Do I budget, estimate or plan the number of crawfish I am going to eat?

Do I budget, estimate or plan the number of crawfish I am going to eat?

Software project estimation is a conflation of three related but different concepts. The three concepts are budgeting, estimation and planning.  These are typical in a normal commercial organization, however these concepts might be called different things depending your business model.  For example, organizations that sell software services typically develop sales bids instead of budgets.  The budget to estimate to plan evolution really follows the path a project team takes as they lean about the project.

Budgeting is the first step.  You usually build a budget at the point that you know the least amount about the project. Looking back on my corporate career, I can’t tell how many late nights were spent in November conceptualizing projects with my clients so that we could build a budget for the following year.  The figures we came up with were (at best) based on an analogy to a similar project.  Even more intriguing was that accounting expects you to submit a single number for each project (if you threw in decimal points they were more apt to believe the number).  Budget figures are generated when we know the least, which means we are at the widest point of the cone of uncertainty.  A term that is sometimes used instead of a budget is rough order of magnitude.

The second stop on the estimation journey generally occurs as the project is considered or staged in the overall project portfolio.  An estimate generally provides a more finite approximation of cost, effort and duration based on deeper knowledge. There is a wide range of techniques for generating an estimate, ranging from analogies to parametric estimation (a process based on quantitative inputs, expected behaviors and past performance).  The method you use depends on the organization’s culture and the amount of available information.  Mature estimation organizations almost always express an estimate either as a range or as a probability.  Estimates can be generated iteratively as you gather new information and experience.

The final stop in the decomposition of the from the budget to the estimate is the plan. A plan is the work breakdown structure for the project (generally with task estimates and resources assigned) or a task list. In order to create a plan you must have a fairly precise understanding what you are building and how you are going to build it.  Good planning can only occur when a team is in thinnest part of the cone of uncertainty. Or, in other words, where you have significant knowledge and information about what you are planning.  Immature organizations often build a plan for a project, sum the effort and the cost and then call the total an estimate (this is called bottom-up estimating) which mean they must pretend to know more than the really can. More mature organizations plan iteratively up to a short-term planning horizon (in Agile that would be the duration of a sprint) and then estimate (top-down) for periods outside the short term planning window.

Short Descriptions:

  • Budgeting: Defines how much we have to spend and influences scope.   A budget is generally a single number that ignores the cone of uncertainty.
  • Estimating: Defines an approximation of one or more of the basic attributes that define the size of the project. The attributes include of cost, effort, duration. An estimate is generally given as a range based on where the project is the cone of uncertainty.
  • Planning: Builds the task list or the work breakdown so that resources can be planned and organized. Planning occurs at the narrowest part of the cone of uncertainty.

Estimating means many things to many people.  In order to understand the process and why some form of estimation will always be required in any organization, we need unpack the term and consider each of the component parts.  Each step along the continuum from budgeting to planning provides different information and requires different levels of information ranging from the classic back of the napkin concept (budget) to a task list generated in a sprint planning session (plan).  Having one does not replace the need for the other.

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