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Using Accurate Project Costs for Improved Estimates and Increased Effectiveness


There are issues you face every single day in business. But then, there are the big ones – the issues that are so significant that they can determine whether a business succeeds or fails. These are the critical business issues, or what I’m going to call a CBI. For most executives, inaccurate estimates constitute a CBI.  Why are accurate estimates so important?

  1. Inaccurate estimates cause over-commitment. Have you ever been at a company where ten percent of ten projects got done instead of 100 percent of one project? Ultimately, nothing is accomplished and everyone is totally stressed out. Inaccurate estimates cause over-commitment of time, yet not much gets done.
  2. Inaccurate estimates cause bad decisions. “Inaccurate” usually means “too low”. When this happens, the return on investment (ROI) calculation shows the project as worth it when it is not.

How can you stop wasting your company’s resources on projects that are not worth corporate time?  In Robert Grady’s book, “Practical Software Metrics for Project Management and Process Improvement”, he provides a few insightful rules of thumb that are backed up by real numbers, such as:

    • Six to eight percent of software project time is spent in the requirements and specifications phase.

All projects have the following phases:This is based on statistics from numerous software projects at HP, so the percentage at your company may be different. The good news is that for projects of a particular flavor, you will find that the percentage doesn’t usually vary wildly, so you can use it to predict all project effort required for completion. Let’s take an example group of projects in an imaginary technology department at a large company, XYZ corporation.  XYZ’s technology department likes to write special applications on a regular basis (rather than have to use SAP or Oracle) and they’ve discovered the following:

    1. Requirements: What the internal client wishes XYZ would do.
    2. Specifications:  What XYZ is actually going to do.
    3. Design:  How XYZ is going to do it.
    4. Coding: XYZ writes the application.
    5. Testing: XYZ tests that it works internally.
    6. Rollout: XYZ puts it into production.
    7. Debug: XYZ does the first 90 days of maintenance.
  1. After tracking time accurately on seven projects of this flavor, XYZ’s CIO finds that six to 15 percent of engineering hours are spent on phases ‘a’ and ‘b,’ taken together with an average of 10 percent.

Now a new project comes up that has the same flavor as the seven projects in the above-mentioned study, and three engineers spend 100 man-hours on the requirements and specifications phase.

How long will it take them to complete entire project? Somewhere between 667 hours and 1,667 hours with 1,000 hours being the most likely number. Why?  Because six percent of 1,667 is 100, 15 percent of 667 is 100, and 10 percent of 1,000 is 100. In other words, you can predict overall project length from the time spent in the earliest phases.

Estimates of function point counts, lines of code, and number of connections to other IT systems can also be used as metrics to corroborate the estimation produced from timesheet data.  For example, if you estimate a project at 10,000 lines of code and your technology department produces 10 lines per hour on average, then this is a 1,000 hour project.  Does that estimate agree with the timesheet estimate or not?

What are the benefits of having accurate estimates? Over-commitment is reduced. Your professional credibility increases as does your skill set. Your employees don’t suffer from burnout. And you save your company money – something everyone can be happy about.

Don’t underestimate how much money it saves to never start projects that don’t get finished.  When IBM instituted the RS-Plan project in AIX development in the 1990’s to reduce the start of ‘unfinishable’ projects, they found that 30 percent of projects they were starting required resources that they didn’t have. Once they worked out a system to just not start them in the first place, they saved more than $90 million dollars…every year.

Take these simple and smart steps to improve your project cost estimation – the time is now to stop wasting money.

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