more likely you are able to get close to the true cost And the better you can define a region of high probability -- i.e., a range of expectations

Improving Accuracy 1) Use more than one method and resolve discrepancies No method is reliable enough in most cases When two methods disagree, it tells you are missing some facts Method 1 Wideband Delphi Resolution? Method 3 Method 2 Statistical Analysis I recommend using several methods and try to resolve discrepancies OK Not OK (Revise Estimates)

Improving Accuracy 2) Select Requirements carefully
Too many Requirements results in management overhead (and potentially higher cost) Too few Requirements increases risk (less visibility; harder to test; harder to maintain) You need to find a balance when you compile Requirements

Improving Accuracy 3) Don’t Under-Scope what you don’t understand
4) Consider the Design Methodology Newer methods can be more productive but older ones often have less risk due to experience, availability of tools… 5) Account properly for reuse don’t consider it to be free If you don’t know, find out If you cannot find out, at least find out the boundaries no bigger than ... no smaller than ... The biggest estimating errors are errors of ignorance

Determine the Budget We have Improved Accuracy now let’s determine the budget

Determine the Budget Process involves coming up with Cost Estimates for each Activity. These estimates are combined into a spending plan. What should costs estimate? Quality efforts Risk efforts Project management activities Project Costs: Labor, Materials, Training… Expenses Overhead: Salaries, Office expenses Obviously determining the Estimate includes these cost estimates Types of Costs: Variable Costs, Fixed Costs A Cost can be either: Direct, Indirect (overhead items)

Determine the Budget Activity Estimate Work Package Estimate Control Cost Estimate Project Estimate Contingency Reserves Cost Baseline Management Reserves Cost Budget 650 850 1250 105 1355 68 1423 200 200 200 400 *.084 For many projects the decomposition of Work Packages into smaller components or Activities are used to create cost estimates After the cost estimate is developed, the PM may compare these numbers to parametric estimates, expert judgment, or historical records for sanity check For Large projects, it may be more practical to estimate and control costs at a different level *.05

Quick and Dirty Cost Estimate (Get an Initial Estimate in 30 minutes)
To illustrate the process I will share the Quick and Dirty Estimate This process simplifies many of the steps, but shows the basic order in which things happen Copyright © , Dennis J. Frailey, All Rights Reserved

Quick and Dirty Estimate
This is what we want to avoid.

How do you “Put it all together”? Size Effort Cost Schedule Staffing levels How do you “Keep it all together” as you revise and update the estimates? A Fundamental Issue in Estimation You start with: WBS, top level schedule, experience on previous projects Copyright © , Dennis J. Frailey, All Rights Reserved

The process to be described is a framework for estimating You can use any estimating methods you desire The process allocates estimated effort and cost across a schedule And by using a spreadsheet, you can easily update all estimates Copyright © , Dennis J. Frailey, All Rights Reserved

The process allows you to evaluate: Staffing Resource requirements (equipment, people, money, …) Cash flow It serves as a basis for managing It provides initial estimates of many quantities you will want to track against actuals during project execution Some Features of This Estimating Process Copyright © , Dennis J. Frailey, All Rights Reserved

The Estimation Sequence
Initial Planning WBS cost categories Top Level Schedule S, SA Process Model Generic Schedule Effort Estimate Effort Schedule P AL Labor Types Labor Schedule AD Labor Rates Cost Schedule Copyright © , Dennis J. Frailey, All Rights Reserved

Quick and Dirty Cost Estimate
1) Base Effort = Software Development Effort, excluding all other activities Estimate the effort required for each WBS task associated with development (S) Sum the estimates 2) Adjusted Base Effort = BASE EFFORT + Effort for additional development tasks (SA) 3) Total Effort = ADJUSTED BASE EFFORT + percentage increment for support tasks (P) 4) Total Labor = TOTAL EFFORT + additional labor (type AL), divided into specific staff categories. 5) Total Cost = TOTAL LABOR * LABOR COST RATE + additional dollar costs (type AD). We will do everything in staff-months Copyright © , Dennis J. Frailey, All Rights Reserved

