Salesforce Project Management Software by Aprika

Software Development Project Estimation Guide: Forecasting, Costing and Pitching

To maximize profits, business owners should always know the financial implication and time frame for the completion of projects—right from the get-go. Accurate project estimation could be the factor that determines whether a project succeeds or not.

For software development projects, project managers can use estimation to plan resource allocation and provide better forecasts to clients regarding the resources and time they will need for project success.

In this guide, we’ll discuss project estimation, various project estimating techniques, and the steps to follow when estimating your own software development projects.

What Is Project Estimation?

Project estimation involves forecasting the total cost of the tasks, time, and resources required to deliver a project. It’s typically done during the project planning phase. The closer your estimate is to the actual project cost, the more likely the project team will stick to the budget once the project starts.

Project estimation is crucial for all types of projects. However, it’s important to note that software development estimation is unique in that these projects—depending on their size—often have significantly more moving parts than other types of projects.

Why Is It Important to Build Accurate Software Development Project Estimations?

Every software development company wants to know if a project is worth the costs before they invest in it. The best way to find out is through project estimation.

A project estimate will give you a general idea of how much time, effort, and money it will take to deliver a particular project. You can then compare that estimate with the funds the project is set to bring in and see if there’s any return on investment.

Without proper estimates, a project is at risk of becoming delayed or going above budget. A survey by PMI revealed that 28% of all projects are derailed due to poor cost estimates. As project cost estimating ties costs to a scope of work, making accurate estimates also helps prevent scope creep and ensure businesses take on viably profitable work.

Estimating your software development projects also makes project planning more effective. When you have an idea of how long the project will take or what resources you’ll need, you can allocate your resources accordingly. This helps ensure you have the right people, materials, or tools available when you need them.

Steps Involved in Estimating a Software Development Project

The software development project estimating process can be broken down into five steps.

Step 1: Define project type and environment

Start by thinking critically about your project framework. Is your project waterfall, agile, or hybrid, and what project methodology will you use to run and manage the project?

A framework is exactly that—a framework for how work gets done. How much room you have to experiment with time and money and what might happen to your project schedule if you shift things around will depend on the framework you choose. It will also help determine your project estimation technique for the project.

Step 2: Compile a list of tasks and the resources required to complete them

Next, figure out what tasks and resources you need. The best way to do this is to use a work breakdown structure (WBS) to break the project down into smaller, individual tasks. This makes it easier to estimate the time and costs for your software development project.

Step 3: Identify and allocate resources to tasks

Once you’ve figured out all the tasks that teams need to complete, you need to ensure that you have enough resources. Here’s where capacity planning comes in handy. Take a look at your resources and find out if you have enough people to get the project done based on availability and skillsets. Does your team have space on their calendars to take on new tasks or not?

A project might take longer to complete if you don’t have enough or the right resources to carry out tasks. If your team is stretched and don’t want to prolong the project, you may even consider getting outside help from contractors or freelancers to fill the gap and keep the project on track.

Step 4: Prioritize and estimate task duration

Now it’s time to get to the heart of project cost estimating—calculating the length and expenses of the project tasks.

First, determine the value of each task to concentrate on the most critical ones. A precise estimate of the project’s priorities from the start helps keep it on schedule.

Next, determine how long each task will take. It’s easy to underestimate how long tasks will take. Be as realistic as possible. Put in some buffer time to account for unexpected delays and other situations like sick leave.

It’s better to overestimate time and allow for a margin of error. If you finish the job faster, you’ll exceed clients’ expectations, and if difficulties crop up, you’ll still get the project done on time.

Step 5: Choose a cost estimation technique

The final crucial step in project estimation is predicting the cost.

There are several methods and techniques used to estimate project costs. We’ll get into more specifics in the next section to help you determine what works best for you.

One of the benefits of tracking time on your projects is that you can use records of similar past projects to create estimates for your new project. Analyze how long each task took and cost historically and this will help you get a better idea for the present-day tasks.

What Are the Various Methods of Estimation?

There are many ways to accurately estimate your upcoming software development project. Take a look at some of these methods and choose the technique that is most appropriate for you.

1. Parametric estimation

The parametric estimation method relies on past data to estimate a project’s overall cost. For more accuracy, the technique adjusts the data and pro-rates it to reflect each project’s differences.

When using the parametric method, calculate the number of hours that will be spent on each task on your list (take a look at how long it took to complete a similar task in the past). Next, multiply the hours of each task by each team member’s current hourly rate. Then you’ll have arrived at your task cost.

Task Duration × Team Member’s Hourly Rate = Task Cost

Add up all task costs to reach an estimated total.

2. Three-point estimation

This estimation technique calculates a project’s cost based on three scenarios: best-case (optimistic), worst-case (pessimistic), and most likely. You then average these three numbers to get an actual estimate.

The beauty of this technique is that it allows project managers to take into account uncertainties and project risks, allowing them to plan for “worst-case” scenarios.

3. Comparative or analogous estimation

This technique compares the current project to similar past projects to estimate project duration. It considers differences between current and past projects, such as complexity, the scale of the project, anticipated delivery date, location, inflation, present exchange rates, etc., when making the prediction.

4. Top-down estimation

The top-down estimation method assigns an overall time estimate for the project. It then breaks down this estimate into major phases of work—usually based on your project’s work breakdown structure (WBS).

Say your client needs the software delivered in 12 months. You’ll take that overall timeline and estimate how much time you can take for each activity within the project and still complete it on time.

5. Bottom-up estimation

A bottom-up estimate is the reverse of the top-down method. In this estimation technique, you first estimate each individual task or sub-task and then combine all the separate estimates to build up the overall project estimate.

Though more time-consuming, this technique tends to be more accurate than the top-down approach because each activity is assessed individually instead of as a whole.

6. Delphi estimation

The Delphi estimation technique relies on expert judgment to estimate projects. The experts answer questionnaires anonymously in two or more rounds. After each round, a facilitator summarizes the findings and sends them to the experts. The panel of experts then discusses the findings and sends updated predictions to the facilitator. This process continues until the experts reach a consensus or agreement on the estimate.

Estimate with Ease Using Mission Control

Has all the talk about cost estimations got you feeling a bit overwhelmed? The right tool can help take away your overwhelm.

Mission Control is a powerful project management software that allows you to plan and manage your projects efficiently.

You can use the in-built Kanban board to break your project into tasks, set deadlines, and assign resources according to your capacity. Track each task’s progress, dependencies, and milestones using the Gantt chart.

Use Resource Scheduler to calculate task costs reliably and efficiently. Assign tasks to team members according to their capability and availability. Then set the billable hourly rate for each team member, and you’ll quickly see the cost of assigned tasks against your project’s total budget. Additionally, use Timesheets to track how long the tasks assigned take and generate reports to make future estimates.

And there’s plenty more!

Ready to start accurately estimating the cost of your projects? Contact us today for a demo.



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