it demand management and capacity planning: why estimation is vital to balancing the scale

The Intelligence behind

Successful Software Projects

IT DEMAND MANAGEMENT

AND CAPACITY PLANNING:

WHY ESTIMATION IS VITAL TO

BALANCING THE SCALE

-1-

The Intelligence behind Successful Software Projects

Quantitative Software Management

Executive

Summary

-2-

Agenda

Challenges associated with demand management & capacity planning:

• “Realistic” demand estimation

• Effective resource optimization

• Detailed resource planning to support capacity utilization



Executive

Summary

Why Is IT Development Capacity

Planning so Difficult?

-3-



Executive

Summary

-4-

A Difficult Juggling Act in a Complex

Environment

Production CapacityBusiness Demand Technology & Business

Executive Management



Executive

Summary

-5-

Computerworld – How to Develop an

Effective Capacity Planning Process

Requirements/Estimates

Productivity baseline

Estimates Transformed into

Resource Plans

Aggregate demand compared

to actual capacity

Recommended Best Practice

Assessing

Resource Optimization

“How to develop an effective capacity

planning process”, Rich Schiesser,

Computerworld, Mar 31, 2010

Configure skills/roles

Top-Down Estimation



Executive

Summary

-6-

Why is Matching Demand & Capacity

so Difficult?

• Business stakeholder insatiable

appetite for competitive capability

• Poor IT estimation & poor project

stakeholder negotiation

• Ability to predict amount of resources

/skills as required over the course of a

project

• Dynamic nature of the total volume of

projects in the development pipeline



Executive

Summary

“Realistic” Demand Estimation

-7-



Executive

Summary

-8-

“Realistic” Demand Estimation

• What we would like vs what is possible

• What facts can we bring to bear?

Scope of the work (size)

Productivity to perform the work

Availability skilled labor

• How important is accuracy?

• How do we negotiate some realistic demand solutions?



Executive

Summary

9

Terminology

Targets, constraints, estimates, commitments, and plans are not the same

thing:

• Target - A goal, what we would like to do or achieve

• Constraint - Some internal or external limitation on what we are able to do

• Estimate - A technical calculation of what we might be able to do at some

level of scope, cost, schedule, staff, and probability

• Commitment - A business decision made to select one estimate scenario and

assign company resources to meet a target within some constraints

• Plan - A set of project tasks and activities that (we calculate) will give us

some probability of meeting a commitment at a defined level of scope,

budget, schedule, and staff

Organizations sometimes confuse these terms and the business practices they

represent.



Executive

Summary

-10-

Identifying Unrealistic Stakeholder

Expectations

• QSM research has found that the 2 most

common reasons projects fail is:

Unrealistic cost & schedule expectations

Unmanaged requirements growth

• Need an effective mechanism to quantify

stakeholder requirements - scope

• Need and effective method to translate

requirements into time and effort

• Need to provide practical alternatives when

expectations don’t meet reality

If we can’t get this right we will never have a effective

capacity planning solution!



Executive

Summary

-11-

How? Top-Down Scope-Based

Estimation

Particularly good at identifying unrealistic expectations:

• Doesn’t require a lot of detailed information

• Relatively quick

• Few hidden assumptions

• Explicitly calibrated from history (local or industry)

• Very flexible for scope, staffing, duration, etc., changes

• Considered industry “best practice”



Executive

Summary

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12

Two Sizing Approaches

Analogy Sizing

Comparing this system to the known sizes of

similar system(s).

Adjustments can be made by percentage or

by including/excluding functions.

Artifact Sizing

Counting and measuring system artifacts and

work products and scaling to the size of the

final system.

Different artifacts have different knowledge

“densities” adjusted by their gearing factors.

