Effort estimation in software development is a critical skill for tech leads, especially when managing large-scale projects. This capability forms the backbone of strategic project planning and execution. There are different situations where you might be asked to estimate the effort for a certain feature or the development of a complete new product. In any case you need a simple and quick way to professionally come up with a good effort estimation. In this article you will learn a simple and quick way.

Moreover we provide a free Excel template to easily implement the process.

1. Assemble the Estimation Team

We start by defining a small, focused group of individuals for the estimation task. Ideally, this team comprises 2-4 members. Keeping the team size within this range ensures that the estimation process is manageable and efficient. A larger group could lead to unnecessary complexity and make it harder to reach a consensus.

2. Break Down the Implementation into Work Items

The next step involves jointly breaking down the required implementation into high-level packages. This collaborative process allows us to dissect the project scope and understand the intricacies involved. Depending on the project’s size and the time available, we aim to identify between 10 and 50 packages. This granularity helps in making the estimation process more manageable and accurate.

3. Individual Effort Estimation Using Fibonacci Numbers

Once we have identified the packages, each team member conducts an independent estimation of the effort required for each package. We use Fibonacci numbers for these estimations, providing a range that reflects the complexity and uncertainty inherent in software development tasks. Using the sequence discourages artificially precise estimates for complex tasks. It nudges estimators away from giving overly precise time frames (like 7 or 9 days), which can be misleading due to the inherent unpredictability of software development.

Why Fibonacci numbers are used for effort estimation

Increasing Uncertainty with Scale: As tasks become larger and more complex, the uncertainty associated with estimating the required effort increases. The Fibonacci sequence captures this by progressively increasing intervals between numbers, which mirrors the growing uncertainty in larger tasks. For this reason Fibonacci numbers are also used in Agile frameworks such as SCRUM.

Fibonacci sequence: 0, 1, 2, 3, 5, 8, 13, 21, 34, 55, […]

Each estimator provides a “good case” and a “bad case” scenario. Incorporating both “good case” (optimistic) and “bad case” (pessimistic) scenarios in the estimation process encourages team members to consider a broader range of outcomes. This dual estimation approach is crucial for several reasons:

• Risk Identification: By thinking through what could go wrong (the bad case), team members are prompted to identify potential risks and challenges that might not be evident at first glance. This proactive identification of risks allows for more robust planning and risk mitigation strategies.
• Contingency Planning: Understanding the best and worst-case scenarios helps in developing contingency plans. If a task runs into unexpected issues, having a predefined range of effort estimations allows teams to adjust plans and timelines more effectively.
• Realistic Expectations: Balancing optimism and pessimism in estimations sets more realistic expectations for stakeholders. It acknowledges the potential for unforeseen challenges, leading to better-informed decision-making and stakeholder communication.

4. Collaborative Discussion and Consensus

After individual estimations are complete, the team reconvenes to discuss the numbers. This step is crucial for reconciling different viewpoints and reaching a consensus on the effort required for each package. The discussion allows team members to share insights and considerations that influenced their estimations, ensuring that the final number is well-rounded and accounts for various perspectives.

Here’s how this discussion facilitates these crucial aspects:

Enhancing Task Understanding

• Clarification of Scope and Requirements: Discussion allows team members to clarify the scope and specific requirements of each task or package. This is the time when ambiguities are resolved, and assumptions are made explicit, ensuring that all team members have a consistent understanding of what each task entails.
• Sharing of Perspectives: Each team member might have a unique perspective or insight based on their expertise and experience. Discussing estimates provides a platform for these insights to be shared, enriching the team’s collective understanding of the task.
• Identification of Overlooked Factors: Through the exchange of ideas and reasoning behind individual estimates, team members can identify aspects of the task that may have been overlooked or underestimated by others. This helps in ensuring that the final estimation accounts for all facets of the work involved.

Reaching Consensus

• Bridging Differing Views: It’s common for initial individual estimates to vary, sometimes significantly. The discussion phase helps in bridging these differences, as team members explain the rationale behind their estimates. Understanding the reasoning behind different numbers can lead to adjustments in individual perceptions and, ultimately, a consensus.
• Negotiation and Compromise: The process often involves negotiation and compromise, with team members weighing the evidence and arguments presented. This negotiation is constructive, aiming to arrive at an estimate that everyone can agree is realistic and achievable.
• Commitment to the Final Estimate: By involving all estimators in the discussion and decision-making process, the team builds a collective commitment to the final agreed-upon numbers. This shared commitment is crucial for the subsequent phases of the project, as it ensures that all team members are aligned and motivated to meet the established goals.

