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73R-13: Basis of Estimate

As Applied for the Software Services Industries

Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017

© ICEAA Basis of Estimate (BOE)

Acknowledgements

For transforming AACEi 34R-05: Basis of Estimate into 74R-13: Basis of Estimate

As applied for the Software Services Industries

Ton Dekkers (author), Hans Bernink, Marten Eisma, Ray Sadal and Jelle de Vries

Association for the Advancement of Cost Engineering International

for supporting and publishing 74R-13 as part of TCM Framework: 7.3 – Cost Estimating and Budgeting

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Objectives

• Introduce the Students to the concept of Basis of Estimate:

• Background and Definition

• Importance

• Key Concepts

• Present Basis of Estimate in detail

• Structure of the Basis of Estimate

• Components of the Basis of Estimate

• Illustrate how to use the Basis of Estimate

• Estimation Process

• Verification & Validation

• Audit

• Project (Change) Control

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What is an Estimate?

• The most knowledgeable statement you can make, at a particular point in time, regarding:

• Effort/Cost

• Schedule

• Staffing

• Risk

• Reliability

• Defects

• Estimates get more precise with progress (Project Control)

• A good estimate is a distribution, a range of possible outcomes (not a single point)

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Image courtesy of Galorath Inc. © 2017. All Rights Reserved.



Estimation Industry Best Practices

• Developed through experience and research

• Collaborative knowledge from multiple sources

• Organizations

• Academic

• Literature

• Can be customized to fit a specific organization and its environment

• Best Practise:74R-13: Basis of Estimate -As applied for the Software Services Industries

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Best Practices

Estimation Methods

Sizing Techniques

Tracking & Control

Estimation Lifecycle

Estimation Processes

Confidence Levels

Risk Assessment

Historical Data Collection

Measurement & Analysis

Benchmarking



Estimate or Gestimate?

6



Estimation Challenges

• Estimation ProcessConsistentControllable

• Estimation VerificationDefendableComparable

• Estimation ValidationDefendableBenchmark

• AuditConsistentControllable

• Project ControlControllableDefendable

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What is a Basis of Estimate?

• It is a succinct method of documenting critical aspects of the project for the purpose of mitigating cost risk.

• It is a documented record of communications and agreements that have been made regarding the estimated costs.

• It is a document that is prepared by the estimator or estimating team that provides the basis for the costs identified within cost estimate.

• It should be seen as “the one deliverable that defines the scope of the project” and ultimately becomes “the basis for change management”.

• Anyone should be able to read the BOE to understand and asses the estimate.

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Purpose of the Basis of Estimate

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Purpose of the Basis of Estimate

• Document the overall engagement scope

• Communicate the estimator’s knowledge of the engagement

• Alert the stakeholders to potential cost risks and opportunities

• Provide a record of key communications made during the estimate

• Provide a record of all documents used to prepare the estimate

• Act as a source of support during dispute resolutions

• Establish the initial baseline engagement control

• Provide the historical relationships between base-lined estimates

• Facilitate the review and validation of the estimates

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Purpose of the Basis of Estimate (II)

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High Level Overview

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PURPOSE GUIDELINESSoftware Development, Maintenance & Support, Infrastructure estimation

RE

CO

MM

EN

DE

D

PR

AC

TIC

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Prepare

Estimate

Assumptions, Conditions & Risks

Finalise

SUPPORTING FOUNDATIONS AACEI, MAIN, NESMA, ISBSG, ICEAA

Secure Quality

2

3

4

1

5


Basis of Estimate details

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Prepare

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PURPOSE GUIDELINESSoftware Development, Maintenance & Support, InfrastructureR

EC

OM

ME

ND

ED

PR

AC

TIC

E

AACEI, MAIN, NESMA, ISBSG, ICEAA

Estimationpurpose

Engagement Scope

Description

Estimating methodology

(FP, expert, etc.)

Estimate Classification

(1,2,3,4,5)

Design Basis(Components

lists, units, etc.)

Sizing BasisRequirements

Functionaltechnical

Effort Basisdelivery

constraints, service levels

Planning BasisWorking time

standby

Cost Basismethods and sources , units

Assumptionsinternal, external

AllowancesNot in the

Basis

ExclusionsNo costs

included for…

Exceptionsanomalies or variances on

standard

Risks and Opportunitiesassumptions

Containmentscost elements for mitigation

ContingenciesUncertainty,

unforeseeable elements

Management Reserve

changes in scope, effort

ReconciliationChanges to

previous estimation

BenchmarkingComparisons

to similar engagements

Estimate Quality

AssuranceReviews

Attachments

Level of detailStage, Deal

size/type, fixed price/TM

Attachments Attachments Attachments



Purpose Statement

• Briefly describe the Project that is being estimated

• Software Architectural Solution

• What Type of Project is it?

