The art of software estimation: time and cost analysis.

Apr 17, 2023 |
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Software estimation is important. It can influence your project’s success to a great extent. It can help clarify your business plan, goals and objectives. This process involves defining the main requirements of the project as well as the expectations from everyone working on it. Done right, software estimation can improve your team’s readiness for deadlines and ability to handle problems.

On the other hand, done wrong, this can turn your project into a disaster. Statistically, unreliable software estimation is one of the top ten reasons for failure in software projects around the world. A wrong or absent estimation can result in unpredictable expenses, impossible deadlines and overall despondency among the team. It can break the budget, and it can break morale.

However, having a right estimation does not always mean that your project will succeed. There are a lot of contributing factors towards that. But software estimation can definitely be a valuable tool to keep your budget and timeline in check.

The question is – how to actually do it. To use it properly, we need to have a clear understanding of what it is, what part it plays in software development and what running the estimation involves.

What is software estimation?

Software estimation is the strategy to forecast the amount of money, time and resources that might be required to complete a software project – whatever mode of software that is. Like all other estimations and forecasts out there, software estimation is not 100% accurate. A 5-10% error margin must be considered to make the estimation valuable. In software companies, four internal factors tend to influence these estimations – experience, techniques, tools and processes.

There are several pros of running software estimation, including –

  • Better management of uncertain situations
  • Necessary adjustments made to the project plan
  • Developers’ opportunity to dive into the requirements and understand the project deeply
  • Understanding and managing stakeholders’ expectations

How can you perform software estimation?

Estimates often are interpreted to be just about predicting time requirements. The problem with which is that humans are not great at predicting the amount of time needed to complete a task. Which means, estimating time and cost required for a project is not easy. Many factors need to be considered to make an accurate estimation.

  • Number of team members
  • Complexity and size of software
  • Scope of software
  • Experience level of team members
  • Span of product documentation
  • Your knowledge about the product

Starting software estimation

Whenever we work on a custom software project for a client, we start by estimating the cost and time requirements for them so that they can be ready – mentally and financially. The process initially involves 6 distinct steps where the idea of the software is clarified and all necessary resources are prepared.

Step 1: Understand the project requirements

It is important to understand how a project will bring value to future users before estimating anything. At this step, arrange a meeting with the team to talk through the idea, the technical requirements, major features and budget for the project.

Step 2: Prepare scope of the project – accurately

After the requirements are clear, it is time to determine the project goals, deliverables, tasks, costs and deadlines. A proper and accurate project scope should sum up everything needed to run a project successfully. Determining the scope can help your team focus on the important tasks and stay away from unplanned tasks and deliverables.

Step 3: Break the project down into smaller chunks

With the scope and requirements of the project, you can now break down the project and distribute parts of the work among the team of developers. Then, you can choose and assign the right project manager for the team.

Step 4: Create a project plan

Planning is an integral part of software development, especially in the estimation phase. And the more skilled or experienced your team members are, the better your chances at accurate planning. However, it is important to listen to everyone’s opinion and take them into account.

By combining the knowledge of your technical team, business analyst and project manager, you can truly come up with the most efficient project plan.

Step 5: Make the project tech-savvy

Thanks to technological advances, you can now reuse code and other components created earlier, maybe for a similar project. Moreover, the world of software development is known to leverage collaboration and community to share knowledge and solutions on global platforms. At this step, go through such solutions to see if the engineering process can be made more efficient which can result in reduced time-to-market for your product!

Step 6: Select your software estimation technique

There are many techniques widely used by software developers to make accurate estimations. What will work best for you depends on your team’s skill set, experience and historical data. Always try to go for a technique that’s well-researched and deeply analyzed.

Estimation techniques

Software estimation is done using various models and techniques. Let us discuss a few popular techniques to get a better understanding of what might work for your project.

Bottom-up estimation

This estimation technique involves dividing the project into smaller chunks of work so that you can better estimate the time and resources required to complete each part. Estimating requirements for a big project can be difficult. Not only in terms of time, but also in terms of dependency. When you build an app, there are going to be many co-dependencies among the features and tasks in the project. Failing to estimate these dependencies beforehand can result in blockers that reduce your efficiency and lengthen your time-to-market.

To follow the bottom-up approach,

  • First, divide the complex project into small chunks.
  • Estimate the complexity of each chunk of tasks.
  • Estimate the overall time to complete each chunk and, as a result, the whole project.

While doing this, try and keep in mind that the time requirement for each task should be estimated based on its complexity.

Once time estimations are made for each task, an estimated time is calculated for each phase of the project, and then for the whole project. As the estimated time is summed up from smaller to larger parts, this technique is called the bottom-up technique.

Comparative technique

This technique does not involve estimating the precise time and complexity of the project. Rather, in this model, you will be comparing this project’s requirements and tasks to projects that have been already done. This is done to provide an idea of where this project stands compared to others. While doing so, try to incorporate all the projects that have similarity to the current one and yet keep the variety in requirements and complexity in mind.

If you have done a project quite similar to this one in the past, the analogy can be quite helpful making this estimation technique a good choice for you. Software development companies tend to prefer this model when information about the project is limited or insufficient.

PERT technique

This technique is great for limiting inflated estimates. It is a simple technique that can be done by individual team members and then compared to come up with the most effective estimate.

The PERT technique is also known as the three point technique as it requires estimations from three data points.

  1. Best scenario or optimistic estimation
  2. Worst scenario or pessimistic estimation
  3. Most-likely scenario or realistic estimation

These estimations are then used to calculate the final one where

Final estimation = (Optimistic estimation + 4*Realistic estimation + Pessimistic estimation)/6

These estimation techniques can give you a good idea of how much time and resources might be needed to complete a project successfully. However, in our projects, we add a 10% buffer that usually represents testing and project management.

Why should you perform a software estimation?

Whatever your software project is, estimation should be an integral part of it. Because without this process, no software team can plan their work, budget or resources. As a result, costs associated with the development might get out of hand.

If you think it is unnecessary, think again. Because there is a very high chance that you will regret not investing in software estimation further down in your project. Software estimation processes can be overwhelming in the beginning, especially when you and your team have minimal experience running a project. However, with time, the skill grows and you, too, will be able to understand how to effectively and efficiently run a software estimation making your projects stronger and well-planned.

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