Make or Break: Why Accurate Cost Estimation Is Key

The accuracy of your cost estimation process can make or break project success. Learn the strategies that will help you gain control of this key area and ensure future project profitability!

One of the greatest challenges for a project leader is to successfully deliver on all aspects of a project both according to the client’s specifications and within the allotted budget. It is often the case that either one aspect or the other can be accomplished, but not necessarily both. When it comes to controlling costs, it is a critical first step to make appropriate estimations at the outset of a project. Being able to control costs is largely a matter of adhering to established guidelines, oftentimes by learning from previous projects and reacting to current circumstances efficiently and effectively.

Before You Begin, Estimate

In order to best examine how to maintain control of the costs involved in a software development project, it is important to begin with a sound guideline based on estimation. In researching the subject, an interesting model for cost estimation was uncovered.

Dr. Ricardo Valerdi, creator of the Constructive Systems Engineering Cost Model (COSYSMO), offers clarification on the subject and cites the motivation for pioneering COSYSMO as follows: “The COSYSMO model filled a need for organizations that needed to systematically estimate the cost (or effort) of their systems engineering. Some benefits include the ability to understand why certain systems are more complex than others and how certain characteristics of teams make them less efficient (e.g., disturbed development, unfamiliarity with product, low process maturity).” [1]

Estimating Initial Costs

From the outset, initial financial guidelines for the project can be established. Using data and lessons learned from previous projects is certainly a good place to start. According to Dr. Valerdi, “Estimate your existing project by analogy…comparing it to other very similar projects. Reuse, reuse, reuse.” The information gained during the past project(s) and the results at project completion can assist in establishing the financials and the resources in total that are needed for the project at hand. It is important, though, to carefully consider the requirements unique to each initiative and to make the necessary allotments.

“Most organizations use multiple methods for estimating projects,” notes Dr. Valerdi. “My favorite ones are parametric cost models and analogy. In the case of analogy, it is beneficial to consider the similarities between a previous system and the new system being estimated. This also provides an opportunity to explore the feasibility of reusing components from a similar system,” he adds.

“A good example is the Joint Strike Fighter. Rather than building brand new airplanes for each type of customer (e.g., the U.S., the U.K., Italy, and so on), Lockheed Martin simply made modifications to a common platform. This form of reuse makes cost estimation much easier because it allows different countries to ask, ‘How similar is my version of the Joint Strike Fighter to the common configuration?’”