How Software Estimation Impacts Business Value

 Software estimation in simple terms is the prediction of the cost, effort and/or duration of a software development project based on some foundation of knowledge.  Once an estimate is created, a budget is generated from the estimate and the flow of activity (the planning process) runs from the budget. 

Software estimation can significantly impact business value because it impacts business planning and budgeting.

One challenge is that most organizations have a portfolio of software development work that is larger than they can accomplish and need a mechanism to prioritize the projects based on the value they deliver to the business.  This is where estimation can help – they predict the future value of the project to the business and estimate the cost of the project in resources and time.   Unfortunately, the estimates are often created by the people that are performing the actual day-to-day work not estimation experts.  Worse, new estimates from the people doing the work are typically based on their recall of previous estimates, not on previous project actuals – very few organizations take the time to report the actuals after a project is completed.  To most accurately estimate a software development project’s future business value,  it is best to generate the estimate based on the actuals from similar past projects and statistical modelling of the parameter that are different for the next project.

Of course, an estimate is only an estimate no matter who develops it.  You can’t predict all the factors that may require modifications to the plan.  This is where the estimation cone of uncertainty comes in.  The cone starts wide because there is quite a bit of uncertainty at the beginning around the requirements of a project.  As decisions are made and the team discovers some of the unknown challenges that a project presents, then the cone of uncertainty starts to get smaller towards the final estimate.

In regards to business value, the cone of uncertainty is significant because of the impact that the rigid adoption of early estimates can have on the budgeting and planning processes, especially if the software development effort is outsourced.

I see software estimation as both a form of planning and input to the business planning process.  However, there is a a significant cross-section of the development community that believes #NoEstimates is the wave of the future.  This is a movement within the Agile community based on the premise that software development is a learning process that will always involve discovery and be influenced by rapid external change.  They believe that this dynamic environment of ongoing changes makes detailed, up-front plans a waste of time as software estimates can never be accurate.  Using #NoEstimates techniques requires breaking down stories into manageable, predictable chunks so that teams can predictably deliver value.  The ability to predictably deliver value provides organizations with the tool to forecast the delivery.  In my view, the #NoEstimates philosophy really isn’t not estimating – it is just estimating differently.

Whether you use classic estimation methodologies that leverage plans and performance to the plans to generate feedback and guidance, or follow the #NoEstimates mindset that uses both functional software and throughput measures as feedback and guidance – the goal is usually the same.  They are both a form of planning and input to the business planning processes that are aimed at driving the business value of each software development initiative.

This post originally appeared at https://www.softwarevalue.com/insights/blog/posts/2017/january/how-software-estimation-impacts-business-value/