Expert Judgement
What is it?
Experienced professionals estimate costs based on their knowledge and experience with similar projects. This method can be quick but varies widely in accuracy based on the expert’s experience and the similarity of the new project to past projects.
When to use it?
Small to medium projects or when quick, initial estimates are needed.
Example:
A startup developing a new mobile app might use expert judgment to quickly estimate costs based on the experience of the development team, particularly if the team has built similar apps before.
Analogous estimation
What is it?
Use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. It’s relatively simple and quick but depends heavily on the availability of detailed and relevant historical data.
When to use it?
Projects where similar past projects exist and project requirements are roughly similar.
Example:
A web development company creating a standard e-commerce site for a retail business might use costs from previous similar projects as a basis for the new project estimate.
Parametric Estimation
What is it?
Use statistical relationships between historical data and other variables (e.g., number of lines of code or function points) to calculate an estimate for the project. It can be highly accurate if the underlying model is robust and well-calibrated.
When to use it?
Larger projects with measurable statistics from past projects.
Example:
A software development firm could use parametric models to estimate the cost of a large-scale integrated software solution based on the number of user requirements or function points.
Bottom up estimation
What is it?
Estimate the cost of individual components or tasks and summing them to get a total project cost. It is often very accurate, particularly when project details are well understood, but it can be time-consuming
When to use it?
Large, complex projects where detailed analysis of components is possible and necessary.
Example:
An enterprise software implementation, where each module (like HR, Sales, Operations) is estimated separately and then combined for the total project cost.
Delphi technique
What is it?
A structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts. The experts answer questionnaires in two or more rounds, and after each round, a facilitator provides an anonymous summary of the experts’ forecasts and reasons. This helps the experts to refine their thinking, narrowing the range of the answers to achieve a consensus over time.
When to use it?
Projects requiring consensus among a group of experts, especially when the project involves innovative or unusual elements.
Example:
An aerospace company estimating the costs for a new type of aircraft technology might use the Delphi technique to gather and refine expert opinions from different fields.
Feature driven development (FDD) cost estimation
What is it?
This agile-specific method estimates the cost based on the features that need to be developed. Each feature is estimated individually, and then these estimates are combined to provide a project total.
When to use it?
Agile projects that are driven by feature completion.
Example:
A software development team working in an agile environment might estimate the cost of the project based on the list of features that need to be developed in each sprint.
Three point estimation
What is it?
Based on three figures provided for each estimate: the most optimistic, the most likely, and the most pessimistic. The final estimate is typically calculated using the Expected value, a weighted average of these three values. This method can give a more realistic picture of potential costs, considering uncertainty and risk.
When to use it?
Projects with a significant degree of uncertainty and risk.
Example:
Developing an innovative new software product that uses emerging technologies might benefit from three-point estimating to accommodate the optimistic, pessimistic, and most likely cost scenarios.
Constructive cost model (COCOMO)
What is it?
COCOMO predicts the effort (and hence the cost and duration) required to develop a software project by using a formula that takes into account the size of the project and a set of “cost drivers” or factors that reflect the software environment’s complexity and the team’s experience level. The basic form of the COCOMO model estimates the effort as a function of program size and a set of cost drivers that include subjective assessments of product, hardware, personnel, and project attributes.
When to use it?
Large-scale software projects where historical data and detailed project specifications are available.
Example:
A government contractor estimating the cost of a new public sector software system across multiple departments using a detailed specification list and historical data