Slides are used with permission from © Nesma, All rights reserved.”
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
2
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
3
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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)
4
Image courtesy of Galorath Inc. © 2017. All Rights Reserved.
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
5
Best Practices
Estimation Methods
Sizing Techniques
Tracking & Control
Estimation Lifecycle
Estimation Processes
Confidence Levels
Risk Assessment
Historical Data Collection
Measurement & Analysis
Benchmarking
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© ICEAA Basis of Estimate (BOE)
Estimate or Gestimate?
6
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© ICEAA Basis of Estimate (BOE)
Estimation Challenges
• Estimation ProcessConsistentControllable
• Estimation VerificationDefendableComparable
• Estimation ValidationDefendableBenchmark
• AuditConsistentControllable
• Project ControlControllableDefendable
7
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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.
8
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
Purpose of the Basis of Estimate
9
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
10
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Purpose of the Basis of Estimate (II)
11
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© ICEAA Basis of Estimate (BOE)
High Level Overview
12
PURPOSE GUIDELINESSoftware Development, Maintenance & Support, Infrastructure estimation
RE
CO
MM
EN
DE
D
PR
AC
TIC
E
Prepare
Estimate
Assumptions, Conditions & Risks
Finalise
SUPPORTING FOUNDATIONS AACEI, MAIN, NESMA, ISBSG, ICEAA
Secure Quality
2
3
4
1
5
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
Basis of Estimate details
13
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
15
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© ICEAA Basis of Estimate (BOE)
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
16
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
17
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© ICEAA Basis of Estimate (BOE)
Estimate Classification
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
19
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Estimate
20
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
21
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© ICEAA Basis of Estimate (BOE)
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)
22
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© ICEAA Basis of Estimate (BOE)
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
23
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© ICEAA Basis of Estimate (BOE)
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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© ICEAA Basis of Estimate (BOE)
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
• …
25
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© ICEAA Basis of Estimate (BOE)
Assumptions, Conditions & Risks
26
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Assumptions, Conditions & Risks
• 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.
27
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Secure Quality
28
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
29
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© ICEAA Basis of Estimate (BOE)
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)
30
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Finalise
31
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
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Finalise
• Estimating Team
• Appendices:
• Estimate Deliverables Checklist
• Reference Documents (requirements, designs, texts, notes, specifications)
• Additional Attachments (optional)
• Reconciliation report, benchmarking report, risk analysis report
32
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
Practical Case – BoE verification results
33
RE
CO
MM
EN
DE
D P
RA
CT
ICE Estimation
purpose
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
NA OK Challenge At risk
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
© ICEAA Basis of Estimate (BOE)
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
34
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© ICEAA Basis of Estimate (BOE)
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
35
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017
Slides are used with permission from © Nesma, All rights reserved.”
Thanks for attending this workshop
Basis of Estimate (BoE)
Presented at the ICEAA 2017 Professional Development & Training Workshop - www.iceaaonline.com/portland2017