Copyright © 2014 QSM Inc

Historical

System of

known size

System

being

estimated

% difference. Functions

included or excluded

System

being

estimated

Table A

Screen1

Screen2

Model X

Gearing

Factors

Requirements,Use Cases

Screens

Tables,DatabasesModels,

workflows

System Work Products

and Artifacts



Executive

Summary

-13-

Gearing Factor

As long as we work in a single unit

for history, calibration, and

estimation, we do not need a

Gearing Factor

If we want to compare or sum sizing

in different units or to use industry

databases, we have to normalize to

a common unit

The Gearing Factor is the

normalizing base

We can calculate the Gearing Factor

from history

Copyright © 2014 by QSM, Inc.


14 ®

Gearing Factor

As long as we work in a single unit for history, calibration, and estimation, we do not need a Gearing Factor

If we want to compare or sum sizing in different units or to use industry databases, we have to normalize to a common unit

The Gearing Factor is the normalizing base

We can calculate the Gearing Factor from history



Executive

Summary

-15-

Top-Down Estimation Particularly

Effective Early in the Project Lifecycle

Estim

ation U

ncert

ain

ty

Concept Reqts Design Construction Dev Testing Qualification Testing

Functional Measures: Business Requirements

Function Points

Agile Epics/Stories

Use Cases

Component Measures:Modules

Screens/report/forms/ETLs

RICE Objects

Package Business Process Configurations

Story Points

7X 5X 3X .75X .25X .05X



Executive

Summary

-16-



Estim

ation U

ncert

ain

ty


Functional Measures: Business Requirements

Function Points

Agile Epics/Stories

Use Cases

Component Measures:Modules

Screens/report/forms/ETLs

RICE Objects

Package Business Process Configurations

Story Points

7X 5X 3X .75X .25X .05X



Executive

Summary

-17-



Estim

ation U

ncert

ain

ty


7X 5X 3X .75X .25X .05X

Historic sizing & performance data

is the key to reducing

uncertainty early in the lifecycle!



Executive

Summary

-18-

Estimates are Uncertain By Their

Nature

Estimates are always uncertain

The job of the estimation process is not to

remove the uncertainty, it is to measure it

SLIM-Estimate simply translates

uncertainty into risk

We accept and deal with uncertainty in

many aspects of our lives

“Forecasts of the future are

inherently uncertain.”Larry Putnam Sr.

Measures for Excellence

Yourdon Press 1992 p.207

“The key issue… is documenting

the estimate’s uncertainty…”Steve McConnell.

Software Estimation

Microsoft Press 2006 p.251

“Prediction is difficult, especially

if it involves the future.”Niels Bohr.

Physicist and

Nobel Laureate



Executive

Summary

-19-

Accuracy and Early Feasibility

Estimates

• Early estimates have more uncertainty.

Driven by what we know and what we don’t know.

– It’s good to know what you don’t know

• Good place to focus our attention to reduce uncertainty

• Some contend that without high accuracy estimates are of no use

and provide little value.

Estimates don’t need to be 10 decimal places accurate to identify cost

and schedule proposals that are patently unreasonable.

“It is better to be roughly right than precisely wrong.” - John Maynard

Keynes

• At this stage of the project lifecycle estimates should be judged on

their ability to help make better business decisions.

The Accurate Useful Estimate



Executive

Summary

-20-

Trapping High Risk Proposals

• Most projects start off as proposals that need to be prioritized and

justified.

Priorities are usually aligned with the organizations strategic goals.

Justification may be based on benefits to the organization.

– New revenue to be realized

– Savings or cost efficiencies

Many times the benefit is expressed in terms of ROI , IRR or payback

period.

• Most proposals have some high level description of capabilities that

relate to the size & scope to be developed and implemented.

• Most proposals have a target or desired schedule and cost.

• This is enough information to generate a useful feasibility estimate.



Executive

Summary

-21-

Typical Project Proposal

Initially these calculations are

based on what the business

would like to happen. We need

to re-evaluate them based on

the feasibility estimate of what

is likely to happen.