In essence, the discussion phase is not just about agreeing on a number; it’s about building a shared understanding of the project’s tasks, aligning on expectations, and fostering a collective commitment to the project’s success. The same principles are applied in Planning Poker, which is often used for story point estimations in SCRUM. This collaborative approach to effort estimation is fundamental in managing complex software development projects effectively.

5. Weighted Estimation Based on Experience

The final step in our effort estimation process involves applying a weighted approach to the optimistic (good case) and pessimistic (bad case) scenarios developed in the earlier steps. This step is crucial for refining our initial estimates into a more accurate and realistic figure that can guide project planning and execution. Let’s delve deeper into how this weighting process works and why it tends to favor the pessimistic scenario.

The Need for Weighting

Software development projects are notoriously difficult to estimate with precision due to the numerous uncertainties and variables involved. These can range from unforeseen technical challenges to changes in project requirements or external dependencies. Experience shows that initial estimates, even when carefully considered, tend to be optimistic. To counteract this natural optimism bias and build in a buffer for the unknown, we apply a weighting mechanism.

Underestimation Tendency: Historical data and industry studies suggest that project efforts are more often underestimated than overestimated. This trend is due to various factors, including unforeseen complexities, overreliance on best-case scenarios, and the inherent optimism of development teams about their capabilities and the smoothness of project execution.

Commercial Implications

When effort estimations are used as the basis for commercial offers, the weighting towards the pessimistic scenario takes on additional significance.

• Risk Weighting in Pricing: In commercial contexts, the final estimate, influenced by a bias towards pessimistic outcomes, can be used to calculate a more risk-adjusted price. This pricing strategy helps in covering potential overruns and ensures that the project remains financially viable even when faced with unforeseen challenges.
• Client Expectations: This approach also aligns client expectations with a more realistic project delivery timeline and budget. It fosters trust through transparency, as clients appreciate the foresight in accounting for potential risks and the establishment of realistic buffers.

Implementing Weighted Estimates

The weighting applied between good and bad cases should be informed by historical project data, the team’s experience with similar projects, and the specific risk factors identified during the estimation process. It’s not a one-size-fits-all approach but should be tailored to each project’s unique context.

• Analyzing Past Estimations: Reviewing the accuracy of past estimations can provide valuable insights into how much weight to give to pessimistic scenarios. If a pattern of underestimation is identified, this can justify a stronger bias towards the pessimistic end.
• Project Complexity and Novelty: The degree of uncertainty associated with the project also influences weighting. Projects involving new technologies or complex integrations might warrant a higher risk weight compared to more straightforward projects.

Without any experience a tendency towards the bad case is highly recommended.

Conclusion

This structured approach to effort estimation allows us to tackle the complexities of large-scale software development projects with confidence. By combining the strengths of team collaboration with a systematic methodology, we can make informed estimations that guide project planning, resource allocation, and risk management effectively. This process not only enhances the accuracy of our estimations but also fosters a shared understanding and commitment to the project goals among all team members.

Free Effort Estimation Excel Template

To bridge this gap between theory and practice, we have developed a comprehensive free Excel template specifically designed to facilitate the effort estimation process. This tool has been refined through extensive application in professional settings. It has been utilized in hundreds of professional software project estimations, across diverse industries and project scopes.

The Software Development Effort Estimation Template is a Google Sheets Document. You can easily copy it into your own Google Drive, or download it as Excel file.

Features of the Excel Template

Our Excel template is designed with functionality in mind, enabling tech leads and project managers to implement the five-step estimation process with ease and accuracy. Here’s how the template stands out:

• Work Package Breakdown: Enables breaking down projects into manageable packages for detailed estimation.
• Fibonacci Number Integration: Supports using Fibonacci numbers for realistic effort estimations.
• Optimistic and Pessimistic Scenarios: Allows for the consideration of both best and bad case scenarios.
• Risk Assessment Tab: Includes a dedicated section for identifying and evaluating potential project risks.
• Estimation statistics: Shows all relevant statistics such as number of items for the estimation
• User-Friendly Design: Simple and accessible, requiring no special software beyond Excel.