Software Cost Estimation

So many projects fail! Often, because of an optimistic estimate based on human judgment!

For as long as applications have been developed, people have complained: too expensive, too late, too little functionality, and/or too low quality! All kinds of reasons are cited for this: mediocre requirements, many changes, lack of good staff, etc. A reason you rarely hear: that the estimates are unprofessional and unrealistic. The latter does not have to occur.

Project managers know how important a realistic estimate is; it forms the basis for the business case, required team size, lead time, progress reports, etc. Steve McConnell says about estimation in his book "Software estimation, demystifying the black art!" that software development projects are often estimated using human judgment methods, resulting in overly optimistic estimates. If (too) little budget becomes available, there may be too short a lead time and too small a team. That can lead to more stress, which can lead to more defects and rework. A solution may then be to add extra people to the team. This usually does not lead to more speed in the project, but it does lead to higher costs. In other words, an optimistic budget can easily lead to large overruns (exponentially higher costs).

If, on the other hand, a project is budgeted pessimistically, Parkinson's Law applies. That law says that 'if a lot of money is made available, the extra budget will also be used.' The project could have been cheaper/faster, but at least it doesn't go over budget. This can bring political benefits. This is an important theory. The picture above shows this effect.

In the 'agile world,' the problem seems to have been solved. Budgets are predictable, based on the number of team members and their hourly rates. Multiply by the number of effort hours available, and the costs are known. But what is it that will be finished when the budget is gone? The complete expected product? 80% of the expected project? 50%?....

In reality, organizations still need to estimate to understand which functionality will be ready at which point in time. As teams usually can't estimate further than the next sprint or two, formal software cost estimation is still an important activity to align the expectations of the business, the budgets available, and the capabilities of the teams in a way that progress can be measured and monitored over time, and eventual corrective actions can be made as early as possible.

AgileBenchmark proudly holds the ICEAA Software Cost Estimation Certification, signifying its rigorous adherence to the Software Cost Estimation Body of Knowledge (CEBOK-S) standards established by the International Cost Estimating and Analysis Association (ICEAA), ensuring practitioners and tools meet validated benchmarks for accuracy, reliability, and ethical application in software project estimation.

This certification empowers AgileBenchmark to deliver precise estimates by first measuring functional size through ISO-standardized methods like Nesma or IFPUG Function Point Analysis (FPA) or COSMIC Function Points, which quantify the core functionality—such as user inputs, outputs, inquiries, and data entities—independent of implementation details, providing an objective yardstick that avoids the pitfalls of subjective proxies like lines of code.

Leveraging this functional size as a foundational input, the platform integrates relevant historical data from vast, anonymized repositories of completed projects, calibrated to factors like team expertise, technology stack, and domain complexity, to fuel proven parametric models such as COCOMO II or SLIM, which employ regression-based algorithms to correlate size metrics with effort, schedule, and cost outcomes, yielding predictions with error rates often below 10% when tuned to organizational contexts.

By blending these evidence-based techniques, AgileBenchmark not only mitigates common estimation overruns—historically averaging 30% in uncalibrated approaches—but also equips agile teams with actionable insights for resource allocation, risk mitigation, and sprint planning, transforming estimation from guesswork into a strategic advantage.

Benefits: accurate and substantiated cost estimates!

• ICEAA SCEC Certified: Meets globally recognized standards for software cost estimation accuracy and reliability.

• Accurate Functional Size Measurement: Uses ISO-standardized IFPUG or COSMIC Function Points to objectively quantify software functionality.

• Proven Parametric Models: Employs validated models like COCOMO II and SLIM for data-driven effort, cost, and schedule predictions.

• Historical Data Integration: Leverages anonymized, industry-calibrated project data to refine estimates for specific contexts.

• Reduced Estimation Error: Achieves prediction accuracy often below 20% when properly calibrated.

• Technology & Domain Adjusted: Tailors estimates to team expertise, tech stack, and project complexity.

• Mitigates Budget Overruns: Counters the industry average of 30% overruns with evidence-based forecasting.

• Supports Agile Planning: Provides reliable inputs for sprint planning, resource allocation, and risk management.

• Transforms Guesswork into Strategy: Turns estimation into a repeatable, defensible process for better decision-making.

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