• New Development / Enhancement

• Rebuild / Migration

• Infrastructure

• Type and Capacity of Staffing

• Location of the realization / implementation

• What is the Overall duration of the Project

• Critical factors (primary focus): Time, Functionality, Quality

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Engagement Scope Description

• Should correspond with the Product Breakdown Structure

• What to be provided

• How to be provided

• Activities necessary to deliver

• Brief description of the scope for each major segment of the project

• Identify primary staffing roles

• Indicate buy-ins involved in the project

• Packages

• Outsourced components

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Methodology

• Indicate estimation methodology

• Functional Size Based

• Expert

• Parametric

• Document the resources used

• Staffing involved

• Historical data (selection) applied

• Recommended to register effort and experiences of preparation of estimate

• Preferably use metrics that can be collected as part of the engagement operation and/or closing

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Primary characteristics

Secondary characteristics

Estimate class Maturity level of solution definition (% of completion)

End UsageTypical purpose of

estimate

MethodologyTypical estimating

method

Expected accuracy range

Typical variation in low and high range

Class 5 0 to 2% Solution concept verification

ROM L: -20% to -30%H: +30% to +50%

Class 4 1 to 15% Solution selection Unit costs; Parameters

L: -10% to -20%H: +20% to +30%

Class 3 10 to 40% First SSR’s WBS; Unit cost; Parameters (high level)

L: -5% to -15%H: +10% to +20%

Class 2 30 to 75% Control or Bid, semi detailed

WBS; Unit cost; Parameters

(assumptions)

L: -5% to -10%H: +5% to +15%

Class 1 65 to 100% Post bid, project start, project change

WBS; Unit cost; Parameters

(detailed level)

L: -3% to -5%H: +3% to +10%

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Based on: AACE International Recommended Practice No. 56R-08; Rev. December 5, 2012; TCM Framework: 7.3 – Cost Estimating and Budgeting



Level of Detail

• Engagement Status / Estimate Classification• Conceptual vs. Semi-Detailed vs. Final Funding

• Cost Value of the Engagement• $100K vs. $1 M vs. $10M vs. $100M +

• Type of Finance of the Engagement• Fixed Price vs Time & Material

• Nature of the Project• New development vs. Rebuild vs. Infrastructure

• Estimating Methodology Used• Functional Size Based vs. Parametric vs. Semi-Detailed vs. Detailed

• Other Factors• Multiple Locations, Multiple Technologies, Data Used

• Be thorough –but not overly descriptive

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Estimate

20


EC

OM

ME

ND

ED

PR

AC

TIC

E


Estimationpurpose

Engagement Scope

Description


(FP, expert, etc.)


(1,2,3,4,5)


lists, units, etc.)


Functionaltechnical




standby




Basis

ExclusionsNo costs

included for…


standard





Management Reserve



previous estimation



Estimate Quality

AssuranceReviews

Attachments






Design Basis

• Qualify the information specified per Company Standards

• Functional, Non-Functional and Project information required

• Document references

• Estimate deliverables (alignment Estimation Process)

• Design information such-as functional and non-functional requirements , architectural information (hardware, software) and required units of meaure

• Identify engagement specific metrics for particular services e.g. training quantities, incident volume, data usage

• Identify Integration components and impact

• Packages, COTS, Open Source, Subcontracting

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Sizing Basis

• Requirements

• Use cases, Backlog Items, SLA

• Functional Size

• IFPUG (www.ifpug.org)

• Nesma (www.nesma.org)

• COSMIC (www.cosmic-sizing.org)

• Technical Size

• Lines of Codes, Interfaces, Modules, …

• Service Size

• Incident, Tickets, Users, Messages, Implementations, Installations

• Identify assumptions

• Document level of measurement (high level, detailed)

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http://www.ifpug.org/

http://www.nesma.org/

http://www.cosmic-sizing.org/


Effort Basis

• Activities needed to deliver products / services engagement

• Tools

• Calculation Models

• Parametric Analysis

• Estimation (SEER - Galorath, SLIM - QSM, TruePlanning - Price)

• Delivery Constraints

• Delivery Date, Service Level

• Historical Data

• Private Data / Benchmark

• Open Source Data (ISBSG)

• Tool Data / Benchmark providers

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Planning Basis

• Document the execution approaches

• Project Management

• Engineering and Design

• Procurement

• Execution

• Identify Contracting and Resource Strategies

• Gross / Net Hours

• Hours per Period and Shifts (24/7)

• Holidays and Overtime assumptions

• Identify Critical Constraits

• Quality, Dead Line, Fixed Price, Resources

• Identify overall Schedule and Key Milestones

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Cost Basis

• Describe the methods and sources used for determining the costs of all units, effort, subcontracts, materials, and expenditures

• Cost per applied measurement units

• Pricing Sources for Effort Hours (including productivity adjustments)

• Pricing Sources for Hardware and/or Software (and discounts)

• Pricing Sources COTS components

• Pricing Sources Overhead (Management, Facilities, Travel)

• Pricing Sources Contractors

• …

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26


EC

OM

ME

ND

ED

PR

AC

TIC

E


Estimationpurpose

Engagement Scope

Description


(FP, expert, etc.)