Executive

Summary

-22-

Identify High Risk Projects as They Enter

the Budgeting & Approval Process



Executive

Summary

-17-

Compare Proposed Expectations to

Historical Performance

Desired

Cost &

Schedule

Historical

data and

benchmark

trends

Impossible Zone

Impossible Zone



Executive

Summary

-17-

Compare Proposed Expectations to

Historical Performance

Desired

Cost &

Schedule

Even though

there is

variability in

the estimate it

is useful in

identifying

when desired

costs and

schedules are

not reasonable

for a given

amount of

scope

Impossible Zone

Impossible Zone



Executive

Summary

-25-

Evaluating Alternative Plans

To get alignment between what we would like and what is likely?

• There are a finite number of options to explore:

1. Reduce scope to meet schedule and cost goals

2. Increase staffing to meet schedule

– Decreases probability of meeting cost and lowers reliability

3. Negotiate for more schedule and budget

– Historic data can help backup your case

4. Increase productivity

– Usually not able to influence much in the short term

– Should be backed up by data

5. Combination of the above



Executive

Summary

Effective Resource Optimization

-26-



Executive

Summary

-27-

Effective Resource Optimization

• How do we make sure we are using our scarce resources

so as to optimize the amount of work that can get done?

• What facts can we bring to bear?

Scope of the work (size)

Historic staffing data (internal & industry)

• Trading-off cost & schedule

Recognize what we can influence though staffing/resources

Unanticipated benefits of effective trade-offs

– Lower cost

– Higher throughput

– Higher reliability



Executive

Summary

-28-

Using Benchmarking to Assess

Resource Utilization – Internal

TrendsInternal Baseline

Schedule Performance

1 10 100

Effective IU (thousands)

0.1

1

10

100

Duration (M

onths)

Effort Performance

1 10 100


0.01

0.1

1

10

100

1,000

Effort (P

HR

) (thousands)

Productivity Performance

1 10 100


0

5

10

15

20

25

30

35

Productivity (Index)

Staffing Performance

1 10 100


1

10

100

1,000

Peak S

taffing

Company Sample Projects Avg. Line Style 1 Sigma Line Style 2 Sigma Line Style 3 Sigma Line Style

With a modest amount of historic

data, we can understand key

performance trends and variability.



Executive

Summary

-29-

Using Benchmarking to Assess

Resource Utilization – External

ComparisonExternal Benchmark

Schedule Performance

1 10 100


0.1

1

10

100

C&

T D

uration (Months)

Effort Performance

1 10 100


0.01

0.1

1

10

100

1,000

C&

T E

ffort (PH

R) (thousands)

Productivity Performance

1 10 100


0

5

10

15

20

25

30

35

PI

Staffing Performance

1 10 100


0.1

1

10

100

1,000

C&

T P

eak Staff (P

eople)

Company Sample Projects QSM Business Avg. Line Style 1 Sigma Line Style 2 Sigma Line Style 3 Sigma Line Style

External comparison to industry

benchmarks can highlight

opportunities for improvements

and optimization.

Close to average

Close to average Higher than average

Higher than average



Executive

Summary

Opportunity to Optimize Staffing

LevelsStaffing Comparison

Peak Staffing

1 10 100


1

10

100

Pe

ak S

taff (P

eo

ple

)

Comparison of Company Sample Projects to QSM Business

C&T Peak Staff (People) vs. Effective IU

C&T Peak Staff (People) Values

Benchmark Reference Group:

QSM Business

Comparison Data Set:

Company Sample Projects

Difference From Benchmark

at Min

Effective IU:

1200

4.33

5.92

1.59

at 25% Quartile

Effective IU:

4920

6.62

12.22

5.60

at Median

Effective IU:

8840

7.90

16.51

8.61

at 75% Quartile

Effective IU:

11100

8.46

18.55

10.10

at Max

Effective IU:

33420

11.78

32.68

20.90

Comparison breakpoints based on min, max, median and quartile values for the data set: Company Sample Projects

Company Sample Projects QSM Business Avg. Line Style

How industry staffs

How this organization staffs

Opportunity to take

on more work



Executive

Summary

Opportunity to Lower CostEffort Comparison

Effort (PHR)