Step 1 - Base Effort (S tasks)
Size estimate is 12,000 SLOC We normally develop about 6 SLOC per staff-day on projects like this So it should require about 2000 staff-days = 100 staff-months (sm) 20 working days per month Copyright © , Dennis J. Frailey, All Rights Reserved

Step 2 - Adjusted Base Effort (+SA tasks)
Requirements and system integration support (SA tasks) should add 30% Total = 2600 staff-days = 130 sm Top level schedule for this is 12 months. Can do with ~11 people on the average. Will build up staff to peak in months 7-10 Initial Effort Schedule: M1 M2 M3 M4 M5 ... M12 TOTAL Copyright © , Dennis J. Frailey, All Rights Reserved

Step 3 - Total Effort (+P tasks)
Support for “P” tasks (CM, QA, and management) should add about 25% or 650 more staff-days. Total = 3250 staff-days = 163 staff-months Assume this is distributed more or less evenly across the schedule #3 is called the effort schedule - it shows how the effort will be spread across the schedule It corresponds to the effort schedule shown on the diagram a few slides back Total Effort Schedule: M1 M2 M3 M4 M5 ... M12 TOTAL Copyright © , Dennis J. Frailey, All Rights Reserved

Step 4 - Labor Schedule Part I: Labor Categories
Labor will be divided into 3 categories: Senior, Normal, New Initial Labor Schedule: Type M1 M2 M3 M4 M5 ... M12 TOTAL Senior 30% Normal 50% New 20% Total Labor Note that Total Labor line matches Total Effort Schedule #4 is called the labor schedule -- it shows how the different categories of labor will be applied to the project. For this simple case, we have three categories, but you might add others for managers, support staff, etc. if they do not get paid at the same rate as the three listed. Copyright © , Dennis J. Frailey, All Rights Reserved

Step 4 - Labor Schedule Part II: Adding “AL“ Tasks to Labor Schedule
Type M1 M2 M3 M4 M5 ... M12 TOTAL Senior % Normal % New % Total Need to add extra staff for V&V activity (an “additional labor” task) Note how the V&V activity is concentrated near the end The different labor categories might also not be spread the same way - often there are more senior people involved in the early phases than later (on a proportional basis) V&V Grand Total Copyright © , Dennis J. Frailey, All Rights Reserved

Step 5 Part 1: Convert Effort to Cost
Senior - $10,000 per month Normal - $8,000 per month New - $6,000 per month V&V - $16,000 per month (48 * 10000) + (83 * 8000) + (32 * 6000) + (16 * 16000) = $1,592,000 total This shows the total dollars. By allocating across the schedule, we can see how those dollars are spent each month during the project. Copyright © , Dennis J. Frailey, All Rights Reserved

Copyright © 1995-2001, Dennis J. Frailey, All Rights Reserved
Step 5 Cost Schedule Labor replaced by dollar costs (in $1000’s) Type M1 M2 M3 M4 M5 … M12 TOTAL Senior Normal New Subtotal Extra staff for V&V activity V&V Total This is called the cost schedule - it shows how costs spread across the schedule Copyright © , Dennis J. Frailey, All Rights Reserved

Step 5 Part II: Adding Additional Dollar (“AD”) Costs
Any other costs can be added in dollars Type M1 M2 M3 M4 M5 … M12 TOT ……. Total Additional costs (expressed in K$) Computers Travel … Grand Total This is called the cost schedule - it shows how costs spread across the schedule Copyright © , Dennis J. Frailey, All Rights Reserved

Copyright © 1995-2001, Dennis J. Frailey, All Rights Reserved
Other Options 5a) Include overhead costs in the pay scale or add on later 5b) Calculate for each week or day or whatever by similar methods 5c) Add non-labor cost items expressed in dollars, such as rent, overhead, computers, etc. 5d) Adjust for inflation in future years, for long projects We will now go through these steps in considerably more detail to show how you want to do a more thorough estimating process Copyright © , Dennis J. Frailey, All Rights Reserved

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