Enhancing I&IT Project Cost Estimation in the OPS

Status Report and Discussion Items November 5, 2007I&IT Controllership BranchOffice of the Corporate Chief StrategistMinistry of Government and Consumer Services

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Purpose Building the case for developing Cost Estimation (CE) capacity

within the I&IT organization. This presentation:

A) Focuses on ways that OPS capacity in Cost Estimation (CE) can be enhanced through building Best Practices, Knowledge and Awareness

B) Raises discussion regarding implications of Cost Estimation upon the I&IT project approval process

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Case for Cost Estimation Prevention of project cost overruns

Task Force identified that 40% of OPS I&IT projects have experienced serious budget over-runs

Major I&IT Projects Report (MPR) shows that 60% of projects have had to be re-baselined due to a variety of issues, in particular, poor project cost estimation at the time of the original approval

Enhancing OPS I&IT community’s cost estimating capacity Supports Task Force recommendation on better up-front

project planning (Recommendation #10) Helps the organization to “develop applications on-time and on-

budget” (2008-13 I&IT Strategic Plan)

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Building Cost Estimation Best Practices Knowledge and Awareness Draft CE Handbook completed: “How to Develop Cost Estimates

for I&IT Projects” Consultations with clusters and stakeholders in progress Recognizes CE approaches and maps them to each Gate of the

Gateway Review process Guidelines for PMs and PMOs; education vehicle for Ministry Fiscal

Branches and Controllers Provides standard terms and best practices Standardizes outputs for various approaches to CE

CE Training and Capacity Building Developing introductory course on cost estimation, to be posted

through the I&IT Project Centre (ITPC) Reviewing more advanced cost estimation training courses available

in the marketplace, to be posted through the ITPC CE Community of Practice and Collaboration (Plone) Site

Online sharing of tools, training, resources, tips and suggestions now live through the Community Services Cluster (CSC) PMO

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How Methodologies and Tools Support Cost Estimates at Various Project Phases

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Approval Definition Planning Implementation Close outFeasibility

Excel Tools to capture CE results and distribute costs across standard accounts

Parametric Software (App Dev focus)

Parametric cost estimates can feed into the Excel Tool

Analogous Estimating

Bottom up estimatingCost Estimation Approaches

Project Financial Accounting

How Methodologies and Tools Support Cost Estimates at Various Project Phases Parametric Software:

generates a cost estimate based on project characteristics, deliverable size, project team attributes, and other factors known to influence costs. This approach uses software and data sets.

Parameters include project size as measured by function points, lines of code etc…

Analogous Software: compares the proposed project to similar completed projects (within an

organization). Actual cost information is used as a reference for the proposed project (either by component or at the system level)

Bottom Up Software: uses detailed information regarding personnel, goods and services to

estimate costs; assumes a detailed work breakdown structure (WBS) and prior estimate information already exists.

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Managing the Cone of Uncertainty Project cost estimates become more and more refined with every phase because greater deliverable definition brings enhanced certainty – cost estimation methodologies and tools can help manage the cone of uncertainty

Gate 2 Gate 3

Underestimate

Reasonable Estimate

Overestimate

Source: Construx Software Development Best Practices© , 2007

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For Discussion Through consideration of ways to build cost estimation capacity,

several questions have arisen:

Should the I&IT Business Case Project Scorecard (Gate 1) be revised to include greater cost estimation rigor?

Given that cost estimates are highly uncertain at Gate 1, should I&IT Project Approval process be revisited?

Given that cost estimates are highly uncertain in early project phases, should a cost range be used in Minuting?

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Increasing Incentives around use of Cost Estimation Best Practices

Under this scenario, a high score for Business Case could be obtained if the ministry:

Follows an acceptable cost estimation approach per CE Handbook

Documents the assumptions used to generate the cost estimate

Identifies range of accuracy (confidence interval)

Identifies the plan for subsequent estimates

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Question: Should the I&IT Business Case Project Scorecard (Gate 1) be revised to allow greater cost estimation rigor?

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Implications upon I&IT Project Approvals

Question: Given that cost estimates are highly uncertain at Gate 1, should I&IT Project Approval process be revisited?

Three options for revised project approval process:Option #1: Two-Stage I&IT Project Approval

Planning funding approved at Gate 1. Remaining funds placed on holdback until a second submission (MB20) is approved at Gate 3.

Similar to current Federal process (“preliminary” and “final” approvals).Option #2: I&IT Project Approval at Later Gate

Shift approval step to Gate 3 so that the Integrated Project Plan can be used to further refine the cost estimate (assumes spending of <$1M when approval is sought).

Option #3 Project Approval and Report-Back to ITPAC Provide approval at Gate 1 for the high-end of sound cost estimation

range. At Gate 3 report back to I&IT Controllership Branch with refined cost

estimates. I&IT Controllership Branch to direct Ministry to seek re-approval from

ITPAC and/or TB/MBC if project costs deviate significantly from original estimate.

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Implications upon I&IT Project Approvals (continued)

Question: Given that cost estimates are highly uncertain in early project phases, should a cost range be used in Minuting?

Two options for revised project approval process:

“Approve Project X at an estimated cost of $15-20 million” OR

“Approve Project X at an estimated cost of up to $20 million” (and identify range in Financial Section of briefing note).

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Appendix

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Appendix 1 – Excel-based Bottom-up Budgetary Costing Tool Screenshots GSDC costing tool HSC costing tool JTS costing tool

Appendix 2 – Parametric Cost Estimation Software Knowledge Plan Parametric Software Screenshots

Appendix 1: Providing Tools to Support Cost Estimation – Bottom up tools Excel-based bottom-up budgetary costing estimation tool

Bottom-up budgetary costing tools have been developed by many Clusters Screenshots of the HSC, GSDC and JTS tools are provided in the

Appendix Should ideally be used during the Planning and Implementation

Phase of a project, as actual costs become known However, could be very helpful to clusters for Approval phase –

ensures all costs are included and uses Standard Account format Downside is that such tools do not contribute to the quality of the

numbers used Feedback to date from clusters:

Easy to use – can be deployed to project managers and PMOs Can receive parametric cost estimation software data Aligned to Gateway Review and OPS funding and allocation cycle

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GSDC’s Bottom-up Budgetary Cost Estimation Tool

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HSC’s Bottom-up Budgetary Cost Estimation Tool

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JTS’s Bottom-up Budgetary Cost Estimation Tool

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Appendix 2: Providing Tools to Support Cost Estimation - Parametric tools I&IT Controllership has provided LRC, JTS, CSC, HSC and GSDC

with parametric cost estimation software – Cost Xpert, from the Cost Xpert Group – to sample

CSC PMO has coordinated and provided training on parametric cost estimation tools including Cost Xpert and Knowledge Plan (screenshots of the latter are included in the Appendix). Feedback to date from clusters:

Powerful tool – generates excellent work breakdown structure (WBS), comprehensive environmental assessment

Thorough input to project planning and project control Enables better defense of estimates with business area –

business partners can clearly view effects of reduced budget or time

Opportunity: interested clusters can purchase and house CE software at a PMO level as an advisory service to PMs

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KnowledgePLAN

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