1 10 100


0.1

1

10

100

C&

T E

ffort (P

HR

) (tho

usa

nd

s)


C&T Effort (PHR) vs. Effective IU

C&T Effort (PHR) Values


QSM Business




at Min

Effective IU:

1200

599.37

2301.02

1701.65

at 25% Quartile

Effective IU:

4920

1591.89

5917.57

4325.68

at Median

Effective IU:

8840

2388.30

8760.07

6371.77

at 75% Quartile

Effective IU:

11100

2795.98

10202.24

7406.26

at Max

Effective IU:

33420

5996.75

21337.60

15340.85



Industry effort cost

This organization’s effort cost

Potential savings for

redeployment on additional

demand or if we outsource

to an external vendor this

represents potential savings

to the organization



Executive

Summary

-32-

For Almost No Schedule Penalty

Schedule Comparison

Schedule

1 10 100


1

10C

&T

Du

ratio

n (M

on

ths)


C&T Duration (Months) vs. Effective IU

C&T Duration (Months) Values


QSM Business




at Min

Effective IU:

1200

2.71

2.61

-0.10

at 25% Quartile

Effective IU:

4920

3.83

3.62

-0.21

at Median

Effective IU:

8840

4.42

4.15

-0.27

at 75% Quartile

Effective IU:

11100

4.68

4.38

-0.30

at Max

Effective IU:

33420

6.13

5.66

-0.47



Industry durations

This organization’s durations

Very little difference!



Executive

Summary

-33-

Resource Optimization Takeaways

• Use historical data to assess current resource utilization.

• Compare current resource utilization to outside industry benchmarks.

• Identify opportunities for optimization (don’t over staff!).

Make the time-effort tradeoff relationship work for us.

– You pay almost no schedule penalty.

– Cost goes down and reliability goes up.

For more information on this - http://www.qsm.com/research

Document the results and benefits of making better business decisions.

http://www.qsm.com/research



Executive

Summary

Translating Estimates into

Resource Demands

-34-



Executive

Summary

Common Practice vs Best Practice

Labor Hour Estimates

Most Common Industry Practice Today Best Practice Estimates Breakdown

Effort by Skill by Month

This approach doesn’t

help the organization

determine when these

resources are need as

the project progresses.

This approach identifies what skills are needed when and can

easily feed a PPM system where specific people can be allocated

to the project.



Executive

Summary

-36-

How Skills Flow on-off a Project

Release

• Need to understand for

any given development

methodology how the

skilled manpower builds up

and rolls off a project.

Agile

Waterfall

Package Implementation

Etc.

• Need to be able to

estimate the skill demands

and pass to PPM system.



Executive

Summary

37

Product Development Lifecycles & Skills

• All software development lifecycles include four primary activities

What, How, Do & Deploy/Fix

Some SDLCs are more sequential and others include more concurrency in

theses activities

• Types of labor needed changes as we transition across activities

Methodology What How Do Deploy/Fix

Waterfall Concept Rqmts. & Design

Construct & Test

Deploy

RUP Initiation Elaboration Construction Transition

Agile Initiation Iteration Planning

Iteration Development

Production

SAP ASAP Project Preparation

Business Blueprint

Realization & Final Prep

Go Live

Knowledge Acquisition Implementation Usage

Types of labor needed



Executive

Summary

-38-

Top Down Estimate Skills/Role

Configuration

• You specify the

skills/roles defined in

your organization and

the rates charged for

those labor categories.

• Then you allocate the

skills across the lifecycle

appropriate to your

organization and

development

methodology(s).

These allocations can be determined by mining data from corporate

PPM/resource planning tools.