(1,2,3,4,5)


lists, units, etc.)


Functionaltechnical




standby




Basis

ExclusionsNo costs

included for…


standard





Management Reserve



previous estimation



Estimate Quality

AssuranceReviews

Attachments







• Allowances

• allowances that have not been detailed in the body of the estimate

• Assumptions

• Any other assumptions made by the estimator but not documented elsewhere in the estimate basis

• Exclusions

• Potential items of cost which a reviewer might associate with the engagement, but for which no costs have been included in the estimate

• Exceptions

• Anomalies or variances to standard estimating practices

• Risks and Opportunities

• Identify those elements with high or very high risk or opportunity values related to cost, duration, quality and/or safety critical measures

• Containments

• Measures included to prevent and/or mitigate the identified risks

• Contingencies

• Contingency covers inadequacies in complete project scope definition, estimating methods and estimating data

• Management Reserve

• The intended purpose and use of management reserve should be clearly identified. The approval process, management and tracking of the management reserve should also be clearly identified.

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Secure Quality

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EC

OM

ME

ND

ED

PR

AC

TIC

E


Estimationpurpose

Engagement Scope

Description


(FP, expert, etc.)


(1,2,3,4,5)


lists, units, etc.)


Functionaltechnical




standby




Basis

ExclusionsNo costs

included for…


standard





Management Reserve



previous estimation



Estimate Quality

AssuranceReviews

Attachments






Secure Quality

• Reconciliation

• Major differences between the new or re-baselined estimate and the last published estimate

• Benchmarking

• Comparisons of overall estimate metrics, ratios, and factors with similar engagements, historical data, and industry data

• Identify significant variations and provide comments

• Provide a detailed Benchmark Analysis Report as an attachment

• Quality Assurance

• Identify all Reviews that have previously taken place and all anticipated future Reviews

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Benchmark Data

• Private Data

• Optimal references situations

• No reference to peer group efficiency

• Open Source Data

• International Software Benchmarking Standards Group (ISBSG)Transparent Open Source Database

• Development & Enhancement Data> 8000 projects from 32 countries, for 7 major industry types

• Maintenance & Support Data> 1,000 applications from 13 countries and 9 major industry types

• Tool incorporated data

• Easy to use

• No detailed verifiable data (propriety details)

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Finalise

31


EC

OM

ME

ND

ED

PR

AC

TIC

E


Estimationpurpose

Engagement Scope

Description


(FP, expert, etc.)


(1,2,3,4,5)


lists, units, etc.)


Functionaltechnical




standby




Basis

ExclusionsNo costs

included for…


standard





Management Reserve



previous estimation



Estimate Quality

AssuranceReviews

Attachments






Finalise

• Estimating Team

• Appendices:

• Estimate Deliverables Checklist

• Reference Documents (requirements, designs, texts, notes, specifications)

• Additional Attachments (optional)

• Reconciliation report, benchmarking report, risk analysis report

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Practical Case – BoE verification results

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RE

CO

MM

EN

DE

D P

RA

CT

ICE Estimation

purpose

Engagement Scope

Description


(FP, expert, etc.)


(1,2,3,4,5)


lists, units, etc.)


Functionaltechnical




standby




Basis

ExclusionsNo costs

included for…


standard





Management Reserve



previous estimation



Estimate Quality

AssuranceReviews

Attachments




NA OK Challenge At risk



Conclusions

The Basis of Estimate:

• Applicable for Estimation / Analysis / Verification & Validation

• Applicable for various Software Services

• Provides a structure for:

• Consistency

• Transparency

• Comparison

• Defendability

• Creates an equal level playing field

• A public available “Recommended Best Practice”Develop for Software Serviceshttp://www.aacei.org/non/rps/74R-13.pdf

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http://www.aacei.org/non/rps/74R-13.pdf


Important Points to Remember

• Be complete… but be concise!

• Be able to support your facts and findings

• Identify the estimating team members

• Describe the techniques and data used in the estimate

• Identify other projects that were referenced

• Develop the BOE while the estimate is being prepared

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