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What are the Methodologies Used in Software Cost Estimation?

Cost estimation is one of the critical processes of project management. Without appropriate and precise cost estimation, it is impassable to allocate and utilize funds and resources adequately. It ensures that the team does not experience cost overruns throughout the project lifecycle. Hence, the software cost estimation process should be treated as a significant prerequisite of project management because it will determine the project’s financial health.

But what are the best software cost estimation techniques? Unfortunately, there is no one answer to this question. It would be best to choose the cost estimation technique meticulously, depending on the maturity of your project plan, because the purposes of various techniques are different.

To better comprehend which methodology will support your project the best, have a look at the following software cost estimation techniques:

1. Expert Judgment Approach

The expert judgment approach refers to consulting and coordinating with experienced cost estimators and specialists in software development projects. If you opt for this technique, you will rely on the expert’s knowledge of the project’s nature and business environment. Consequently, you gain meaningful and evidence-based assumptions and explanations of the patterns between cost variables.

Although computerized cost estimation has gained the trust of businesses due to its more accurate results, it is not always credible. Human insights are a mandatory requirement to eliminate estimation errors and make sense of the generated numbers. As a result, expert judgment comes into play to establish intricate correlations between various cost variables and project-related factors. It also builds credibility and verifies the computer-supported calculations.

2. Analogous Estimation Method

Analogous estimation methodology utilizes values such as scope, cost, budget and durations to approach accurate results. It also incorporates values such as previous projects’ sizes, weights and complexities. In simple words, the cost estimators can use similar software projects as a base for estimating the current software development cost.

The cost estimation process gains relevance and reliability when the previous projects are similar in black and white and not in appearance. Additionally, the estimates also access the expert knowledge of the previous project managers to arrive at an accurate estimate of the project.

3. Delphi Method

The Delphi method is a systematic and interactive cost forecasting method that depends on a panel of experts. A series of meetings take place in which the experts provide cost forecasts by filling out a questionnaire. The facilitator will analyze the forecasts and announce the result to others anonymously. 

Next, the facilitator will repeat this activity for two or more rounds to allow cost estimators to revamp their projections until a consensus is achieved on the final software development cost estimate. It is the ultimate goal of the Delphi method.

Moreover, the Delphi technique reduces the risk of bias involved in the expert judgment approach as multiple experts coordinate to generate the results. Also, this software cost estimate methodology makes use of statistical analysis, adding a glint of objectivity into the process. Hence, it brings a relatively high level of result accuracy to the table.

4. Top-down Estimation

Top-down project cost estimation begins with the identification of the project scope and budget. Afterwards, the cost estimators break down the predetermined budget into smaller components. The process acknowledges the importance of a software development project’s contents and attributes.

It is ideal for preliminary cost estimation conducted at the initial stages of a project lifecycle when the stakeholders and managers lack a detailed understanding of the attributes and processes of the project. Most importantly, this technique does not consider any nuances. Therefore, it is easy to implement.

5. Bottom-up Estimation

Compared to top-down estimation, the bottom-up estimation technique initiates the cost calculation process by identifying and evaluating smaller and individual project components. The estimators calculate the cost of each task and then add them up to determine the total project cost.

This technique is most beneficial if you are drafting a thorough and complete work breakdown structure.

6. Parametric Estimation

Parametric estimation is a software development cost estimation technique that provides objective and realistic results. The cost estimators calculate the total project cost by determining the number and cost of the project’s sub-components, also known as work units.

It consists of three key steps, briefed below:

  • Identifying relevant project work units.
  • Estimating the cost of each unit by adding up the price of tools etc.
  • Later, using the following equation to paint the overall picture of the project’s expense:

Number of work units x Cost of a single Unit

To define the cost of a single unit before administering the project, you may take into account the historical data from the previous projects or industrial cases.

Which Software Cost Estimate Methodology Matches Your Project’s Criteria?

You can use more than one software cost estimate technique, depending on the needs of your project. In addition to these techniques, the software development consultancy firm can also guide in achieving realistic cost estimates. Thus, make a move right now before your project drowns!

Eleena Wills
Hi, I’m Eleena Wills. Being a writer and blogger, I strive to provide informative and valuable articles to people. With quality, constructive, and well-researched articles, one can make informed choices. I cover a wide range of topics, from home improvement to hair styling and automotive.
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