Import from PPM



Executive

Summary

-39-

The QSM PPM Integration Framework Works with

Any Enterprise PPM/Resource Planning Solution

QSM Webinar: From Proposal to Project:

Getting Resource Demand Early

http://www.qsm.com/qsm/content-access?node=773&title=From Proposal to Project: Getting Resource Demand Early



Executive

Summary

-40-

The QSM PPM Integration Framework Works with

Any Enterprise PPM/Resource Planning Solution



Executive

Summary

Determining Aggregate Demand

and Matching Demand to Capacity

-41-



Executive

Summary

Schedule Staffing Effort & Cost

Monthly Avg Staff (L0)< Ireland, India & US >

3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

50

100

150

200

250

300

350

people


3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

25

50

75

100

125

150

175

people


3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

20

40

60

80

people

Staffing - Demand verses Capacity

IT Demand

Staffing plans

for individual

projects across

3 development

centers (35

projects

approved and

in the pipeline)

Demand at

3 Dev

centers

• India

• US

• Ireland

Aggregate

IT

resources

required =

305 FTE

staff

Capacity Limit

250 People

When the demand exceeds capacity

1. Eliminate projects

2. Slip start dates

3. Selective headcount reductions

Demand exceeds

Capacity for 9 months



Executive

Summary

-43-

Adjust Start Dates on the Future

Projects in Order to Match Demand to

CapacityStaffing & Schedule

Monthly Gantt Chart (L3)< Start dates adjusted to not exceed 250 Max capacity >

3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

IRELAND DEVELOPMENT...

Ireland Project 001

Ireland Project 002

Ireland Project 003

Ireland Project 004

Ireland Project 005

Ireland Project 006

Ireland Project 007

Ireland Project 008

Ireland Project 009

Ireland Project 010

Ireland Project 011

Ireland Project 012

Ireland Project 013

Ireland Project 014

Ireland Project 015

INDIA DEVELOPMENT CEN...

India DC Project 001

India DC Project 002

Monthly Avg Staff (L2)< Start dates adjusted to not exceed 250 Max capacity >

3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

20

40

60

80

people

Projects start dates are moved out in time in

order to drop the total aggregate staffing

under 250 which is the maximum capacity.



Executive

Summary

-44-

Delaying Start Dates on 8 Projects

Matches the Demand to the Capacity

Schedule Staffing Effort & Cost


3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

50

100

150

200

250

300

people


3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

20

40

60

80

100

120

140

people


3 6 9 12 15 18 21 24 27

Oct

'13

Jan

'14

Apr Jul Oct Jan

'15

Apr Jul Oct Jan

'16

0

20

40

60

80

people

8 projects needed

to be delayed to

make demand

match capacity.

The start date

delays averaged 5

months but

ranged from 2 to 8

months in

duration.



Executive

Summary

What Is the Demand for Skills

Across the portfolio?

-45-



Executive

Summary

-46-

What Are the Skill Requirements

across the Portfolio?

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Oct

2013

Nov 2

013

Dec 2

013

Jan 2

014

Feb 2

014

Mar

2014

Apr

2014

May 2

014

Jun 2

014

Jul 2014

Aug 2

014

Sep 2

014

Oct

2014

Nov 2

014

Dec 2

014

Jan 2

015

Feb 2

015

Mar

2015

Apr

2015

May 2

015

Jun 2

015

Jul 2015

Aug 2

015

Sep 2

015

Oct

2015

Nov 2

015

Dec 2

015

Jan 2

016

Feb 2

016

Mar

2016

Architect

Database Administrator

Quality Assurance

Development

Data Architect

Business Analyst

Project Manager/Lead



Executive

Summary

-47-

Summary

• Capacity Planning and Demand

Management go hand in hand. It requires:

Sound estimation capability early in the

lifecycle

Effective stakeholder negotiations of

time/effort/capability

Ability to forecast effort by skill level by

month and feed a PPM system

Ability to perform what-if analysis on the

portfolio quickly when IT Demand exceed

Capacity

it demand management and capacity planning: why estimation is vital to balancing the scale

Software

matching demand capacity

development capacity

estimationthe intelligence

resource plansaggregate

realistic demand solutions

business decision

business practices

defined level of scope