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Software Project Management: Cost Estimation

This document discusses different methods for cost estimation in software project management. It describes the importance of accurate cost estimation and outlines several common cost estimation methods including algorithmic models, expert judgment, top-down estimation, bottom-up estimation, and estimation by analogy. Each method is explained and their advantages and disadvantages are provided.

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43 views

Software Project Management: Cost Estimation

This document discusses different methods for cost estimation in software project management. It describes the importance of accurate cost estimation and outlines several common cost estimation methods including algorithmic models, expert judgment, top-down estimation, bottom-up estimation, and estimation by analogy. Each method is explained and their advantages and disadvantages are provided.

Uploaded by

Mishal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Software

Project
Management

C O ST ESTI M ATI O N
 Cost Estimation

 Importance of Cost Estimation

 Project Cost Management Processes

 Common classification of Cost

Outline  Cost Estimation Methods

 Algorithmic (Parametric) Model

 Expert Judgment

 Top – Down

 Bottom – Up

 Estimation by Analogy
Cost Estimation
Cost estimation in project management is the process of forecasting the financial and other resources
needed to complete a project within a defined scope. Cost estimation accounts for each element required
for the project from materials to labor and calculates a total amount that determines a project's budget.

 “A penny saved is a penny earned”


So, it is helpful to putting efforts on decreasing cost or controlling cost rather than increasing sales.
Importance of Cost Estimation

 Cost estimation is extremely important for running successful projects. The management of
costs in many ways, reflect the project organization strategic goals, mission statement and
business plan.
 Being able to make accurate cost estimates is key to delivering a solid project plan.

 Cost estimating utilizes many techniques that translate the project scope into deliverables and
develop an approximation of costs of the resources needed to complete project activities.
Project Cost Management Processes

 Resource planning: determining what resources and quantities of them should be used

 Cost estimating: developing an estimate of the costs and resources needed to complete a project

 Cost budgeting: allocating the overall cost estimate to individual work items to establish a
baseline for measuring performance
 Cost control: controlling changes to the project budget
Common classification of Cost
 Direct and Indirect are the overhead cost, depreciation, health and retirement benefits, selling
and general administrative expenses. It is depend on type of cost.
 Recurring includes labor, logistic and material etc. whereas Non recurring include charges
applied once at the beginning or end of project. It is depend on frequency of cost.
 Fixed is when leasing capital equipment or other project hardware , the leasing price is likely not
to go down or up with the amount of uses, whereas Variable is changing time to time and varies
based on output. It is depend on adjustment of cost.
 Normal occur in regular manner and expediting includes incremental cost. It is depend on
adjustment of cost.
Cost Estimation Methods

1. Algorithmic (Parametric) model

2. Expert Judgment (Expertise Based)

3. Top – Down

4. Bottom – Up

5. Estimation by Analogy
Algorithmic (Parametric) Model
 Use of mathematical equations to perform software estimation

 Equations are based on theory or historical data

 Use input such as SLOC, number of functions to perform and other cost drivers

 Accuracy of model can be improved by calibrating the model to the specific environment
Algorithmic Model Examples
COCOMO (COnstructive C0st MOdel)
 Developed by Boehm in 1981 Became one of the most popular and most transparent cost model
Mathematical model based on the data from 63 historical software project
 COCOMO II Published in 1995 To address issue on non-sequential and rapid development process
models, reengineering, reuse driven approaches, object oriented approach etc.

Putnam’s software life-cycle model (SLIM)


 Developed in the late 1970s. Based on the Putnam’s analysis of the life-cycle in terms of a so-called
Rayleigh distribution of project personnel level versus time. Quantitative software management
developed three tools : SLIM-Estimate, SLIM-Control and SLIM-Metrics.
Algorithmic (Parametric) Model
(Cont.)
Advantages
 Generate repeatable estimations

 Easy to modify input data

 Easy to refine and customize formulas

 Objectively calibrated to experience

Disadvantages
 Unable to deal with exceptional conditions

 Some experience and factors can not be quantified

 Sometimes algorithms may be proprietary


Expert Judgment
 Capture the knowledge and experience of the practitioners and providing estimates based upon all the
projects to which the expert participated.

Examples :
Delphi

Developed by Rand Corporation in 1940 where participants are involved in two assessment rounds.
 Work Breakdown Structure (WBS)

A way of organizing project element into a hierarchy that simplifies the task of budget estimation and
control.
Expert Judgment (Cont.)
Advantages
Useful in the absence of quantified, empirical data.

Can factor in differences between past project experiences and requirements of the proposed project

Can factor in impacts caused by new technologies, applications and languages.

Disadvantages
Estimate is only as good expert’s opinion

Hard to document the factors used by the experts


Top - Down
 Also called Macro Model

 Derived from the global properties of the product and then partitioned into various low level
components

Example – Putnam model


Top – Down (Cont.)
Advantages
 Requires minimal project detail

 Usually faster and easier to implement

 Focus on system level activities

Disadvantages

 Tend to overlook low level components

 No detailed basis
Bottom - Up
 Cost of each software components is estimated and then combine the results to arrive the total cost for
the project

 The goal is to construct the estimate of the system from the knowledge accumulated about the small
software components and their interactions

 An example – COCOMO’s detailed model


Bottom – Up (Cont.)
Advantages
 More stable

 More detailed

 Allow each software group to hand an estimate

Disadvantages

 May overlook system level costs

 More time consuming


Estimation by Analogy
 Comparing the proposed project to previously completed similar project in the same application
domain

 Actual data from the completed projects are extrapolated

 Can be used either at system or component level.


Estimation by Analogy (Cont.)
Advantages
 Based on actual project data

Disadvantages
 Impossible if no comparable project had been tackled in the past.

 How well does the previous project represent this one

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